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The ^ Fire  Insurance  Contract. 

ITS  HISTORY  AND  INTERPRETATION 


Compiled   and   Edited  by,  and   Published   under 
the  Auspices  of       Y.  Y. 

The  Insurance  Society  of  New  York     /  ^"^ 


PUBLISHED   BY 


THE  Rouith  Notes  co. 

1  CVrqi'THINO^RTHg    INSURANCE   MAM -> 


ASSOCIATED  WITH   THE   NATIONAL  UNDERWRITER  CO. 
CINCINNATI  CHICAGO  NEW    YORK 


Copyright,  1922 
The  Insurance  Society  of  New  York 


^<^ 


PREFACE 

"The  wisdom  of  any  generation,"  says  an  old  writer,  "is  the 
best  thoughts  of  its  learned  men." 

The  policy  contract  is  the  most  important  document  in  the  fire 
insurance  business  for  it  is  the  visible  and  tangible  evidence  of  the 
goods  sold;  the  bridge  between  company  and  customer;  the  charter 
of  their  respective  rights  and  privileges,  and  the  rock  of  safety  or 
of  wreck  in  their  mutual  relations.  The  simplest  and  clearest  lan- 
guage is  sometimes  susceptible  of  more  than  one  interpretation,  so 
it  is  not  strange  that  there  are  differences  of  opinion  regarding  por- 
tions of  the  standard  policy. 

The  lectures  here  printed  in  permanent  form  when  arranged 
by  The  Insurance  Society  of  New  York  were  intended  to  include  a 
clear  and  comprehensive  interpretation  of  the  debatable  features  of 
the  policy  contract,  such  as  "Cash  Value,"  "Cancellation,"  "Increase 
of  Hazard,"  "Liability,"  "What  is  a  Fire,"  etc.,  and  to  illumine  such 
questions  as  "Agents'  Authority,"  "Adjustments,"  "Coinsurance," 
"Trust  &  Commission  Clauses,"  "Use  &  Occupancy"  and  many 
others  indicated  in  the  table  of  contents.  The  course  was  notably 
successful,  creating  wide-spread  interest,  and  many  of  the  lectures 
found  their  way  into  all  parts  of  the  world  where  insurance  is  writ- 
ten. 

While  the  Society  assumes  no  responsibility  for  anything  con- 
tained therein,  the  character  and  standing  of  those  who  gave  so 
generously  of  their  time  and  thought  to  the  various  subjects  dealt 
with  and  the  thorough  and  convincing  manner  in  which  each  was 
treated  is  a  warranty  of  their  merit  and  foundation  for  the  belief 
that  here  will  be  found  "the  wisdom  of  this  generation"  within  the 
limits  of  the  matters  covered.  It  is  with  great  satisfaction  that  the 
Society  makes  them  available  in  convenient  form  for  the  benefit 
and  use  of  all  those  to  whom  these  subjects  are  of  interest. 

ALLEN  E.  CLOUGH,  Chairman. 
ROBERT  P.  BARBOUR, 
WILLIAM  N.  BAMENT, 

Publication  Cowwiffee. 


54.3970 


CONTENTS 


I  y^ 

The  Policy  of  Firs  Insurance:  Prior  to  the  Standard  Poucy 
Edward  Rochie  Hardy  Pages  1-19 

II  /^ 

Origin  op  the  Standard  Policy  ok  Fire  Insurance 

Elijah  R.  Kennedy  Pages  20-40 

III  ^ 

The  New  Standard  Fire  Insurance  Policy  of  the  State  of 

New  York 
David  Rumsey  Pages  41-71 

IV  «^^  *" 

Fundamentals  in  the  Law  of  Insurance  and  Why  Adopted 

George  Richards  Pages  72-83 

V  \^  ^  ^ 
Cash  Value 
L.  C.  Williams  Pages  84-95 

VI  ,  y^ 

Concealment,  Misrepresentation,  Fraud  or  False  Swearing 

Frank  Sowers  Pages  96-116 

VII  ^^  ^ 
Increase  in  Hazard 

Hartwell  Cabell  Pages  117-136 

VIII  ^-^ 

Ownership 
Edgar  J.  Nathan  Pages  137-151 

IX     ^  / 

Non-Liability  Matter 

William  B.  Ellison  Pages  152-169 

Cancellation  and  Substitution 

Martin  Conboy  Pages  170-198 

XI  i/ 

The  Interest  of  a  Mortgagee  under  a  Policy  of  I^'ire  Insurance 

W.  N.  Bament  Pages  199-227 

Tli 


XII  v/ 
The:  Interi-st  oi^  a  Mortgagee  under  a  Poucy  of  Fire  Insurance 

Leo  Levy  Pages  228-239 

XIII 

Abandonment,  Protection  and  Removal 

Frederick  B.  Campbell  Pages  240-249 

XIV  ^    *^ 

What  is  a  Fire  Loss? 

W.  N.  Bament  Pages  250-274 

XV 

The  True  Purpose  of  the  Loss  Setti^ement 

Allen  E.  Clough  Pages  275-289 

XVI 

The  Chief  Factor  in  Fire  Loss  Adjustment 

Willis  O.  Robb  Pages  290-305 

XVII 
The  Claim — The  Proofs  of  Loss — When  is  Loss  Payable? 

Robert  J.  Fox  Pages  306-332 

XVIII   " 

The  Appraisal 

Willis  O.  Robb  Pages  333-348 

XIX 

Adjustment  of  Building  Losses 

William  R.  Freeman  Pages  349-367 

XX 

Estimates  on  Building  Values  and  Building  Losses 

William  J.  Moore  Pages  368-379 

XXI 

'^  Ascertainment  of  Machinery  Values  and  Losses 

John  I-Iankin  Pages  380-414 

XXII  ^ 

Adjustment  of  Stock  Losses 

D.  C.  Brown  Pages  415-425 

XXIII 

Ascertainment  of  Value  and  Profit  from  Books  of  Account 
James  A.  McKenna  Pages  426-438 

viii 


XXIV 

Adjustment  of  Automobile:  Lossiiis 

E.  B.  Hopwood  Pages  439-443 

XXV 

Ai)justme:nt  or  Cotton  Lossks  and  CottoxX  Salvagi<:  Handlixc 

Joseph  J.  Windle  Pages  444-538 

XXVI 

^    Apportionment  of  Losses  under  Nox-Concurrknt  Policies 

W.  N.  Bament  Pages  539-553 

Apportionment  oe  Compound  Non-Concurrent  Insurance 

Allen  E.  Clough  Pages  554-566 

XXVII 

Former  and  Present-Day  Methods  of  Adjustment 

Samuel  R.  Weed  Pages  567-578 

XXVIII 

Psychology  of  Loss  Adjustments 

Geo.  R.  Branson  Pages  579-586 

XXIX 

Unusual  and  Interesting  Fire  Loss  Claims 

William  R.  Pitcher  Pages  587-601 

XXX 

The  Doctrine  of  Subrogation  in  its  Practical  Application  to 

InSURAxNCE 

George  Richards  Pages  602-616 

XXXI 

Subrogation 
W.  H.  Van  Benschoten  Pages  617-638 

XXXII  ^\/  •- 
The  Agent — Authority  of  Agents  and  Officers  of  Company 

Frederick  T.  Case  Pages  639-651 

XXXIII 

Waiver  and  Estoppel 

W.J.Nichols  Pages  652-682 

XXXIV 

Administrator:  Rights  of  Administrators  and  Executors  over 

Real  Property 
F.  O.  Affeld,  Jr.  Pa^es  683-696 

ix 


XXXV 
The:  Co-Insurance:  Clause 

W.  J.  Nichols  Pages  697-716 

XXXVI 
The  Commission  Clause 

William  J.  Greer  Pages  717-732 

XXXVII 

Use  and  Occupancy  Insurance 

John  A.  Eckert  Pages  733-743 

XXXVIII 

Use  and  Occupancy;  Profits  and  Commissions;  Rents  and 
Leasehold  Insurance 

Leo  Levy  Pages  744-755 

XXXIX 

Use  and  Occupancy 

L.  A.  Moore  Pages  756-793 

I    XL      *" 
(      Forms — From  the  Company's  Standpoint 

W.  N.  Bament  Pages  794-817 

APPENDIX 
Forms 
Blank  Forms  used  in  connection  with  loss  adjustments  at  San  Fran- 
cisco following  earthquake  and  fire  of  April  18-21,  1906: 
Black  Tom  Island  Casualty,  July  30,  1916;  Miscellaneous 
Forms — Appraisal  Agreements;  Non-Waiver  Agreement; 
Subrogation  Receipt;  General  Releases. 

Pages  818-826 

Index  to  Cases  Cited Pages  827-851 

TopiCAi.  Index   Pages  853-932 


CHAPTER  I.  ' 

THE  POLICY  OF  FIRE  INSURANCE  PRIOR  TO  THE 
STANDARD  POLICY. 

Edward  Rochie:  Hardy 

The  advance  of  civilization,  of  institutions  and  business  devel- 
opments are  finally  crystallized  in  law.  In  fire  insurance  this  crystal- 
lization is  found  in  the  policy  of  fire  insurance — or  to  put  it  in  other 
words,  the  policy  of  fire  insurance  is  the  expression  in  law  of  the 
development  of  the  practice  of  fire  insurance.  The  articles  in  this 
volume  which  follow  this  one  all  treat  of  the  standard  policy,  and  as 
a  preface  thereto  the  editors  deemed  it  well  to  include  a  brief  sketch 
of  the  policy  of  fire  insurance  from  the  beginning  of  the  practice  to 
the  time  of  the  adoption  of  the  standard  form.  It  is  better  to  do 
this  so  far  as  possible  by  liberal  extracts  from  the  original  docu- 
ments, because  the  reader  will  thus  acquire  a  human  touch  with  the 
subject  not  possible  in  any  other  way. 

The  year  1667  marks  the  dividing  line  between  prior  methods 
of  compensating  a  sufferer  from  loss  by  fire  and  the  beginning  of 
the  method  practically  in  force  today.  In  the  year  1666  occurred 
what  is  knov/n  as  the  Great  Fire  of  London,  and  it  was  in  London 
in  the  succeeding  year,  1667,  that  insurance  offices  began  to  be  estab- 
lished. The  offices  beginning  with  this  latter  year  are  distinguished 
by  the  fact  that  they  were  placed  o  i  a  commercial  basis  precisely  as 
the  greater  part  of  the  business  is  conducted  today.  By  '^commer- 
cial"  we  mean  that  on  the  payment  of  certain  sums  policies  were  is- 
sued and  the  persons  who  issued  the  policies  assumed  the  liability 
of  payment  far  the  losses  in  case  losses  occurred.  In  other  words, 
they  took  the  risk  which  the  modern  underwriter  takes  in  the  busi- 
ness of  fire  insurance.  Prior  to  the  year  1667  if  the  business  was 
conducted  on  such  a  basis  there  is  no  evidence  to  that  eflfect.  We 
must  look,  therefor<e,  at  this  period  for  the  earliest  fqrms  of  the 
policies  of  fire  insui  ance  and  other  documents  which  have  a  bearing 
thereon.  It  so  happens  that  one  of  the  earliest  authentic  documents 
is  a  broadside  issued  from  the  office  of  Barbon,  whose  office  was 
established  in  1667.  A  copy  of  this  broadside  is  in  the  possession 
of  the  Insurance  Library  Association  of  Boston  and  is  reproduced 
and  treated  at  length  in  their  "Bulletin"  for  October,  1915.  This 
broadside  is  an  argument  for  insurance  and  is  devoted  particularly 

1 


The  Fire  Insurance  Contract 

to  the  safety  of  the  office  and  its  ability  to  meet  the  losses  from 
fire  which  jnight  occur.  But  it  does  not  contain  the  policy  itself 
nor  the  conditions  of  insurance.  It  is  a  document  devoted  to  what 
we  in  these  days  are  calling  propaganda.  This  same  Library  is  in- 
possession  of  a  policy  issued  by  Barbon's  office  in  1684. 

There  were  other  projects  in  addition  to  Barbon's,  namely,  the 
City  of  London  itself,  mutual  attempts  and  even  other  offices,  and 
copies  of  their  policies  even  earlier  than  the  Barbon  policy  are  in 
existence.  These  have  been  reproduced  by  various  writers  on  the 
early  days  of  insurance.  We  have  not  deemed  it  well  to  reproduce 
these  earliest  documents  because  those  interested  can  secure  copies 
of  them  for  examination,  and  we  wish  to  reproduce  in  this  article 
matter  which  as  far  as  possible  has  not  before  been  used,  and  be- 
cause of  its  more  typically  illustrating  the  policy  conditions.  From 
a  private  collection  and  also  the  collection  in  the  Library  of  the 
Insurance  Society  of  New  York  the  material  is  being  drawn.  These 
collections  are  fairly  extensive. 

First  of  all  a  word  as  to  the  physical  appearance  of  the  policy. 
All  today  probably  are  iamiliar  with  the  appearance  of  the  standard 
policy  which  preceded  the  adoption  of  the  one  which  is  made  to  fit 
into  the  typewriter.  It  was  commonly  known  as  a  blanket  form 
because  of  its  large  size.  This  shape  is  true  of  the  fire  policy  from 
the  beginning  of  the  business  down  to  the  change  to  adapt  it  to  the 
typewriter.  They  were  truly  of  blanket  size,  so  to  speak.  They 
were  further  distinguished  by  having  in  most  cases  a  copy  of  the 
seal  of  the  corporation  or  some  illustration  adopted  as  symbolic  of 
the  business  which  was  put  at  the  head  of  the  policy.  Most  of 
these  illustrated  a  property  burning  and  the  activities  of  the  fire 
department  in  connection  therewith.  Not  only  was  this  illustration 
a  feature  of  the  English  policies,  but  it  was  equally  a  feature  of  the 
American  policies  down  to  the  time  of  the  adoption  of  the  standard 
policy,  when  many  of  these  very  interesting  illustrations  passed 
away  and  a  very  prosaic  looking  document  with  which  we  are  fa- 
miliar took  their  place.  The  business  lost  something  in  picturesque- 
ness  at  least  by  the  change,  however  much  the  gain  was  otherwise. 

The  policies  were  intended  to  last  for  years.  The  first  policies 
issued  were  for  periods  of  seven,  fourteen,  twenty-one,  and  thirty- 
one  years.  And  even  when  after  about  twenty  years  policies  began 
to  be  issued  with  a  premium  payable  annually  there  was  no  change 
either  in  the  style  of  the  policy  or  the  kind  of  paper  on  which  it  was 
printed.     These  policies,  naturally,  in  both  countries  were  printed 


Prior  to  the  Standard  Policy 

before  the  days  of  cheap  methods  of  making  paper  and  those  which 
are  over  two  hundred  years  old  have  come  down  in  most  excellent 
condition. 

The  contract  of  fire  insurance  was  divided  into  two  parts; — 
there  was  the  policy  itself  and  there  were  the  proposals.  The*  policy 
itself  was  a  comparatively  short  document,  as  we  shall  show  later 
on,  while  the  proposals,  which  will  also  be  shown,  were  somewhat 
extensive  and  contained  nearly  all  of  the  conditions  which  are  now 
found  in  the  standard  policy.  When  one  insured  his  property  he 
was  given  the  policy  and  a  copy  of  the  proposals.  In  the  case  of 
some  offices  the  printing  of  the  contract  as  two  separate  documents 
continued  down  into  the  beginning  of  the  19th  cenutry.  For  in- 
stance, in  the  case  of  the  Sun  Fire  Office  we  believe  it  was  in  1816 
that  the  two  were  united  into  one  document.  This  ancient  type  of 
policy  is  illustrated  by  a  copy  which  we  now  present  of  a  policy 
issued  by  the  Sun  Fire  Office  October  23rd,  1734.  It  is  policy  No. 
65251  and  on  the  face  reads  as  follows: 

WHEREAS  John  Jefferson  of  Scarborough  in  the  County  of  York 
carryer  hath  paid  the  Sum  of  Six  Shillings  to  the  Society  of  the  Sun 
Fire  Office  in  London,  and  has  agreed  to  pay  or  cause  to  be  paid  to 

them  at  their  said  Office,  the  Sum  of  Six  Shillings 

on  the  Twenty-Ninth  of  September  1735  and  the  Sum  of  Six  Shillings 

- - yearly  on  the  Twenty-Ninth  of  September 

during  the  Continuance  of  this  Policy,  for  Insurance  from  Loss  or 
Damage  by  Fire,  on  His  brick  and  Tiled  House  only  in  Black  Fryer 
Gate  otherwise  ttte  Beast  Market  in  Scarborough  aforesaid  not  yet  in- 
habited being  not  quite  finished  but  intended  for  his  own  Dwelling  loss 
not  exceeding  Two  Hundred  Pounds,  And  on  his  Household  Goods  and 
furniture  therein  only  and  not  elsewhere  not  exceeding  one  hundred 
pounds 

NOW  KNOW  YE,  That  from  the  Date  of  these  Presents,  and  so 
long  as  the  said  John  Jefferson  shall  duly  pay,  or  cause  to  be  paid,  the 
said  Sum  of  Six  Shillings  at  the  Times  and  Place  aforesaid;  and  the 
Trustees  or  Acting  Members  of  the  said  Society  for  the  Time  being,  shall 
agree  to  accept  the  same,  the  Stock  and  Fund  of  the  said  Society  shall 
be  subject  and  liable  to  pay  to  the  said  John  Jefferson  his  Executors, 
Administrators  and  Assigns,  all  such  his  Damage  and  Loss  which  he  the 
said  John  Jefferson  shall  suffer  by  Fire,  not  exceeding  the  Sum  of  Three 
Hundred  Pounds,  according  to  the  exact  Tenor  of  their  Printed  Pro- 
posals, dated  July  the  Ninth,  1730.  IN  WITNESS  whereof,  we  (Three 
of  the  Trustees  or  Acting  Members  for  the  said  Society)  have  hereunto 
set  our  Hands  and  Seals,  the  twenty-third  Day  of  Octbber  1734. 

^.      ,,        ,  Brill   Fisher  (Seal) 

Signd  and  Seal'd  (Being  John  Everett         (Seal) 

stampt  according  to  Act  C  Hardy  (Seal) 

of  Parliament)  in  the 
Presence  of  us, 

Thos.  Richardson  Wm.  Stockdalc 

John  Smith 

It  will  be  noted  that  this  policy  refers  to  their  printed  proposals 
dated  July  the  Ninth,  1730.    It  was  by  this  very  specific  reference  to 


The  Fire  Insurance  Contract 

the  proposals  and  the  exact  date  of  the  proposals  in  question  that 
the  proposals  were  brought  into  and  made  a  part  of  the  policy.  In 
time  this  question  of  the  proposals  being  considered  a  part  of  the 
policy  was  questioned  and  the  courts  decided  that  the  proposals  were 
a  part  of  the  policy  although  brought  into  it  merely  by  a  reference 
similar  to  the  one  in  this  case. 

There  are  two  endorsements  on  the  reverse  side  of  the  above 
policy,  the  first  dealing  with  the  mortgage  interest  reads  as  follows : 
Indorsed 

In  consideration  of  a  mortgage  on  the  within  mentioned  house  I  the 
within  named  John  Jefferson  do  Agree  that  this  policy  shall  be  for  the 
benefit  and  interest  of  Robert  Abbinson  of  Scarborough  the  mortgagee  so 
far  as  relates  to  the  better  securing  the  money  and  interest  thereon  by 
him  lent  to  me  the  said  John  Jefferson  in  case  of  any  Loss  or  Damage  by 
tire  to  the  insured  premises  before  the  said  Debt  or  Mortgage  is  fully 
satisfied  or  Discharged  Endorsed  the  31  Oct  1746  by  me 

Wm.  Stockdale  (Signed)         John  Jefferson 

Agent. 
The   second   deals   with   a   change   of    interest   and   reads   as 
follows : 

The  above  Named  John  Jefferson  and  Sophia  his  wife  being  both 
dead,  Christopher  Leah  of  Scarborough  Boat  Builder  (by  marrying  one 
of  his  Daughters)  and  Elizabeth  Jefferson  Sp'inster,  his  other  Daughter, 
are  thereby  become  Intitled  to  the  within  mentioned  premises,  and  there- 
fore this  Policy  is  to  Continue  and  remain,  for  the  benefit  and  Interest  of 
the  said  Christopher  Leah  and  Elizabeth  Jefferson. 

Endorsed  this  30th  day  of  January  1768 

By  Thos.  Stockdale  Agent 

It  is  interesting  to  note  that  this  policy  was  issued  in  1734  and 
in  1768  the  last  endorsement  was  made.  This  furnishes  some  idea 
as  to  the  method  of  transacting  business  in  those  days,  whereby  the 
policy  itself  was  continued  in  force  by  the  payment  of  the  premium 
annually  and  receipts  were  given  when  such  payments  were  made. 

In  connection  with  the  cover  on, household  goods  and  furniture 
the  precise  language  used  to  definitely  limit  the  policy  to  cover  the 
property  while  in  this  house  is  interesting.  The  phrase  is  "Therein 
only  and  not  elsewhere." 

A  set  of  the  proposals  of  the  date  referred  to  in  this  policy  are 
not  available,  but  we  believe  the  historical  significance  is  better  set 
forth  by  the  propo5m<i>  of  April  10,  1710.  These  appear  to  have  been 
the  third  set  of  proposals,  but  so  far  as  known  they  vary  slightly 
from  the  first  and  second  sets.  The  proposals,  naturally,  were 
altered  from  time  to  time,  and  this  was  true  so  long  as  they  were 
used.    These  proposals  read  as  follows : 

(Sun  Emblem) 
PROPOSALS 
Set  forth  by  the  Company  of  I^ondon  Insurers  for  insuring  Houses, 


Prior  to  the  Standard  Policy 

Moveable  Goods,  Merchandizes,  Furniture  and  Wares  from  Loss  and 
Damage  by   Fire. 

Article  L  Every  person  within  the  Weekly  Bills  of  Mortality  of 
London  who  shall  take  out  a  policy  signed  by  three  or  more  of  the 
Members  of  the  Company  of  London  Insurers,  and  seal'd  with  the  Com- 
pany's Common  Seal,  in  form  as  is  hereafter  specified,  paying  3s.  6d. 
for  the  same,  whereof  Is.  is  the  Stamp  Duty,  and  the  half-crown  for  the 
first  quarter,  shall  be  entitled  to  the  benefit  of  having  his  or  her  loss  and 
damage  by  fire,  whether  in  his  or  her  house  or  moveable  Goods,  Mer- 
chandize, Wares,  Furniture,  etc.,  under  one  roof,  repaired  and  made  good 
to  him  or  her  by  the  said  Company  according  to  the  following  Articles, 
continuing  to  pay  only  2s.  6d.  per  quarters. 

Article  2.  No  person  insured  shall  ever  be  liable  to  make  any  farther 
payment  or  allowance  towards  repairing  the  loss  and  damage  of  any 
sufferer. 

Article  3.  Every  person  who  shall  thus  take  out  a. Policy,  shall  be- 
sides the  benefit  of  insuring  his  or  her  House  or  moveable  goods,  etc., 
have  three  times  a  week  without  any  farther  charge  or  expence  left 
at  his  or  her  house  a  printed  newspaper,  called  the  British  Mercury,  con- 
taining all  Foreign  and  Domestick  News,  an  account  of  rising  and  falling 
of  publick  Stocks,  payments  at  the  Exchequer,  Course  of  the  Exchange, 
Port  Letters,  price  Courant  of  several  Commodities,  with  whatever  else 
shall  be  thought  to  entertain  the  publick. 

Article  4.  Every  one  that  would  insure  both  his  or  her  House  and 
Goods,  etc.,  must  take  out  two  distinct  policies,  and  because  two  news- 
papers to  some  persons  .would  be  superfluous,  one  of  them  shall  be  left 
at  any  Friend's  house  he  or  she  shall  name. 

Article  5.  These  proposals  do  extend  to  insure  all  Merchandizes, 
Wares,  Household  Goods,  Furniture,  etc.,  excepting  Money,  Plate, 
Jewels,  Pictures,  China  Wares,  Tallies  and  Writings. 

Article  6.  Towards  raising  a  sufficient  Fund  for  making  good  all 
sufferers'  Loss  and  damage  by  Fire,  Is.  shall  be  reserved  out  of  every 
Quarteridge,  which  shall  be  received  both  in  London  and  in  any  part  of 
Great  Britain,  which  in  the  whole  will  amount  to  a  very  considerable 
sum,  much  more  than  sufficient  according  to  an  accurate  computation  to 
make  good  each  sufferer's  whole  Loss  and  damage. 

Article  7.  For  the  farther  encouragement  of  all  persons,  there  are 
now  actually  taken  into  the  service  of  the  said  Company  thirty  lusty  hon- 
est able  bodied  Firemen,  who  are  cloathed  in  blue  Liveries  with  silver 
Badges  with  the  Sun  mark  upon  their  arms,  who  will  be  always  at  hand 
to  assist  in  quenching  Fires  and  removing  Goods  whenever  any  one  shall 
have  the  misfortune  to  have  his  house  on  fire,  who  shall  demand  nothing 
for  their  pains  of  any  person  insured,  but  what  they  shall  voluntarily 
give  them  according  to  their  deserts.  And  that  the  houses  of  those  per- 
sons insured  may  be  known  by  the  said  Firemen  the  mark  of  the  Sun 
shall  be  fixed  upon  their  houses  gratis. 

Article  8.  The  true  intent  and  meaning  of  these  proposals  is  that 
all  the  money  reserved  in  Bank  according  to  the  6th  Article  shall  be 
equally^  divided  within  10  days  after  every  Quarter  day,  among  the  Suf- 
ferers in  proportion  to  their  respective  Losses  not  exceed  500  1.  each 
policy,  and  where  no  fire  happens  then  the  whole  sum  to  be  lodged  in  the 
Bank  of  England  till  the  next  fire.  And  that  every  Sufferer  may  be  sure 
to  have  the  whole  sum  reserved  in  Bank,  he  or  she  may  peruse  the  Policy 
Book  kept  at  the  Office  where  the  number  of  policies  delivered  out  will 
appear,  and  consequently  the  sum  reserved  in  Bank  for  payment  of 
claims. 

Article  9.  As  soon  as  any  person  insured  shall  have  his  or  her  house 
or  goods  damaged  by  fire,  he  or  she  is  to  give  notice  to  the  Company's 
Clerk  at  their  Office  and  within  10  days  after  every  Quarter  day  there 


The  Fire  Insurance  Contract 

will  be  a  General  Court  there,  when  all  Claims  and  I^osses  by  fire  will  be 
always  faithfully  paid  according  to  the  tenor  of  these  proposals. 

Article  10.  When  any  Sufferer  receive  his  or  her  claim,  5  per  cent, 
shall  be  deducted  out  of  it  for  defraying  the  charges  and  expenses  of 
Of^cers  and  others  employed  to  make  inquiry  how  and  by  what  means 
the  fire  happened,  as  is  usual  in  other  Fire  Offices. 

Article  11.  Every  Sufferer  must  make  out  his  or  her  Loss  and  dam- 
age upon  Oath  before  a  Judge  or  Master  in  Chancery,  in  the  presence 
of  the  Clerk  of  the  Company  within  10  days  after  the  fire,  and  carry  that 
Affidavit  to  the  Minister  or  Church  wardens  of  the  parish  in  which  the 
Fire  broke  out,  and  some  other  eminent  Housekeepers  in  the  said  parish, 
especially  such  as  live  near  the  place  where  the  fire  began  but  have  them- 
selves sustained  no  damage  thereby,  and  are  best  acquainted  with  the 
person,  reputation  and  circumstances  of  the  said  Sufferer,  who  shall  sign 
a  certificate  that  they  do  know  or  believe  nothing  to  the  contrary,  but 
that  the  SuflFerer  has  really  and  by  misfortune  lost  by  fire  the  sum  men- 
tioned in  his  or  her  Affidavit,  upon  producing  which  to  the  Company  he 
or  she  shall  receive  his  or  her  claim.  But  if  there  appears  any  fraud  or 
perjury  in  such  Sufferer  he  or  she  shall  be  excluded  from  any  right  or 
Interest  in  these  proposals. 

Article  12.  If  any  person  insured  removes  his  or  her  habitation  he 
or  she  must  give  notice,  and  have  his  or  her  policy  changed  at  the  Office 
paying  the  Stamp  Duty  only. 

Article  13.  Every  person  insured  shall  pay  his  or  her  Quarteridge 
within  10  days  after  every  Quarter  day  upon  forfeiture  of  his  or  her 
policy,  and  the  Sun  Mark  which  the  Company  shall  have  free  liberty  to 
take  down. 

Article  14.  When  any  person  pays  his  or  her  Qnarteridge,  a  printed 
receipt  will  be  given  for  the  same  signed  by  two  or  more  of  the  Com- 
pany of  London  Insurers. 

Article  15.  Every  person  insured  may  relinquish  at  pleasure,  and  if 
he  or  she  dies  the  interest  in  his  or  her  policy  shall  continue  to  his  or 
her  Executor  or  Administrator  so  long  as  they  continue  to  pay  theii 
Quarteridge. 

Article  16.  Any  person  desiring  to  insure  either  his  or  her  house  or 
moveable  goods,  without  having  the  British  Mercury  shall  pay  but  3s. 
for  his  or  her  policy  and  first  Quarter,  and  be  entitled  to  all  the  other 
benefits  above  mentioned  continuing  to  pay  2s.  per  Quarter. 

We  illustrate  further  the  use  of  the  Proposals  and  Policy  as 
separate  documents  by  a  policy  No.  1179  issued  by  the  Hartford 
Insurance  Company  to  cover  household  furniture  in  a  dwelling 
owned  by  the  North  Ecclesiastical  Society  in  Hartford. 

The  proposals  are  dated  July  27,  1810,  and  are  endorsed  on  the 
back : 

No.  1179 
North  Ecclesiastical  Society  Hfd. 
For  one  year  from 
The  13  Dec  1823 

Premium     10.00 
Policy  .50 


$10.50^ 
This  endorsement  is  in  ink  and  then  below  in  pencil : 

"Duplicate  issued  Dec  13,  1837 
Instead  of  Renewal  Receipt" 
We  quote  first  the  proposals  and  then  the  policy  itself: 


Prior  to  the  Standard  Policy 

HARTFORD  FIRE  INSURANCE  COMPANY. 

PROPOSALS 

For  Insuring 

Houses,  Buildings,  Stores,  Ships  in  Harbour,  and  on  the  Stocks,  Goods 

Wares,  and  Merchandize 

FROM  LOSS  OR  DAMAGE  BY  FIRE 
The  Hartford  Fire  Insurance  Company  having  been  incorporated  by 
the  Legislature  of  the  State  of  Connecticut  with  a  capital  of  One  Hun- 
dred and  Fifty  Thousand  Dollars — with  a  power  of  enlarging  the  Capital 
to  Two  Hundred  and  Fifty  Thousand  Dollars:  and  the  capital  of  One 
Hundred  and  Fifty  Thousand  Dollars  being  already  paid  and  secured,  to 
be  paid  according  to  law,  the  directors  now  offer  to  the  public  the  fol- 
lowing terms  on  which  they  propose  to  conduct  the  business  of  the 
Company. 

As  all  classes  of  citizens  are  exposed  to  great  calamities  from  fire, 
we  presume  that  prudence  will  induce  them  to  pay  the  small  premium 
which  is  required  for  an  indemnity  against  such  accidents.  The  practice 
of  procuring  Insurance  against  loss  from  fire,  has  already  become  very 
general  through  this  country,  and  the  Company  are  confident  that  the 
extent  and  solidity  of  their  funds,  and  the  fairness,  liberality  and  prompti- 
tude with  which  they  have  adjusted  the  claims  of  sufferers,  will  ensure 
the  confidence  and  patronage  of  this  and  the  neighboring  States. 

An  insured  person  will  be  liable  to  make  good  the  Losses  of  others; 
but  in  case  of  Fire,  the  sufferer  will  be  fully  indemnified  to  the  amount 
insured.  The  Company  also  make  good  losses  on  property  burnt  by 
Lightning. 

CLASSES  OF  HAZARDS,  AND  RATES  OF  ANNUAL  PREMIUMS 
FOR  INSURANCE  AGAINST  FIRE 
No.  I 
Hazards  of  the  First  Class 
Brick  or  Stone  Buildings,  covered  with  slate,  tiles  or  metal. 
Goods  not  hazardous  contained  in  such  Buildings. 
For  sums  not  exceeding  lO.OQO  Dollars  in  one  risk  25  Cents  per  100 
Dollars,  per  ann. 

No.  II 
Hazards  of  the  Second  Class 
Brick  or  Stone  Buildings,  covered  with  wood. 
Goods  not  hazardous  contained  in  such  Buildings. 
Hazardous  Goods  contained  in  buildings  of  the  First  Class. 
For  sums  not  exceeding  10,000  Dollars  in  one  risk,  37^^  Cents  for 
100  Dollars  per  ann. 

No.  Ill 

Hazards  of  the  Third  Class 
Buildings  the   sides  of  which  are  part  brick  or  stone  and  part  of 
wood. 

Goods  not  hazardous,  contained  in  such  buildings. 
Hazardous  Goods  contained  in  buildings  of  the  Second  Class. 
For  sums  not  exceeding  10,000  Dollars  in  one  risk  50  Cents  per  100 
Dollars  per'ann. 

No.  IV 
Hazards  of  the  Fourth  Class 
Buildings  the  sides  of  which  are  enti^^ely  of  wood. 
Goods  not  hazardous,  contained  in  such  buildings. 
Hazardous  Goods  contained  in  buildings  of  the  Third  Class. 
For  sums  not  exceeding  10,000  Dollars  in  one  Risk  75  to  100  Cts  ixr 
100  dolls,  per  ann. 


The  Fire  Insurance  Contract 

Ships  in  Port,  or  their  Cargoes,  Ships  repairing  or  Building, 
may  be  insured  against  Fire. 

This  manner  of  Classing  Hazards  will  give  a  general  idea  of  the 
Rates  of  insurance,  but  there  will  necessarily  be  an  increase  of  Premium 
in  all  cases  where  the  local  situation,  and  other  circumstances  increase  the 
Risk;  such  as  joining,  or  being  contiguous  to  wooden  buildings,  or  Build- 
ings occupied  in  carrying  on  hazardous  Business — distance  from  Water — 
no  Engine  or  Fireman  in  the  town  or  place,  etc.  etc._ — The  Premiums 
may  also,  in  some  cases,  be  reduced  on  Wooden  Buildings  in  the  coun- 
try, when  standing  single  or  detached,  or  attended  with  circurnstances  of 
peculiar  security.  Larger  suras  than  10,000  Dollars  may  be  insured  by 
special  agreement. 

Soap  Boilers,  Tallow  Chandlers,  Brewers,  Bakers,  Rope  Makers, 
Sugar  Refiners,  Distillers,  Chemists,  Varnish  Makers,  Stable  Keepers, 
Tavern  Keepers,  China,  Glass  or  Earthenware  Sellers,  Oil  and  Colour- 
men,  Turpentine  Works,  Paper  Mills,  Printing  Houses,  Coopers,  Car- 
penters, Cabinet  Makers,  Coach  Makers,  Boat  Builders,  Ship  Chandlers, 
Apothecaries,  Theatres,  Mills,  and  Machinery,  and  all  Manufactories,  that 
use  Fire  Heat,  are  deemed  extra  hazardous,  and  must  be  particularly 
described  in  the  Policy;  and  for  all  such  risks  an  additional  premium 
will  be  required. 

CONDITIONS  OF  INSURANCE. 

I.  ALL  applications  for  Insurance  must  be  made  at  the  office  of  the 
Company,  in  writing;  and  the  subject  offered  for  Insurance  accurately 
described. 

II.  If  the  property  offered  for  Insurance  is  within  the  District  of  a 
Surveyor  of  this  Company,  he  will  examine  and  report  thereon;  but  if 
no*t  within  any  such  District  then  the  Applicant  must  himself  furnish 
an  accurate  and  just  description  thereof,  viz.  of  what  Materials  each 
Building  is  constructed;  whether  occupied  as  Private  Dwellings,  or  how 
otherwise;  where  situated;  the  Name  of  the  Present  Occupiers;  how- 
situated  with  respect  to  other  buildings: — And  in  the  Insurance  of  Goods, 
Wares  and  Merchandize,  the  Place  where  the  same  are  deposited,  is  to 
be  described;  also;  whether  such  goods  are  of  the  kind  dcnomiated  Haz- 
ardous, and  whether  any  Manufactory  is  carried  on  in  the  Premises, 
all  which  is  to  be  certified  and  attested  in  such  manner  as  the  nature 
of  the  case  may  admit.  And  if  any  Person  or  Persons  shall  insure  his 
or  their  Buildings  or  Goods,  and  shall  cause  them  to  be  described  in  the 
Policy  otherwise  than  they  really  are,  so  as  the  same  be  charged  at  a 
lower  Premium  than  is  herein  proposed;  or  if  such  Description  be  false 
or  fraudulent,  such  Insurance  will  be  void  and  of  no  effect. 

III.  Goods  held  in  Trust,  or  on  Commission,  are  to  be  declared  as 
such;   otherwise  the   Policy  will  not  extend  to  cover  such  Property. 

IV.  Every  Policy  of  Insurance,  made  by  this  Company,  shall  be 
sealed  with  its  Seal,  and  signed  by  the  President  and  Secretary;  and 
the  person  for  whose  interest  the  Insurance  is  made,  must  be  declared 
and  named  therein;  nor  can  any  Policy,  or  interest  therein  be  assigned, 
but  by  consent  of  the  Company,  expressed  by  endorsement  thereon. 

V.  No  Insurance  wull  be  considered  as  made  or  binding,  until  the 
Premium  is  paid. 

VI.  Persons  insuring  Property  with  this  Company,  and  who  have 
already  made  other  Insurance  on  the  same  Property,  shall  give  notice 
thereof  in  writing  at  the  Company's  Office,  before,  or  at  the  time  of  the 
Execution  of  the  Policy:  and  persons  who  after  Insuring  Property  with 
this  Company,  have  Insurance  made  on  the  same  property  elsewhere, 
shall  with  all  reasonable  diligence,  notify  the  same  in  writing  at  the 
Office  of  the  Company,  and  have  the  same  endorsed  on  the  Policy,  or 
otherwise  acknowledged  in  writing;  in  default  whereof,  the  Policy  shall 
cease  and  be  of  no  effect:  and  in  case  of  Loss,  each  Party  Insuring  shall 
be  liable  to  payment  of  a  rateable  proportion  only  of  the  loss  or  damage 
which  may  be  sustained. 

8 


Prior  to  the  Standard  Policy 

VII.  No  Loss  or  Damage  by  Fire  will  be  paid,  that  may  happen  or 
take  place  in  consequence  of  any  Earthquake,  Invasion,  Civil  Commotion, 
Riot,  or  Militarv  or  Usurped  Power  whatever. 

VIII.  Books  of  Accounts,  Written  Securities,  Notes,  Bills,  Bonds, 
Deeds,  Ready  Money,  or  Bullion  cannot  be  Insured. 

IX.  Jewels,  Plate,  Medals,  or  other  curiosities.  Paintings  and  Sculp- 
tures are  not  included  in  any  Insurance,  unless  such  articles  are  specified 
in  the  Policy. 

X.  All  persons  insured  by  this  Company,  sustaining  any  loss  or 
damage  by  Fire,  are  forthwith  to  give  notice  to  the  Company  and  as  soon 
as  possible,  to  deliver  in  as  particular  an  account  of  their  Loss  or  Dam- 
age, signed  with  their  own  hands,  as  the  nature  of  the  case  will  admit, 
and  make  proof  of  the  same  by  their  oath  or  affirmation,  and  by  their 
books  of  accounts,  and  other  proper  vouchers,  as  shall  be  reasonably 
required:  and  shall  make  oath,  whether  any  and  what  other  Insurance 
is  made  on  the  same  property;  and  shall  procure  a  Certificate,  under 
the  hand  of  a  Magistrate,  Notary  Public,  or  Clergyman,  most  contiguous 
to  the  spot  where  the  fire  happened,  (and  not  concerned  in  such  loss) 
that  they  are  acquainted  with  the  character  and  circumstances  of  the 
person  or  persons  insured;  and  do  know,  or  verily  believe,  that  he,  she 
or  they,  really  and  by  misfortune,  and  without  fraud  or  evil  practice, 
have  sustained  by  such  fire,  loss  and  damage  to  the  amount  therein  men- 
tioned; and,  until  such  affidavits  and  certificates  are  produced,  the  loss 
shall  not  be  payable.  Also,  if  there  appears  any  fraud,  or  false  swearing, 
the  claimant  shall  foi-feit  his  claim  to  restitution  or  payment  by  virtue 
of  his  Policy. 

XL  In  case  any  difference  shall  arise,  touching  any  Loss  or  Dam- 
age, it  may  be  submitted  to  the  Judgment  of  Arbitrators,  indifferently 
chosen,  whose  award  in  writing  shall  be  binding  on  the  parties.  And 
when  any  Loss  or  Damage  shall  happen,  the  Company  shall  pay  for  the 
same  in  sixty  days  after  the  Loss  shall  have  been  ascertained  and  proved, 
without  allowance  of  discount,  fees  or  any  deduction  whatever. 

XII.  Insurance  may  be  made  for  seven  years,  by  paying  the  pre- 
mium for  six  years,  and  for  a  less  number  of  years  than  seven,  a  reason- 
able discount  will  be  allowed. 

Hartford,  July  27,  1810. 


The  Policy  is  as  follows: 
No.   1179 

THIS  INSTRUMENT  OR  POLICY  OF  ASSURANCE  WIT- 
NESSETH, That  the  HARTFORD  FIRE  INSURANCE  COMPANY, 
in  consideration  of  ten  DOLLARS  to  the  said  Corporation  paid,  the  Re- 
ceipt whereof  is  hereby  acknowledged.  Hath  agreed  to  Insure,  and  Doth 
hereby  agree  to  Insure, 

The  North  Ecclesiastical  Society  in  Hartford 
against  Loss  or  Damage  by  Fire,  to  the  amount  of  Two  Thousand  Dol- 
lars on  their  Dwelling  House  two  stories  high  built  of  Wood  situate  on 
Village  Street  next  north  of  their  Meeting  House  in  this  City — privileged 
to  be  occupied  by  two  families  and  further  described  in  Application  filed 
No.  1179  with  privilege  of  erecting  temporary  Stoves  in  the  House. 

IN  CONSIDERATION  of  which  premises,  the  Hartford  Fire  In- 
surance Company  Doth  hereby  covenant  and  agree  with  the  said  assured 
their  Executors,  Administrators  and  Assigns,  to  pay  and  satisfy  all  Loss 
or  Damage  which  the  Assured  or  Assigns,  shall  or  may  sustain  by  Fire, 
upon  the  property  hereby  Insured  not  exceeding  in  amount  the  said  Sum 
of  Two  Thousand  Dollars  One  year  from  the  Date  hereof  and  before 
the  Thirteenth  day  of  December  Eighteen  hundred  &  twenty  four  at 
noon. 

AND  THIS  CORPORATION  doth  further  covenant  and  agree  to 
and  with  the  said  Assured  their  Executors,  Administrators  and  Assigns, 
that  this  Assurance  shall  continue  and  be  in   force  from  the  expiration 

9 


The  Fire  Insurance  Contract 


of  the  time  before  mentioned  for  its  duration,  for  so  long  as  the  said 
Assured,  or  their  Assigns  shall  continue  to  pay  the  like  Rate  of  Premium, 
as  hath  been  paid  for  this  Insurance,  for  so  long  as  this  Corporation 
shall  agree  to  accept,  and  actually  receive  the  same  from  the  Assured  or 
their  Assigns.  PROVIDED,  That  the  premium  for  a  continuance  of 
the  Insurance,  shall  be  actually  paid  by  the  Assured  or  their  Assigns 
to  this  Corporation  before  the  day  limited  for  the  termination  of  the 
Risk,  and  such  payment  endorsed  on  this  Policy,  or  a  Receipt  therefor 
given  by  this  Corporation.  And  it  is  further  agreed,  that  the  amount  of 
such  Loss  or  Damage,  as  the  Assured  or  their  Assigns  shall  be  entitled 
to  receive  by  virtue  of  this  Policy,  shall  be  paid  within  Sixty  Days  after 
notice  and  proof  thereof  made  by  the  Assured,  in  conformity  to  the  Pro- 
posals of  this   Corporation  annexed  to  this  Policy. 

PROVIDED  ALWAYS,  AND  IT  IS  HEREBY  DECLARED,  That 
this  Corporation  shall  not  be  liable,  or  bound  to  pay  the  said  Assured  in 
this  Policy  named,  their  Executors,  Administrators,  or  Assigns,  for  any 
Loss  or  Damage  by  Fire,  that  may  happen  or  take  place  in  consequence 
of  any  Earthquake,  Invasion,  Civil  Commotion,  Riot,  or  any  Military  or 
Usurped  Power  whatsoever.  PROVIDED  ALSO,  That  in  case  the  As- 
sured shall  have  already  any  other  Insurance  on  the  hereby  Insured 
Premises  they  shall  notify  the  same  to  this  Corporation,  before  or  at  the 
time  of  the  execution  of  this  Policy,  and  cause  the  same  to  be  endorsed 
thereon,  or  this  Assurance  shall  be  void  and  of  no  effect:  and  if  the 
said  Assured  or  their  Assigns  shall  hereafter  make  any  other  Insurance 
on  the  hereby  Insured  Premises  they  shall  with  all  reasonable  diligence, 
notify  the  same  to  this  Corporation,  and  have  the  same  endorsed  on  this 
Instrument,  or  otherwise  acknowledged  in  writing,  by  this  Corporation, 
or  in  default  thereof  this  Policy  shall  cease  and  be  of  no  further  effect. 
AND  IT  IS  FURTHER  DECLARED  AND  AGREED,  That  in  case 
of  any -other  Insurance  being  made  upon  the  premises  hereby  insured, 
either  prior  or  subsequent  to  the  date  of  these  Presents,  the  Assured 
shall  not,  in  any  case  of  Loss  or  Damage,  be  entitled  to  demand  or 
recover,  on  this  Policy,  any  greater  proportion  of  the  Loss  sustained  than 
the  Amount  hereby  Insured  shall  bear  to  the  whole  amount  of  the  several 
Insurances  made,  or  to  be  made,  on  the  Premises  Insured  by  this  Policy. 
AND  IT  IS  AGREED  AND  DECLARED,  to  be  the  true  intent  and 
meaning  of  the  Parties  hereto,  and  of  these  Presents,  that  in  case  the 
above  mentioned  House  shall  at  any  time  after  the  making,  and  during 
the  time  of  this  Policy  would  otherwise  continue  in  force,  be  appro- 
priated or  used  for  the  purpose  of  carrying  on  or  exercising  the  trade, 
business  or  vocation  of  a  Soap  Boiler,  Tallow  Chandler,  Brewer,  Mal- 
ster,  Baker,  Rope  Maker,  Sugar  Refiner,  Distiller,  Chemist,  Varnish 
Maker,  Paper  Alaker,  Stable  Keeper,  Tavern  Keeper,  China,  Glass,  or 
Earthen-ware  Seller,  Oil  and  Colourmen,  Printer,  Cooper,  Carpenter, 
Cabinet  Maker,  Coach  Maker,  Boat  Builder,  Ship  Chandler,  or  Apothe- 
cary, or  any  Manufactory  which  requires  the  use  of  Fire  Heat,  or  shall 
be  used  for  the  purpose  of  Storing  therein  Gunpowder,  Hemp,  Flax,  Oil, 
Pitch,  Tar,  Rosin,  Turpentine,  Spirits  of  Turpentine,  Aqua  Fortis,  Straw, 
Hay,  Grain  Unthreshed,  Fodder,  Distilled  Spirits,  or  other  Hazardous 
Goods,  and  then  and  from  thenceforth,  so  long  as  the  said  House  shall  be 
appropriated  or  used  for  any  or  either  of  the  purposes  aforesaid,  these 
Presents  shall  cease  and  be  of  no  force  or  effect,  UNLESS  OTHER- 
WISE SPECIALLY  AGREED  BY  THIS  CORPORATION,  and  such 
agreement  be  signified  in  writing.  And  it  is  moreover  Declared,  That 
this  Policy,  or  the  Insurance  hereby  intended  to  be  made,  does  not  com- 
prehend or  cover  any  Books  of  Account,  Written  Securities,  Deeds,  or 
other  evidences  of  title  to  Lands,  Bonds,  Bills,  Notes,  or  other  Evidences, 
of  Debts,  Money,  or  Bullion. 

AND  IT  IS  UNDERSTOOD  AND  AGREED,  as  well  by  this  Cor- 
poration, as  by  the  Assured,  named  in  this  Policy,  and  all  others  who 
may  become  interested  therein,  that  this  Insurance  is  made  and  accepted 

la 


Prior  to  the  Standard  Policy 

in  reference  to  the  Proposals  which  accompany  these  Presents,  and  in 
every  case  the  said  Proposals  are  to  be  used  to  explain  the  rights  and 
Obligations  of  the  Parties,  except  so  far  forth  as  the  Policy  itself  spe- 
cially declares  those  Rights  and  Obligations.  , 
IN   WITNESS   WHEREOF,   The   said    Corporation,    have    caused 
their  Common  Seal  to  be  affixed  to  these  Presents,  and  the  same  to  be 
signed  by  their  President  and  Secretary  the  13  day  of  December  in  the 
year  of  our  Lord  one  thousand  eight  hundred  and  twenty-three. 
N.  B.     This  policy  is  not  assignable,  unless 
by  consent  of  the  Corporation  manifested 
in  writing. 
Attest,  Walter  Whitehill  Sec.                               Nath.  Terry  Pres. 

It  will  be  noted  that  in  two  places  in  the  Policy  the  Proposals 
are  referred  to. 

It  is  unnecessary,  perhaps,  to  point  out  that  many  of  the  pro- 
visions contained  in  the  proposals  and  the  policy  are  those  which  are 
in  force  today. 

Another  important  feature  which  distinguished  these  policies 
was  the  inclusion  in  first  the  proposals  and  later  the  policy  itself  of 
the  various  classes  of  hazards  into  which  buildings  and  contents 
were  divided,  with  the  rates  or  annual  premiums  applying  thereto. 
This  division  of  the  business  oi^ginated  in  Great  Britain  over  two 
centuries  ago  and  has.  continued  in  force  in  some  parts  of  the  world 
down  to  the  present  time.  But  where  schedule  rating  has  been 
adopted  it  has  superseded  the  old  division  into  classes  and  hazards. 
The  earliest  groupings  or  classes  were  called  "Common  Insurances," 
"Hazardous  Insurances,"  "Doubly  Hazardous  Insurances."  Two 
subdivisions  were  introduced  as  a  further  development,  one  coming 
between  "Common"  and  "Hazardous,"  and  the  other  between  "Haz- 
ardous and  "Doubly  Hazardous,"  thus  making  five  in  all. 

In  the  United  States  this  method  was  taken  over  and,  as  in 
Great  Britain,  was  developed  so  that  in  time  there  came  to  be  eight 
classes  of  hazards,  as  they  were  termed,  these  dealing  with  different 
types  of  construction  of  buildings,  while  the  goods  therein  were  thus 
classified:  Not  Hazardous,  Hazardous,  Extra  Hazardous,  Special 
and  Country  Houses.  The  Firemen's  Insurance  Company  of  New 
Yx)rk  in  its  policy  10,043,  dated  July  6,  1832,  has  this  feature  of  the 
policies  set  forth  in  a  fully  developed  form,  and  we  therefore  take 
it  as  our  illustration  of  this  important  feature  of  the  policy. 

PROPOSALS  FOR  INSURANCE 

On  Dwelling-Houses,  Warehouses,  and  other  Buildings;  on  Merchandise, 

Machinery,  Furniture,  and  other  Personal  Property, 

AGAINST  LOSS  OR  DAMAGE  BY  FIRE. 

CLASSES  OF  HAZARDS.  AND  RATES  OF  ANNUAL  PREMIUMS. 
1st  Class  of  Hazards. — Buildings  of  Brick  or  Stone,  covered  with  Tile, 

11 


The  Fire  Insurance  Contract 

Slate,  or  Metal,  the  window  shutters  of  solid  Iron;  gutters  and  cor- 
nices of  Brick,  Stone,  or  Metal;  party  walls,  above  the  roof,  25  cts. 

per  $100. 
2nd  Class  of  Hazards. — Buildings  of  Brick  or  Stone,  covered  with  Tile, 

Slate,  or  Metal;  party  walls  above  the  roof,  30  cts.  per  $100. 
3rd  Class  of  Hazards. — Buildings  of  Brick  or  Stone,  roofs  three-fifths  of 

Tile,  Slate,  or  Metal,  the  rest  Wood;  party  walls  above  the  roof,  25 

cts.  per  $100. 
4th  Class  of  Hazards. — Buildings  of  Brick  or  Stone,  covered  with  Wood; 

party  walls  above  the  roof,  45  cts.  per  $100. 
5th  Class  of  Hazards. — Buildings  of  Frame,  filled  in  with  Brick  to  the 

peak,  front  of  Brick.    60  cts.  per  $100. 
6th  Class  of  Hazards. — Frame  Buildings  filled  in  with  Brick  to  the  peak 

or  with  Brick  front  filled  in  to  the  plate,  75  cts.  per  $100. 
7th  Class  of  Hazards. — Frame  Buildirigs,  filled  in  with  Brick  to  the  plate, 

or  with  hollov/  walls  and  Brick  front,  84  cts.  per  $100. 
8th  Class  of  Hazards. — Buildings  entirely  of  Wood,  90  cts.  and  upwards 

per  $100. 

A  deduction  of  three  cents  allowed  on  all  buildings  of  the  second 
class  situated  fronting,  and  within  150  feet  of  the  river,  or  on  slips  within 
50  feet  of  the  water. 

All  Brick  or  Stone  Buildings  in  which  the  party  walls  are  not  carried 
through  the  roof,  to  pay  five  cents  additional. 

NOT  HAZARDOUS 
Goods  not  hazardous  are  to  be  insured  at  the  same  rates  as  the 
buildings  in  which  they  are  contained,  and  are  such  as  are  usually  kept 
in  dry  goods  stores;- including  coffee,  cotton  in  ^bales,  flour,  household 
furniture,  indigo,  paints  ground  in  oil,  potash,^  rice,  spices,  sugars,  teas, 
threshed  grain,  and  other  articles  not  combustible. 

HAZARDOUS 

The  following  trades  and  occupations,  goods,  wares,  and  merchan- 
dise, are  considered  hazardous,  and  are  charged  12^  cents  per  $100,  in 
addition  to  the  premium  above  named,  for  each  class:  viz. 

Basket-sellers,  Block  and  Pump-makers,  Coppersmiths,  china  or 
earthen,  or  glass-ware  or  plate  glass,  in  packages,  boxes,  or  casks,  flax. 
Grocers  with  any  hazardous  articles,  gun-makers  or  smiths;  Hat-finishers, 
hay  pressed  in  bundles,  hemp,  looking  glasses  in  packages  or  boxes, 
Manilla  grass,  milliners'  stock,  oil,  paper  in  reams,  paper-hangings,  pitch, 
porter-houses,  rags  in  packages,  Sail-makers,  saltpetre,  spirituous  liquors, 
sulphur,  tallow,  tar,  taverns,  turpentine,  victualling  shops,  window  glass 
in  boxes,  and  wooden  ware  sellers. 

EXTRA.  HAZARDOUS 

The  following  trades  and  occupations,  goods,  wares,  and  merchan- 
dise, are  deemed  extra  hazardous,  and  will  be  charged  25  cents  and  up- 
wards per  $100,  in  addition  to  the  premium  above  specified  for  eaph 
class:  viz. 

Alcohol,  Apothecaries,  aqua-fortis,  basket  bleachers  or  makers. 
Blacksmiths,  Boat  builders,  Booksellers'  stock.  Brass-founders,  Brush- 
makers,  Cabinet  makers'  stock.  Carvers,  china,  or  earthen,  or  glassware 
or  looking  glasses  unpacked,  and  buildings  in  which  the  same  is  packed 
or  unpacked,  Chocolate  makers,  Colourmen's  stock,  Comb-makers,  Con- 
fectioners or  their  stock.  Coopers,  Druggists,  etc.,  Founders,  Grate- 
makers,  hats  of  chip  or  grass  or  strain  bleaching.  Jewellers'  stock,  lamp 
manufactories,  lime  unslaked.  Mathematical  or  Musical  or  Optical  Instru- 
ment Sellers'  or  Perfumers'  stock,  morocco  manufactories.  Painters,  pic- 
tures, Platers,  or  plated  ware  manufactories,  prints.  Printers  of  news- 
papers, rag  stores.  Ship-chandlers,  Silversmiths'  or  Stationers'  stocks, 
Soap-makers,  spirits  of  turpentine,  stove  manufactories,  Tin  or  sheet-ircn 

12 


Prior  to  the  Standard  Policy 

workers,  tobacco  manufactories,  Toy  Shopkeepers'  stock.  Turners,  up- 
holstery manufactories,  varnish,  Watchmakers'  stock,  tools,  etc.,  window 
or  plate-crlass  unpacked. 

SPECIAL 
i\[em.  Bakers,  Bark-mills,  Frame-makers,  Fulling-mills,  Grist  mills, 
Cxunpowder,  Hat  manufactories,  Houses  building  or  repairing,  Ink  or 
Ivory-black,  or  Lamp-black,  Manufactories,  Livery-stables,  Lumber  or 
Mahogany  Yards,  Malt-houses,  Metal  and  other  Mills  of  all  kinds.  Musi- 
cal Instrument  Makers,  Oil-mills,  Oil-boiling  houses.  Paper  mills.  Piaz- 
zas, and  Privies  of  wood.  Printers  of  books  and  jobbing.  Rope-makers, 
Sash-makers,  Saw  or  SnufT-mills,  Ship-builder's  stocks  in  the  yard,  Ships 
or  other  vessels  in  port,  or  their  cargoes,  or  when  building  or  repairing, 
stables,  steam-engines  or  boats,  Sugar-refiners,  Tallow-melters,  or 
Chandlers,  Tanners  Tar-boiling  houses.  Theatres,  or  other  places  of  pub- 
He  exhibition,  Timber-Yards,  Turpentine-manufactories,  Type  Founders, 
Varnish-makers,  Wool-mills,  and  generally  all  manufacturing  establish- 
ments, and  all  trades  requiring  the  use  of  fire  heat,  not  before  enumerated. 

COUNTRY  HOUSES 

N.    B.      Country   houses,    standing    detached    from    other    buildings, 

though  of  the  6th,  7th  or  8th  class  will  be  insured  at 

60  to  90  cents  per  100  Dols,  Barns  and  Stables  in  the  country  at  85  cents 
and  upwards. 

Ships  in  Port,  or  their  Cargoes;  and  ships  building  or  repairing,  may 
be  insured  against  Fire. 

We  have  now  seen  the  three  important  features  of  the  poHcy 
prior  to  the  standard  poUcy.  I^rst  there  was  the  poHcy  itself,  sec- 
ond, the  proposals  containing  most  of  the  conditions,  which  was  for 
many  decades  a  separate  document  but  later  became  imited  with  the 
policy  itself;  and  third,  the  division  of  the  buildings  into  different 
classes  and  the  division  of  contents  into  different  groupings  with 
the  rates,  except  for  the  specials,  applying  thereto.  The  union  of 
these  three  into  one  document  represents  in  general  the  form  of  the 
policy  of  insurance  prior  to  the  standard  policy. 

Side  by  side  or  parallel  therewith  there  was  the  use  of  a  policy 
which  was  simple  in  form  when  compared  with  the  type  we  have 
been  considering.  We  illustrate  this  type  by  a  policy  of  the  Ameri- 
can Fire  Insurance  Company  of  Philadelphia  which  took  effect  the 
13th  day  of  July,  1810.     It  reads  as  follows: 

"This  Policy  of  Insurance  Witnesseth,  That  Daniel  Ley  of  the  City 
of  Philadelphia  Sugar  Baker  hath  paid  to 

THE  AMERICAN  FIRE  INSURANCE  COMPANY. 

Thirty  seven  Dollars  and  Fifty  cents 
Premium  for  insurance  (not  exceeding  in  each  ca:se  the  sum  or  sum? 
hereinafter  recited)  upon  the  property  herein  described,  viz.  . 
On  his  stock  in  Trade  including  utensils  appertaining  to  the  Business 
of  Sugar  Baker  contained  in  a  two  Story  Brick  Building  situate  on  the 
east  s'de  of  Sterling  Alley  between  Third  and  Fourth,  Cherry  aod  Race 
Streets  in  the  said  City. 

NOW  KNOW  ALL  MEN,  BY  THESE  PRESENTS,  That  in  con- 
sideration thereof,  The  Capital  Stock,  Estate  and  Securities  of  THE 
AMERICAN    FIRE    INSURANCE    COMPANY    shall    be    subject   and 

13 


The  Fire  Insurance  Contract 

liable  to  pay,  make  good  and  satisfy  unto  the  said  Assured  his  Heirs, 
Executors,  and  Administrators,  all  such  damage  or  loss  which  shall  or 
may  happen  by  Fire  to  ^e  property  above-mentioned,  from  the  day  of 
the  date  hereof  to  the  full  end  and  term  of  one  year  not  exceeding  the 
sum  of  Three  Thousand  Dollars  unless  the  said  Company  shall  forth- 
with give  directions  for  putting  the  said  stock  and  utensils  in  as  good  a 
state  as  they  were  in  before  they  were  so  injured  by  Fire,  or  shall  make 
good  the  said  loss  or  damage,  by  paying  therefor,  according  to  an  esti- 
mate thereof  to  be  made  by  arbitrators  indifferently  chosen,  whose 
award,  in  writing,  shall  be  conclusive  and  binding  on  all  parties:  or  pro- 
vided the  said  stock  and  utensils  shall  be  wholly  destroyed  by  Fire, 
within  the  term  aforesaid,  that  then  the  Capital  Stock,  Estate  and  Se- 
curities of  the  said  Company  shall  be  subject  to  pay  to  the  said  assured 
his  Heirs,  Executors,  Administrators  or  Assigns,  the  entire  sum  of 
Three  Thousand  Dollars  Provided  nevertheless,  and  it  is  hereby  declared 
to  be  the  true  intent  and  meaning  of  this  Policy,  that  the  Stock,  Estate 
and  Securities  of  said  Company  shall  not  be  subject  or  liable  to  pay,  or 
make  good  to  the  assured,  any  loss  or  damage  by  Fire  which  shall  hap- 
pen by  any  invasion,  foreign  enemy,  riot  or  civil  commotion,  or  any 
military  or  usurped  power  whatever:  .  .  .  and  this  policy  shall  re- 
main suspended  and  be  of  not  effect,  in  respect  to  any  loss  or  damage 
which  shall  happen  or  arise  during  the  time  of  any  such  accident  or  dis- 
turbance: Provided  also,  that  this  Policy  shall  not  take  place  or  be 
binding  on  the  said  Company  until  the  premium  is  paid,  or  in  case  the 
property  herein  mentioned  is  already  or  shall  be  hereafter  insured  by  any 
Policy  issued  by  this  Company,  or  by  any  agent  thereof,  or  by  any  other 
Insurance  Company,  or  by  any  private  insurers,  such  other  insurance 
m,ust  be  made  known  at  this  office,  and  mentioned  in  or  indorsed  on  this 
Policy,  otherwise  this  Policy  to  be  void;  Or  if  the  Building  above  men- 
tioned shall  at  any  time,  when  such  Fire  shall  happen,  be  in  the  whole  or 
in  part  occupied  (with  the  knowledge  or  consent  of  the  said  assured) 
by  any  person  who  shall  use  or  exercise  the  trade  or  business  of  a  Car- 
penter, Joiner,  Cabinet  Maker,  Coach  Maker,  Cooper,  Tavern  Keeper, 
Stable  Keeper,  Baker,  Ship  Chandler,  Boat  Builder,  Rope  Maker,  Malt 
Drier,  Brewer,^  Distiller,  Tallow  Chandler,  Soap  Maker,  Apothecary, 
Chemist,  Varnish  Maker,  Oil  and  Colorman,  Picture  or  Print  Seller, 
Printer,  Cotton  Spinner,  or  any  Mills  or  Machinery,  or  if  the  same  shall 
be  made  use  of  for  storing  or  keeping  of  Hemp,  Flax,  Tallow,  Pitch, 
Tar,  Turpentine,  Rosin,  Saltpetre,  Sulphur,  Gunpowder,  Spirits  of  Tur- 
pentine, Shingles,  Hay,  Straw,  Fodder  of  any  kind.  Corn  unthreshed,  Oil, 
Aqua  Fortis,  then,  in  all  or  any  of  the  said  cases,  this  Policy  and  every 
clause,  article  and  thing  herein  contained,  shall  be  void  and  of  no  effect. 

In  Witness  Whereof,  the  common  seal  of  the  said  Corporation  is 
hereunto  affixed  this  thirteenth  day  of  July  in  the  year  of  our  Lord  one 
thousand  eight  hundred  and  ten. 

SEAL        Edward  Tuck  (?)  Wm.  Jones  President 

Secy 

This  comparatively  simple  form  continued  in  some  cases  down 

to  practically  the  time  of  the  adoption  of  the  standard  policy  and  is 

illustrated  by  a  policy  of  the  Shoe  and  Leather  Insurance  Company 

of  Boston,  dated  the  first  day  of  January,  1873.   It  reads  as  follows:! 

SHOE  AND  LEATHER  INSURANCE  COMPANY. 
No.  This  Policy  of  Assurance  Witnesseth,  That  the  Shoe  and 

Leather  Company,  of  Boston,  do  by  these  presents,  cause 

CHRISTOPHER  FOSTER 

To  Be  Assured  Five  Thousand  Dollars  Viz. 

1%  $4000,  on  his  two  story  brick  Dwelling  House,  situate 

14 


Prior  to  the  Standard  Policy 

No.  559  Shawmut  Avenue,  In  Boston,  and 
1-1/4%  $1000.   on   Household  Furniture   &  Wearing  Apparel,   contained 

therein. 
Jan  17/77 

Payable  in  case  of  loss  to  William  Minot,  Trustee  and  Mortgagee, 

H.  B.  White  Secy. 

OTHER  INSURANCE  PERMITTED  WITHOUT  NOTICE  TILL 

REQUIRED 

against  all  loss  or  damage  to  the  same  by  fire,  originating  in  any  cause 
except  Invasion,  Foreign  Enemies,  Civil  Commotions,  Riots,  or  any 
military  or  usurped  power  whatsoever,  for  and  during  the  term  of  five 
years  commencing  the  risk  the  first  day  of  January  one  thousand  eight 
hundred  and  seventy-three  at  nc^on,  and  to  continue  until  the  first  day 
of  January  one  thousand  eight  hundred  and  seventy-eight  at  noon,  and 
no  longer,  the  said  loss  to  be  estimated  according  to  the  true  and  actual 
value  of  said  property  at  the  time  the  same  shall  happen — provided  that 
the  said  Company  shall  not  be  liable  for  more  than  the  sum  insured, 
in  any  case  whatever. 

SUM  INSURED— $5,000. 

And  the  assured  hereby  covenants  and  engages,  that  the  representa- 
tion given  in  the  application  for  this  insurance  contains  a  just,  full  and 
true  exposition  of  all  the  facts  and  circumstances  in  regard  to  the  condi- 
tion, situation,  value  and  risk  of  the  property  insured,  so  far  as  the  same 
are  known  to  the  assured  and  material  to  the  risk;  and  that  if  any  mate- 
rial fact  or  circumstance  shall  not  have  been  fairly  represented,  or  if  the 
said  property  should  be  removed  without  necessity  to  any  other  place, 
or  if  the  situation  or  circumstances  affecting  the  risk  thereupon  shall  be 
so  altered  or  changed  by  or  with  advice,  agency  or  consent  of  the  as- 
sured, as  to  increase  the  risk  thereupon;  or  if  the  said  property  should 
be  sold;  or  if  this  Policy  should  be  assigned  without  the  consent  of  the 
Company;  or  if  the  assured  shall  make  any  attempt  to  defraud  the  said 
Company,  that,  in  every  such  case,  the  risk  thereupon  shall  cease  and  de- 
termine, and  the  Policy  be  null  and  void — unless  confirmed  by  a  new 
agreement  thereupon,  written  after  a  full  knowledge  of  such  facts  and 
circumstances. 

And  the  assured  further  covenants  and  agrees  that  in  case  of  any 
loss  or  damage,  the  Company  shall  have  the  right  to  enter  upon  and  re- 
build or  repair  the  premises,  or  replace  the  property  lost  or  damaged, 
with  other  of  the  same  kind  and  equal  goodness, '  at  any  time  within 
ninety  days  after  notice  of  the  loss,  or  to  pay  for  the  same  in  Sixty  days 
after  proof  of  the  loss  or  damage  thereon. 

And  it  is  further  agreed,  that  in  case  there  should  be  any  other  In- 
surance on  the  property  hereby  assured,  whether  prior  or  subsequent,  the 
assured  shall  be  entitled  to  recover  on  this  Policy  no  greater  proportion 
of  the  loss  sustained  than  the  sum  hereby  insured  bears  to  the  whole 
amount  insured  thereon.  And  whenever  this  Company  shall  pay  any 
loss,  the  assured  agrees  to  assign  over  all  his  rights  to  recover  satisfac- 
tion therefor  from  any  other  person  or  persons,  town  or  other  Corpora- 
tion, or  prosecute  therefor  at  the  charge  and  for  account  of  the  Com- 
pany, if  requested. 

PREMIUM  $52.50. 

And  in  consideration  of  the  sum  of  Fifty-two  50/100  Dollars  to  them 
paid,  the  said  Company  do  hereby  bind  the  Capital  Stock  and  other  com- 
mon property  thereof,  to  the  assured,  his  executors  or  administrators, 
for  the  payment  of  all  sums  that  may  become  due  under  this  Policy. 

This  Policy  may  be  cancelled  at  the  office  of  the  Company,  and  a 
return  premium,  according  to  the  short-term  rates  current  in  Boston  for 
even  months,  returned  the  assured.  The  Company  also  reserve  the  right 
to  cancel  this  Policy  by  giving  the  assured  ten  days  notice. 

15 


The  Fire  Insurance  Contract 

And  in  case  any  Gunpowder,  or  other  article  subject  to  legal  re- 
strictions, shall  be  kept  in  quantities  greater  than  the  law  allows,  or  in  a 
rtianner  different, from  that  prescribed  by  law,  this  Policy  is  to  be  null  and 
void. 

And  in  case  Steam-power  is  used  in  and  about  the  property  insured, 
and  the  boilers  should  burst;  or  any  property  insured  is  struck  by  light- 
ning, this  Company  is  not  to  be  liable  unless  Fire  ensues,  and  then  for 
the  loss  or  damage  by  fire  only. 

And  in  case  any  difference  of  opinion  should  arise  between  the  par- 
ties hereto,  the  subject  shall  be  referred  to  three  disinterested  men,  one 
of  whom  to  be  chosen  by  each,  out  of  three  to  be  named  by  the  other 
party,  and  the  third  by  the  two  so  chosen. 

N.  B.  Bills  of  Exchange,  Notes,  Accounts,  and  Evidences  or  Securi- 
ties of  Property  of  any  kind.  Books,  Wearing  Apparel,  Plate,  Furniture, 
Money,  Jewels,  Medals,  Paintings,  Sculpture,  and  other  curiosities,  are 
not  to  be  insured  unless  by  special  agreement. 

In  Witness  Whereof,  the  President  of  the  said  Insurance  Company 
hath  hereunto  subscribed  his  name,  and  caused  the  same  to  be  counter- 
signed by  their  Secretary,  at  their  office  in  Boston,  this  first  day  of  Janu- 
ary one  thousand  eight  hundred  and  seventy-three. 

H.  B.  WlJte,  Secretary.  John  C.  Abbott,  President. 

No  alienat^lon  of  the  Property  shall  vitiate  the  right  of  the  Mort- 
gagee to  recover  .^ny  loss  under  this  Policy. 

The  device  o/  emphasizing  certain  features  of  the  policy  by  the 

use  of  capitals  for  the  initial  word  was  developed  as  shown  by  a 
policy  of  the  Corn  Exchange  Insurance  Co.  of  Philadelphia,  dated 
the  18th  day  of  ]u\/,  1860.  Four  items  were  thus  emphasized  in 
this  policy.     They  were  as  follows: 

CAMPHENE,  Spirit  Gas  or  "Burning  Fluid,"  when  used  in  stores, 
warehouses,  shops  or  msnufactories  as  a  light,  subjects  the  goods  therein 
to  an  additional  charge,  and  permission  for  such  use  must  be  endorsed 
in  writing,  on  the  Policy 

GUNPOWDER,  PHOSPHOROUS  and  SALTPETRE,  are  express- 
ly prohibited  from  being  deposited,  stored,  or  kept  in  any  building  in- 
sured, or  containing  any  goods  or  merchandise  insured  by  this  Polic}^, 
unless  by  special  consent,  in  writing,  on  the  Policy. 

PLATE  GLASS  doors  or  windows,  when  the  plates  are  of  the 
dimensions  of  three  square  feet  or  more,  are  subject  to  an  extra  pre- 
mium, and  must  be  separately  and  specifically  insured. 

FENCES  and  PRIVII  S,  also  store  furniture  and  fixtures  must  be 
separately  and  specifically  ii.iured 

Another  method  was  by  using  the  figure  of  a  hand  with  the 

index  finger  pointing  to  the  emphasized  paragraph.  This  is  illus- 
trated by  the  policy  of  the  Metropolitan  Insurance  Company  of  the 
29th  of  July,  1874.  Some  six  items  were  thus  distinguished  and 
they  were  as  follows : 

^f^  Gas. — The  generating  or  evaporating  within  the  building,  or  contig- 
uous thereto,  of  any  substance  for  a  burning  gas,  or  the  use  of  gasoline 
for  lighting,  is  prohibited  under  this  Policy  unless  permitted  in  writing 
hereon. 

^^  Fences  and  other  Yard  Fixtures  also  Store  Furniture  and  Fixtures  are 
not  insured  under  the  within  Policy,  unless  separately  and  specifically 
mentioned. 

*^  Builders'  Risk. — The  working  of  carpenters,  roofers,  tinsmiths,  gas- 
fitters,  plumbers,  or  other  mechanics,  in  building,  altering,  or  repairing 
the  premises  named  in  this   Policy  will  vitiate  the   same,  unless  permis- 

16 


Prior  to  the  Standard  Policy 

sion  for  such  work  be  indorsed  in  writing  hereon,  except  in  dwelling- 
houses  only,  where  five  days  are  allowed  in  any  one  year  for  incidental 
repairs,  without  notice  or  endorsement. 

S^  This  Policy  does  not  cover  Frescoed  work  or  Gilding  on  walls,  and 
ceilings,  unless  separately  and  specifically  insured. 

S^  Plate  Glass  in  doors  and  windows,  when  the  plates  are  of  the  dimen- 
sions of  three  feet  square  or  more,  are  to  be  separately  insured,  at  a  rate 
not  less  than  150  cents. 

«^  And  It  Is  Hereby  Understood  And  Agreed,  by  and  between  this  Com- 
pany and  the  assured,  that  this  Policy  is  made  and  accepted  in  reference 
to  the  foregoing  terms  and  conditions,  and  to  the  classes  of  hazards  and 
memoranda  printed  on  the  third  page  of  this  Policy,  which  are  hereby 
declared  to  be  a  part  of  this  contract,  and  are  to  be  used  and  resorted 
to  in  order  to  determine  the  rights  and  obligations  of  the  parties  hereto, 
in  all  cases  not  herein  otherwise  specially  provided  for  in  writing. 

A  third  method  was  the  use  of  red  ink  for  the  captions  of  the 
various  paragraphs  of  the  conditions.  This  was  the  case  in  the 
poHcy  from  which  the  above  extract  has  been  made. 

The  form,  of  which  so  much  is  made  at  the  present  time,  was  a 
comparatively  simple  matter  in  the  days  prior  to  the  standard 
policy.  For  instance,  one  policy  states :  "$2,000,  on  his  Household 
Furniture,  useful  and  ornamental,  wearing  apparel,  plates  and  plated 
ware,  and  printed  books  contained  in  the  brick  building  covered  with 
slate  situate  in  this  city  at  161  Hudson  Street."  The  use  of  those 
seven  familiar  words  '*on  his  household  furniture,  useful  and  orna- 
mental," shows  that  the  present  language  of  the  normal  household 
furniture  form  has  a  very  respectable  lineage. 

In  another  case  the  form  states  "On  his  stock  in  Trade  includ- 
ing utensils  appertaining  to  the  Business  of  Sugar  Baker  contained 
in  a  two  story  brick  building  situate  on  the  east  side  of  Sterling 
Alley  between  Third  and  Fourth,  Cherry  and  Race  Streets  in  said 
city."  This  was  a  confectioner's  shop,  but  fancy  the  language  that 
would  be  used  today  in  covering  that  simple  risk. 

Another  reads : 

"Seven  Thousand  Dollars  upon  his  Stock  in  Trade,  Consisting  of 
Mahogany  Boards  and  Plank,  Veneer,  and  Ironmongery,  viz. 

Six  Thousand  Dollars  upon  Mahogany  Boards  and  Plank  Contained 
in  the  Yard  in  the  Rear  of  his  House,  No.  33  &  35  Partition  Street 
- $6000. 

One  Thousand  Dollars  upon  Veneer  and  Ironmongery,  Contained 
in  his  two  story  frame  House,  with  a  Brick  Front,  situate  No.  33  Par- 
tition Street  in  said  City,  further  described  in  Surveyors  Report  No.  116 
filed  in  this  office -- $1000. 

For  One  Year,  to  expire  on  the  Sixth  day  of  September  One  thou- 
sand Eight  hundred  and  Eleven  at  Twelve  OClock  at  noon." 

A  policy  issued  by  the  Providence  Washington  Insurance  Com- 
pany on  the  23rd  of  March,  1825,  and  which  policy  continued  in 
force  until  1836  as  shown  by  an  endorsemer|t  on  the  back,  enables 
us  to  give  a  copy  as  an  illustration  of  the  renewal  receipts  which 

17 


The  Fire  Insurance  Contract 

continued  the  policy  in  force  for  so  many  years.     The  first  one 
issued  after  the  policy  was  written  we  reproduce : 

*  RENEWAL  RECEIPT,  NO.  152 

RECEIVED  OF  Moses  Guild  and  Samuel  Guild  Nine  Dollars  being 
for  premium  on  Two  Thousand  Dollars,  insured  by  the  Providence 
Washington  Insurance  Company,  by  their  Policy  No.  257  which  Policy  is 
hereby  continued  in  force  for  one  year  more,  viz.  from  the  Twenty 
Third  day  of  March  1826  at  12  o'clock  at  noon,  until  the  Twenty  Third 
day  of  March  1827  at  12  o'clock  at  noon. 

In   witness   whereof,   the    Providence   Washington    Insurance    Com- 
pany have   caused  these  presents  to  be   signed  by  their  President,   and 
attested  by  their  Secretary,  in  Providence,  this  23rd  day  of  March,  in  the 
year  of  our  Lord,  one  thousand  eight  hundred  and  twenty  six. 
Attested —  Rich  Jackson  President. 

Wm.  Mathewson  Secretary. 

This  policy  contains  another  interesting  feature,  and  that  is  an 
endorsement  written  in  long  hand  by  the  President.  It  reads  as 
follows : 

"The  assured  having  made  a  roof  extending  over  their  stone  barn 
and  sheds  so  as  to  cover  both  with  one  roof,  it  is  agreed  that  this 
shall  not  prejudice  the  insurance. 

Rich  Jackson  President 

C.  H.  Dabney,  Secy  Dec.  1,  1832" 

The  development  of  clauses,  as  we  now  call  them,  which  usu- 
ally followed  on  an  adverse  court  decision  either  to  the  buyer  or 
seller,  is  illustrated  by  the  appearance  of  an  embryo  mortgagee 
clause  found  on  the  policy  of  the  Shoe  and  Leather  Insurance  Com- 
pany of  the  1st  of  January,  1875.  This  clause  appeared  undoubtedly 
shortly  after  the  decision  which  took  away  a  large  part  of  the  rights 
which  up  to  that  time  it  had  been  supposed  the  mortgagee  held. 
With  that  adverse  court  decision  there  was  a  great  scramble  to  pro- 
duce a  clause  which  would  be  satisfactory  and  would  protect  the 
mortgagee.  On  the  policy  above  mentioned  the  clause  read:  *'No 
alienation  of  the  property  shall  vitiate  the  right  of  the  mortgagee 
to  recover  any  loss  under  this  policy." 

One  other  reference  and  then  we  give  way  to  the  Standard 
Policy.  There  was  a  company  known  as  the  Western  Marine  and 
Fire  Insurance  Company  in  New  Orleans.  A  policy  issued  by  this 
company  the  7th  day  of  February,  1843,  contains  the  contract  and 
conditions  in  one  document.  It  is  the  only  one  we  have  ever  seen, 
printed  in  English  and  French.  This  is  true  of  the  conditions  and 
also  true  of  the  proposals  on  the  reverse  side.  Of  course  there  was 
a  special  reason  in  New  Orleans  why  the  French  language  should  be 
given  almost  equal  prominence  with  the  English. 

After  an  examination  of  a  hundred  or  more  old  policies,  ex- 
tending from  the  earliest  down  to  the  standard  policy,  one  comes  to 

IS 


Prior  to  tpie  Standard  Policy 

the  concFusion  that  many  of  the  good  things  of  the  old  poHcies  are 
still  to  be  found  in  the  one  document  now  known  as  the  standard 
policy.  While  there  had  been  a  tendency  to  a  common  form  almost 
from  the  beginning,  yet  each  company  had  some  slight  variation 
from  the  others  which  just  prevented  uniformity.  And  it  probably 
would  never  have  been  achieved  unless  the  state  made  the  matter 
compulsory. 


19 


II 

ORIGIN  OF  THE  STANDARD  FIRE  INSURANCE 

POLICY 

(Adopted  1886-1887) 

Elijah  R.  Kennedy 

The  standard  policy  was  needed ;  therefore  it  came.  It  was  the 
result  of  an  evolution  out  of  business  conditions  that  were  intoler- 
able. When  it  appeared  it  instantly  effected  a  revolution ;  a  revolu- 
tion that  injured  no  man  or  no  interest,  but  benefited  every  one 
concerned.  Its  relation  to  the  general  business  welfare  of  this  State, 
and  of  most  other  States,  seems  to  me  to  justify  the  assertion  that 
the  statute  from  which  it  originated  is  not  second  in  importance  to 
any  enactment  of  the  New  York  Legislature  touching  fire  insurance. 

The  substitution  of  the  uniform  Standard  Policy  of  New  York- 
State  for  the  many  conflicting  policies, 

Marks  an  Epoch, 

and  I  dare  say  as  important  an  epoch  in  the  fire  insurance  business 
of  the  coimtry  as  any  event  or  article  since  fire  insurance  began  this 
side  of  the  iVtlantic.  It  wrought  not  only  a  great  reform  in  the 
affairs  of  companies,  but  also  a  beneficent  reform,  quite  as  much,  in 
the  affairs  of  property-owners  concerned  with  insurance. 

.  I  suspect  that  most  of  the  active  men  issuing  policies  today  can 
not  recall  the  condition  of  affairs  in  our  business  previous  to  twenty- 
five  years  ago,  when  the  Standard  Policy  was  made.  They  have 
never  had  to  adjust  a  loss  under  a  lot  of  conflicting  policies.  Previ- 
ous to  1887  each  company  prepared  its  own  policy.  There  were  no 
two  exactly  alike.  The  conditions,  many  of  them,  were  in  print  so 
fine  that,  as  Mr.  Richards  says  in  his  book,  "They  could  only  be 
read  by  the  aid  of  a  magnifying  glass."  The  consequence  was  that 
holders  of  policies  were  generally  unaware  of  many  of  the  important 
conditions  which  affected  their  business  so  materially,  and  thus, 
after  losses,  there  were  many  disagreeable  surprises,  much  indigna- 
tion, and  many  litigations. 

A  Characteristic  Incident 

occurred  at  Batavia,  in  this  State.  A  building  burned;  the  com- 
panies adjusted  the  loss  promptly  and  fairly,  as  the  owner  of  the 

20 


Origin  of  the  Standard  Policy 

building  said  to  me.  The  proofs  were  made  out,  and  the  companies 
promptly  paid : — all  but  one,  which  I  may  parenthetically  remark, 
is  now  deservedly  dead.  That  company  called  the  owner's  attention 
to  the  fact  that  among  the  fine  print  conditions,  where  the  lines 
were  not  even  numbered,  so  it  was  hard  to  refer  to  them,  there  was 
a  provision  under  which  the  company  did  not  cover  on  plate  glass 
above  a  certain  size,  unless  that  was  specially  indorsed  on  the  policy ; 
and  as  in  this  case  it  had  not  been  specifically  endorsed,  and  as  they 
had  learned  there  was  glass  in  the  building  above  the  size  per- 
mitted, they  found  that  they  were  wrongfully  allotted  a  charge  of 
fifteen  dollars  on  plate  glass,  which  they  deducted  from  the  pay- 
ment. Now,  the  other  companies,  I  will  say,  re-opened  their  adjust- 
ments, although  they  had  paid  their  losses,  and  made  up  that  fifteen 
dollars  among  them.  This  incident  explains  line  43  of  the  policy. 
"This  company  shall  not  be  liable  for  any  greater  proportion  of  the 
value  of  plate  glass,  frescoes,  and  decorations  than  that  which  this 
policy  shall  bear  to  the  whole  insurance."  That  was  necessary  at 
the  time,  because  it  was  the  purpose  of  many  companies  to  use  this 
policy  in  other  States,  where  there  would  be  companies  that  would 
not  use  it,  and  so  they  proposed  that  such  companies,  with  such 
clauses  as  saved  that  fifteen  dollars,  should  not  saddle  plate  glass 
and  fresco  amounts  all  on  to  companies  using  the  new  policy.  There 
are 

Othkr  Conditions 

which  require  a  similar  explanation.  In  lines  96  to  100,  for  instance, 
it  is  provided  that  a  company  issuing  this  policy  shall  not  be  liable 
for  more  than  its  proportion  of  the  entire  insurance  on  property  re- 
moved to  a  place  of  safety  when  endangered  by  fire. 

Companies  were  in  the  habit  of  altering  policy  conditions  to 
avoid  the  repetition  of  unfavorable  verdicts  in  court  and  unpleasant 
incidents  in  adjustments.  It  was  long  a  question,  and  I  think  it  still 
is,  whether,  under  insurance  on  merchandise  in  the  hands  of  a 
commission  merchant,  that  merchant's  commissions  are  covered. 
You  would  have  thought  that  in  the  great  Boston  fire,  where  most 
of  the  merchandise  burned  was  in  the  hands  of  commission  mer- 
chants, so  important  a  question  would  have  been  settled  on  so  great 
an  occasion.  Lawyers  here  gave  advice  to  companies  both  ways ; — 
that  they  were  liable  for  commissions  and  that  they  were  not.  The 
question  was  not  tried  out,  but  was  settled,  as  it  has  been  in  all  cases 
I  have  known  in  New  York  since,  by  compromise.  But  there  was 
one  large  company  here  which  subsequently  undertook  to  settle  that 

21 


The  Fire  Insuj^ance  Contract 

matter,  for  itself  at  least;  for  one  day  I  discovered  among  those 
very  fine  print  conditions  a  few  words  that  had  been  run  in  recently, 
specifically  declaring  that  that  company  would  not  pay  a  commission 
merchant  any  sum  on  account  of  commissions,  in  case  of  fire ;  that 
is,  under  insurance  covering  merchandise.  Now,  it  was  a  good 
deal  of  bother  to  correct  that  condition.  It  took  us  some  time  to 
get  together  eighty-five  policies  covering  merchandise  in  the  ware- 
houses and  storage  stores  of  commission  merchants,  but  when  they 
were  SU  handed  in  for  cancellation  one  day,  we  were  requested  to 
give  the  reason,  and  the  next  day  we  were  informed  that  those  fine 
print  words  had  been  erased  and  a  new  edition  of  fine  print  policies 
would  be  issued. 

The  New  York  Board  of  Fire  Underwriters  recognized  the  un- 
soundness of  this  state  of  affairs,  and  long  before  the  State  govern- 
ment acted,  before  any  State  provided  a  standard  policy,  the  Board, 
through  a  competent  committee  and  with  able  legal  counsel,  pre- 
pared an  excellent  form  of  policy,  and  many  companies  represented 
in  the  Board  began  to  use  it,  more  especially  the  New  York  and  Brit- 
ish companies  doraiciled  here;  but  it  was  not  used  by  all  the  com- 
panies represented  here,  and  not  used  by  companies  in  other  States ; 
and  gradually,  too,  under  apparent  necessities,  amendments  crept  in 
and  uniformity  was  destroyed. 

I  take  a  little  pride  in  having  drawn  a  bill  to  require  a  uniform 
policy  before  that  which  was  passed  in  1886,  which  bill  was  intro- 
duced in  the  Senate  by  the  Honorable  Charles  H.  Russell,  of  Brook- 
lyn. We  had  some  talk  about  it,  but  sentiment  had  not  at  that  time 
been  sufficiently  aroused  to  warrant  the  Senator  in  pressing  it, 
and  so,  while  it  was  reported  to  the  Senate,  no  eft'ort  was  made  to 
order  it  to  a  third  reading. 

Th^  First  State;  to  Undertakis  to  Rei^orm 

the  situation  I  have  briefly  referred  to  was  Massachusetts.  There 
the  Legislature  made  a  policy  which  was  embodied  in  a  statute, 
and  with  customary  jealousy  of  insurance  men  the  members  of 
the  Legislature  made  that  policy  without  much  conference,  and 
much  against  the  remonstrances  of  many.  The  natural  result  of 
that  was  that  within  a  year  the  Massachusetts  courts  had  declared 
one  of  the  most  important  conditions  in  that  policy  unconstitutional. 
I  think  it  is  still  in  the  policy.  The  policy  was  not  deemed  good 
enough  for  adoption  by  companies  elsewhere,  except  in  a  very  few 
States  where  its  use  was  enforced  by  law.    The  bill  which  resulted 

22 


Origin  of  the  Standard  Policy 

in  the  standard  policy  in  New  York  State  was  introduced  in  1886 
by  Senator  McMillan  of  Buffalo.    It  was  a 

Rs;suLT  o^  DiF?icui.Ti£:s 

arising  out  of  the  adjustment  of  a  loss  on  the  building  of  the  Young 
Men's  Christian  Association  in  that  city.  When  these  difficulties 
had  become  acute  the  matter  was  placed  in  the  hands  of  Senator 
McMillan  as  legal  counsel.  He  was  so  annoyed  and  exasperated  and 
baffled  by  the  non-uniformity  of  the  printed  conditions  in  the  many 
policies  that  he  determined  then  to  procure  legislation  for  uniform- 
ity. The  Board  of  Underwriters  here  would  have  favored  any 
measure  that  would  have  provided  a  uniform  policy  if  the  mem- 
bers could  have  been  sure  the  policy  would  be  a  good  one.  But, 
warned  by  the  example  of  Massachusetts,  and  disturbed  by  some 
provisions  in  Mr.  McMillan's  bill,  the  Board  instructed  its  Commit- 
tee on  Laws  and  Legislation  to  remonstrate  against  the  passage  of 
the  measure.  I  had  the  honor  to  be  at  the  time  Chairman  of  the 
Committee,  and  as  I  was  very  much  in  favor  of  an  enforced  uni- 
formity of  policy  conditions  I  asked  to  be  permitted  to  resign  from 
the  Committee;  but  the  arrangement  suggested  was  that  I  should 
not  resign,  but  be  excused  from  service  in  that  matter.  So  the 
members  of  the  Committee,  other  than  myself — some  of  them  at 
least — visited  Albany,  and  attended  a  public  hearing  of  the  Com- 
mittee on  Insurance  of  the  State  Senate.  At  that  time  the  Honor- 
able J.  Sloat  Fassett  was  chairman  of  the  committee,  the  Honorable 
Commodore  Perry  Vedder,  lately  deceased,  vice-chairman,  and  my 
good  friend  and  neighbor  over  in  Brooklyn,  the  Honorable  Stephen 
M.  Griswold  was  a  member,  with  whom  I  had  many  interesting  and 
profitable  conferences. 

Right  here  we  encountered  an  instance  of  getting  your  bread 
back  after  you  had  cast  it  upon  the  waters,  and  in  a  way  not  con- 
templated, I  suspect,  in  the  Scriptures  in  this  reference.  The  own- 
er of  the  building  at  Batavia  which  I  mentioned  turned  up  as  Sen- 
ator Walker,  a  member  of  the  Committee  on  Insurance  in  the  Sen- 
ate. Not  much  use  to  argue  with  him  against  a  standard  and  uniform 
policy.  But  I  am  bound  to  say  that  he  was  in  all  matters  temperate 
and  fair  in  his  treatment  of  the  question,  except  that  he  would  not 
have  the  subject  of  uniformity  debated  at  all — that  must  be.  The 
argument  against  the  measure  was  made  by  Mr.  Peter  Notman, 
President  of  the  Niagara  Insurance  Company,  and  I  suppose  at  that 
time  as  excellent  a  speaker  on  business  topics  to  business  men  as 

23 


The  Fire  Insurance  Contract 

any  man  in  the  fire  insurance  business  in  the  world;  a  man  of  every 
quality  that  was  admirable,  physical  and  mental.  ' 

I  visited  Albany  as  a  spectator,  and  after  the  hearing,  in  fifteen 
minutes,  learned  that  the  Committee  by  a  unanimous  vote  had  de- 
cided to  report  the  bill  favorably.     That  created 

A  Crisis  for  the:  Underwriters 

and  a  special  meeting  of  the  Board  of  Underwriters  here  was  called. 
It  referred  the  subject  to  its  Committee  on  Laws  and  Legislation 
with  full  discretion. 

I  visited  Albany  at  once,  and  I  think  that  on  that  trip  Mr.  Hull, 
who  was  Vice-Chairman  of  the  Committee,  accompanied  me.  At 
various  times  all  the  members  of  the  Committee  went  to  Albany, 
not  only  to  public  hearings,  but  for  discussions  and  conversations 
with  influential  members.  This  was  the  situation  that  confronted 
us — an  apparent  certainty  that  the  bill  would  pass.  In  that  case 
the  policy  was  to  be  made  by  the  Superintendent  of  Insurance,  who 
was  no  more  qualified  for  composing  a  policy  form  under  which 
every  fire. insurance  contract  in  this  State  should  be  made  than  an 
Egyptian  mummy  of  the  Second  Dynasty.  I  intend  no  disparage- 
ment of  Mr.  Maxwell,  as  man  or  politician  or  Superintendent.  We 
found  him  a  man  of  good  sense  and  good  disposition,  and  as  well 
aware  of  his  incapacity  for  making  a  policy  as  we  were.  But  there 
was  the  bill,  and  the  unanimous  report  in  its  favor,  and  a  very  de- 
termined and  strong  Senator  bound  to  have  the  credit  of  passing  it. 

Now,  I  do  not  positively  recollect  who  it  was  that  first  suggested 
that  the  New  York  Board  of  Fire  Underwriters  should  be  substi- 
tuted for  the  Superintendent  of  Insurance  to  make  the  policy.  I 
feel  quite  positive  the  suggestion  originated  in  the  Committee,  and 
I  suspect  that  the  Chairman  was  the  only  man  v^ho  had  the  temerity 
to  propose  the  alteration. 

Some  of  the  Committee  were  dubious  concerning  the  success 
of  the  proposition.  Their  feeling  was,  "The  State  will  never  dele- 
gate such  power  to  a  private  association."  Then  Mr.  Butler  helped 
us^  with  a  precedent.  He  reminded  us  that  the  State  had  delegated 
to  the  New  York  Chamber  of  Commerce  and  the  Board  of  Marine 
Underwriters  of  New  York  the  power  to  elect  the  commissioners 
who  license  all  Sandy  Hook  pilots.  Believing  in  the  worth  of  our 
proposition,  and  fortified  with  the  precedent  supplied  us  by  Mr. 
Butler,  we  returned  to  Albany  once  more.  I  went  up  to  Senator 
Fassett's  house  by  the  park,  one  evening,  and  after  a  long  and  full 

24 


Origin  of  the  Standard  Policy 

discussion  Senator  Fassett  was  convinced  that  some  alteration  was 
necessary,  and  he  said  to  me:  "Kennedy,  if  you  promise  me  that 
you  will  ^ee  that  a  policy  fair  to  the  public  shall  be  made,  I  will 
favor  your  change."  So  Senator  Fassett  went  down  to  the  Delevan 
House  with  me,  shortly  after  dinner,  and  talked  with  Senator  Mc- 
Millan. As  the  bill  stood  at  that  time  it  was  so  rigid  that  you  could 
not  have  added  descriptions  of  property  on  a  policy.  The  Senator's 
determination  to  enforce  uniformity  was  so  great  that  he  had  over- 
looked the  diversity  that  must  be  permitted  in  certain  parts  of  the 
policy  on  account  of  the  diversity  of  risks  and  owners.  Well,  we 
ihrashed  it  all  out  until  shortly  after  11  o'clock,  when  Senator  Fas- 
sett said,  in  terms  of  personal  familiarity  not  intended  for  publica- 
tion, "Well,  now.  Senator  McMillan,  I  am  going  home.  If  Ken- 
nedy wants  to  stay  here  and  fight  this  matter  out  with  you  any 
longer,  he  may.  I  think  Kennedy  is  right  and  you  are  wrong,  and 
if  you  don't  become  reasonable  I  will  introduce  a  substitute  for 
your  bill,  and  have  it  reported,  and  take  all  the  credit  for  passing 
a  uniform  policy  bill  myself."    So  after  two  o'clock  in  the  morning 

Senator  McMili^an  Becamh:  Tractable:. 

I  ought  to  say  that  the  Senator  was  not  hostile.  He  was  a  con- 
scientious man.  He  believed  it  his  duty  to  force  upon  the  com- 
panies a  requirement  that  they  use  only  one  policy;  he  feared  our 
amendments  might  prevent  that.  Aftei  satisfying  him  on  that  point 
we  found  it  comparatively  easy  to  obtain  his  consent  to  the  amend- 
ment allowing  the  Board  to  make  the  policy.  Mr.  McMillan  has 
gone  the  way  of  all  the  living.  The  historical  fact  remains  that  it 
was  he  who  originated  and  carried  through  the  bill  for  the  Standard 
Policy. 

The  bill  provided  that  the  Superintendent  of  Insurance  should 
make  a  policy,  and  the  amendment  read  "Unless  on  or  before  the 
fifteenth  day  of  October  the  New  York  Board  of  Fire  Under- 
writers shall  make  and  file  with  the  Secretary  of  State,"  a  policy. 

There  were  other  amendments  to  permit  the  flexibility  neces- 
sary in  making  individual  contracts.  Even  in  those  the  bill  was 
more  rigid  than  we  ourselves  felt  was  necessary.  However,  it  soon 
passed  and  became  Chapter  488  of  the  Laws  of  1886. 

The  Board  then  referred  the  making  of  the  policy  to  the  same 
Committee  on  Laws  and  Legislation.  The  members  of  the  Com- 
mittee who  are  still  living  are  Mr.  J.  Montgomery  Hare — and  I  can 
say  that  no  man  on  the  entire  committee  did  more  work,  or  better 

25 


/  The  Fire  Insurance  Contract 

work,  than  Mr.  Hare;  Mr.  James  A.  Alexander,  who  at  the  youth- 
ful age  of  eighty-five  continues  the  active  pursuit  of  our  business; 
Mr.  Charles  A.  Hull,  and  myself,  who  are  still  in  the  business,  and 
Mr.  William  M.  St.  John,  who  has  retired.  The  other  members  of 
the  committee,  Mr.  Peter  Notman,  Mr.  Charles  Sewall,  and  Mr. 
Henry  H.  Hall,  are  dead.  We  chose  as  additional  members  for  this 
work,  Mr.  F.  C.  Moore,  at  that  time  President  of  the  Continental 
Insurance  Company,  and  who  is  happily  living,  and  Mr.  Daniel  A. 
Heald,  at  that  time  President  of  the  Home  Insurance  Company, 
who  has  passed  away. 

I  assure  you  the  members  of  that  committee  appreciated 

The:  Great  Respgnsibiuty 

that  had  been  placed  upon  them.  From  the  first  we  hoped  to  make 
a  policy  that  should  be  so  good  that  it  would  satisfy  not  only  this 
State  but  all  the  States.  We  therefore  invited  co-operation  from 
underwriters  everywhere.  The  Hartford  companies  chose  Mr.  D. 
W.  C.  Skilton,  then  President  of  the  Phoenix  Insurance  Company, 
to  represent  them.  The  Philadelphia  Underwriters  chose  the  late 
Mr.  Thomas  H.  Montgomery,  at  that  time  President  of  the  Amer- 
ican Fire  Insurance  Company  of  that  city.  We  would  meet  and 
discuss  the  policy  subjects  that  came  up;  Mr.  Skilton  would  go 
back  to  Hartford  and  report  to  his  fellow  underwriters  in  that  great 
center  of  underwriting  brains  and  capital,  and  Mr.  Montgomery 
would  go  back  to  Philadelphia  and  confer  with  his  fellow  under- 
writers in  that  other  city  of  underwriting  brains  and  capital,  and 
then  they  would  return  with  the  result  of  their  conferences  and 
present  their  views  and  wisdom. 

In  those  days  there  was  a  company  at  Watertown,  N.  Y.  which 
was  sui  generis,  and  in  order  that  its  interests  should  be  fairly  con- 
sidered we  invited  its  secretary,  Dr.  H.  M.  Stevens,  to  become  a 
member  of  our  Committee.  He  accepted  and  attended  many  of  our 
meetings,  bringing  with  him  the  Honorable  A.  H.  Sawyer,  an  ex- 
judge  of  the  Supreme  Court;  and  I  tell  you  they  gave  us  many 
stiff  fights.  Of  the  thirteen  members  of  the  committee  seven  are 
still  living.  I  should  add  that  Judge  Sawyer,  in  matters  which 
were  not  peculiar  to  his  own  company,  was  of  very  great  .serv- 
ice to  us  in  the  discussions,  especially  of  legal  questions.  The 
Hartford  underwriters  sent  us  Franklin  Chamberlain,  a  gentleman 
eminent  especially  in  insurance  law ;  whose  text  books  in  those  days 
were  much  quoted  in  court,  and  much  consulted  by  underwriters, 

26 


Origin  of  the  Standard  Policy 

and  who  assisted  us  very  much  in  the  strictly  legal  questions.  The 
New  York  members  chose  as  Counsel  to  the  Committee  the  late 
William  Allen  Butler.  Mr.  Butler,  those  of  us  who  remember  him 
at  that  time  will  easily  agree,  was  recognized  as  the  leading  fire  in- 
surance lawyer  of  the  United  States,  besides  being  very  eminent 
indeed  in  several  other  most  important  branches  of  practice.  His 
judicial  tmperament,  his  perfect  familiarity  with  usages  in  our  busi- 
ness, his  broadness  of  view  and  freedom  from  the  trammels  of  petty 
technicalities,  and  his  serenity  amid  exciting  and  occasionally  acri- 
monious discussions,  were  of  inestimable  value  during  the  entire 
period  of  our  labors,  and  his  clarity  of  style  is  evident  in  every 
line  of  the  policy. 

Th^  Meetings  of  the  Committee 

were  held  sometimes  up  in  Mr.  Butler's  office  in  the  old  Trinity 
Building ;  of tener  in  the  offices  of  the  Commercial  Union  Assurance 
Company,  at  the  familiar  corner. 

From  what  we  regarded  as  three  of  the  best  policies  current 
at  that  time  we  took  the  conditions  on  the  various  subjects  in  the 
policies,  printed  them  at  the  upper  corner  of  large  sheets  of  paper, 
and  sent  them  to  underwriters  all  over  the  United  States,  asking 
them  to  improve  those  conditions,  to  substitute  other  conditions,  and 
to  write  tAeir  marks  and  discussions  on  the  page,  and,  if  requisite, 
on  other  pages.  When  those  scores  upon  scores  of  replies  came  in 
— some  of  them  from  as  far  as  California — it  fell  to  the  Chairman, 
who  acted  as  Secretary  also,  to  assort  and  classify  and  condense 
and  compare  them,  and,  when  they  were  pertinent,  to  present  them 
to  the  committee.  I  suppose  that  there  never  was  one-hundredth 
part  of  the  care  and  work  on  any  other  fire  insurance  policy  in  the 
world — at  least,  to  secure  the  opinions  and  judgment  of  underwriters 
throughout  the  nation — that  was  exhibited  in 

The  Preparation  of  this  Policy. 

At  the  outset  several  members  of  the  committee  favored  drop- 
ping the  word  "insure"  altogether,  and  using  the  word  "indemnify." 
Many  people  had  come  to  think  that  to  insure  a  man  a  certain 
amount,  or  not  exceeding  a  certain  amount,  meant  that  the  com- 
pany, in  case  of  fire,  was  to  pay  that  amount;  and  so  it  was  urged 
that  "will  indemnify  for  loss  by  fire"  should  be  substituted.  The 
majority  of  the  committee,  however,  adhered  to  the  old  term. 

The  next  matter  was  to  endeavor  to  confine  the  risk  to  the 

27 


The  Fire  Insurance  Contract 

place  described  in  the  policy.  Out  in  the  city  where  I  was  reared 
a  lady  whose  furs  were  supposed  to  be  insured  in  her  private  dwell- 
ing had  sent  them  down  for  repair  to  an  extremely  hazardous  risk 
in  the  business  part  of  the  city,  and  when  the  factory  burned  she 
found  a  lawyer  able  to  convince  the  jurors  and  the  court  that  the 
insurance  followed  the  furs;  that  it  was  a  natural  and  necessary 
use  of  the  furs  that  they  should  be  sent  out  for  repairs  occasionally. 
I  suppose  that  lady  had  the  idea  that  her  furs  were  also  insured 
when  she  wore  them  to  the  theatre.  Such  a  construction  would 
convert  every  household  furniture  policy  into  a  floater  at  private 
dwelling  rates.  Well,  we  endeavored  at  least  to  locate  the  com- 
panies' risk  by  using  the  words  'While  located  therein,  and  not 
elsewhere,"  and  since  then,  I  think,  the  decisions  have  been  favor- 
able to  the  view  that  the  risk  is  confined  to  the  place  which  the 
company  takes  a  premium  for.    There  were  those  who  favored 

A  Brid^  Policy. 

Doubtless  all  that  is  essential  could  be  compressed  into  half  the 
words  in  this  policy,  and  the  policy  would  then  be  understood  by 
officers  of  companies  and  adjusters,  but  not  by  the  general  public. 
The  Committee  felt  that  the  policyholders  should  have  the  condi- 
tions before  them  in  language  so  plain  that  it  could  be  understood 
without  necessity  for  consulting  a  lawyer  or  undertaking  to  learn 
what  the  latest  adjudications  were.  And  when  the  policy  appeared 
many  thought  it  was  too  long,  judging  from  its  size  and  appear- 
ance. That  is  partly  due  to  the  fact  that  the  type  was  much  larger 
and  more  open  than  most  of  the  type  in  the  policy  conditions  that 
people  were  accustomed  to.  There  are  2,536  words  on  the  face 
of  the  New  York  standard  policy,  exclusive  of  forms  and  strictly 
company  verbiage,  which  is  quite  one  thousand  words  shorter  than 
the  policies  that  were  formerly  used  by  many  of  the  great  companies 
doing  business  in  the  United  States. 

Now,  we  realized  as  a  Committee  that  we  and  the  Board  to 
which  we  must  report  were  substituted  for  the  Legislature  of  this 
State  in  making  a  standard  policy,  and  that  we  must  make  it  as 
fair  and  liberal  toward  the  peciple  of  this  State  as  a  reasonable  and 
fair-minded  legislative  committee  or  commission  would  do.  But  i 
can  illustrate 

The:  Spirit  which  Governed  the  Committee. 
I  may  remind  you  that  up  to  that  time  any  company  could  cancel  its 

28 


Origin  of  the  Standard  Policy 

policy  at  any  moment.  There  are  exceptional  cases,  such  as  when 
a  moral  hazard  has  been  discovered,  where  it  seems  fair  to  allow  a 
company  to  cancel  forthwith;  but  the  Committee  felt  it  would  be 
unfair  to  perpetuate  against  everybody  this  privilege  simply  be- 
cause companies  might  wish  to  exercise  it  in  one  case  in  ten  thou- 
sand. Therefore  they  provided  that  the  companies  might  cancel 
only  after  five  days'  notice.  Such  protection  of  the  interests  of  the 
insured  had  never  been  in  any  policy  in  New  York  State  or  any 
other  State,  except  one. 

Another  condition  in  the  interest  of  property  owners:  All 
policies  contained  a  clause  making  it  the  duty  of  the  insured  to  move 
property  endangered  by  fire.  In  the  New  York  standard  policy  that 
condition  continues,  and  is  expressed  in  lines  32,  33,  and  34.  But 
the  Committee  felt  that  if  a  man  moved  his  goods  at  the  behest  of 
the  insurance  companies  it  ought  not  to  be  left  to  a  court  cind  jury 
to  say  whether  the  insurance  continued  to  protect  him  in  the  place 
where  he  moved  his  goods;  and  so  we  framed  an  equitable  rule, 
which  you  will  find  beginning  at  line  60,  by  which  it  is  made  clear 
that  the  insurance  follows  the  goods  when  they  are  removed  out  of 
danger  of  fire  in  the  vicinity.  This  is  the  first  policy,  I  think,  that 
ever  contained  this  stipulation. 

Another  provision  solely  for  the  benefit  of  the  public :  Every 
policy  contained  a  more  or  less  stringent  clause  forbidding  altera- 
tions or  repairs  without  a  special  permit  endorsed  on  the  policy,  for 
which,  generally,  a  charge  was  made.  I  suspect  that  under  a  strict 
construction  of  this  clause  most  policies  were  invalidated  every 
year. 

Line  15  and  the  context  provides  a  reasonable  and  generous 
mechanic's  privilege  without  charge  and  without  the  trouble  of 
handing  in  the  policy  for  endorsement. 

Previous  to  this  many  policies  stipulated  that  a  mortgage  on 
real  estate  invalidated  the  policy  unless  the  consent  of  the  company 
was  obtained.  The  Committee  struck  that  out  altogether,  but  only 
after  strenuous  efforts  of  one  member  to  retain  the  old  provision. 
The  Connecticut  companies  were  especially  interested  to  have  it 
struck  out,  as  there  had  been  a  suit  in  Connecticut  against  one  com- 
pany which  undertook  to  plead  the  invalidation  of  its  policy  be- 
cause of  a  mortgage  on  a  farmhouse  in  Connecticut,  which  had  been 
destroyed  by  fire;  and  when  the  gentleman  from  that  one  company 
was  arguing  the  matter  before  the  Committee  Mr.  Skilton  reminded 

29 


The  Fire  Insurance  Contract 

him  that  the  Connecticut  companies  offered  to  pay  his  loss  for  him, 
if  he  would  let  them,  in  order  to  avoid  the  scandal  a  lawsuit  would 
create  and  the  hostility  certain  to  be  excited  in  the  Legislature. 
The  topic  assigned  me  does  not  call  for  the  discussion  of 

Ths  Conditions  of  the  Poucy. 

That  is  unnecessary,  for  our  friend  Mr.  Richards  has  lucidly  ex- 
plained them  in  his  book,  although  some  few  of  his  conclusions, 
like  court  decisions,  leave  room  for  contention.  But  the  historical 
account  would  be  incomplete  if  I  neglected  to  tell  how  some  fea- 
tures originated,  features  dissimilar  to  those  in  policies  that  were 
displaced  by  the  one  I  am  describing. 

First,  we  adopted  the  word  "insured"  instead  of  the  word 
"assured.''  And  since  there  is  not,  perhaps,  more  than  one,  and 
perhaps  not  even  one,  American  company  called  a  fire  assurance 
company,  I  regret  that  the  Insurance  Exchange  has  in  all  its  cir- 
culars and  promulgations  used  the  old  and  obsolete  term  of  "as- 
sured." It  is  not  too  late  for  the  Exchange  to  follow  the  statute 
and  the  standard  policy  under  which  all  the  contracts  are  made. 

Then,  in  the  line  numbered  i, — the  first  line  reads :  "This  com- 
pany shall  not  be  liable  beyond  the  actual  cash  value  of  the  prop- 
erty at  the  time  any  loss  or  damage  occurs." 

Here  is  a  fair  notice  to  people  who  had  an  idea,  such  as  the 
valued-policy  folly  promulgates,  that  the  value  of  the  property  is 
the  amount  of  the  insurance  policy.  This  was  put  in  to  correct 
that  misconception. 

There  are  other  words,  later  on  in  the  same  clause,  referring 
to  the  right  of  the  company  to  substitute  articles  of  ^'like  kind  and 
quality." 

Everything  was  done  to  tell  a  property  owner  plainly  that  he 
was  insured  simply  for  the  actual  damage  he  might  suffer  by  fire, 
and  that  the  companies  on  making  him  good  would  discharge  their 
full  obligation.  Mr.  Heald  expressed  himself  as  considering  the 
option  in  line  5,  "to  replace  damaged  property  with  other  of  like 
kind  and  quality,"  the  most  important  right  that  was  preserved  to 
the  companies  in  the  entire  policy. 

In  all  the  printed  lines  from  No.  1  to  No.  112  there  is  no  topi- 
cal caption  or  heading.  Many  of  the  best  policies  previous  to  this 
had  topical  headings,  but  Mr.  Butler  cautioned  us  regarding  the 
danger  of  that,  lest  some  one  condition  that  belonged  under  a  head- 
ing might  appear  somewhere  else  and  the  insured  thus  be  able  to 

30 


Origin  of  the  Standard  Policy 

claim  that  we  had  misled  him.  So  we  left  headings  out,  but  num- 
bered the  lines  to  make  them  easy  of  reference. 

Previous  to  this,  conditions  respecting  important  features  of 
the  contract  had  been  scattered  throughout  the  policies.  The  pro- 
visions relative  to  proceedings  after  a  loss  appeared  in  five  places 
in  one  of  the  best  policies  that  we  had  before  us,  and  indeed  ap- 
peared in  as  many  places  in  this  policy  when  the  stipulations  on 
that  subject  were  first  formulated.  The  Chairman  was  therefore 
authorized  and  directed  to  assemble  all  clauses  relative  to  certain 
subjects  by  themselves.  And  so  they  are  arranged  in  order,  and 
the  provisions  relative  to  proceedings  after  a  loss  appear  in  lines 
60  to  107. 

Here,  again,  the  purpose  of  the  Committee  was  to  set  plainly 
before  the  policyholders  their  rights  and  also,  as  well,  their  duties 
after  a  fire.  Experienced  adjusters  for  companies  do  not  need 
^these  rules  and  conditions  set  forth  in  this  place,  but  a  property 
owner  who  had  suffered  from  a  fire,  we  felt,  had  a  right  to  ex- 
pect that  these  details  of  the  contract  should  be  expressed  in  the 
contract,  so  that  he  need  not  have  to  go  and  consult  a  lawyer  aboui 
the  common  law. 

The:  Selection  of  an  Umpire 

in  appraisals,  before  this,  often  set  the  insured  and  the  companies 
at  loggerheads.  The  insured,  for  instance,  selected  his  appraiser, 
who  was  satisfactory  to  the  companies,  and  the  companies  selected 
their  appraiser,  who  was  satisfactory  to  the  insured.  And  then  one 
set  of  companies  said,  *^No,  we  cannot  choose  an  umpire,  except  in 
the  event  of  disagreement  by  the  appraisers.  That  is  in  our  pol- 
icies." Another  set  of  policies  required  the  selection  of  the  umpire 
at  the  outset.  So  what  they  call  in  France  an  impasse  occurred. 
Which  side  was  to  waive  the  conditions  of  their  policies — ^both 
sides  being  forbidden  by  the  terms  of  their  policies  to  waive  any- 
thing? We  thought  it  over  and  decided  that  it  would  be  better  to 
agree  on  an  umpire  before  the  appraisal  began;  for  wrangles  be- 
tween appraisers  sometimes  excited  such  antipathy  that  the  two 
found  it  impossible  to  choose  a  third — the  umpire.  We  provided 
against  that  by  the  stipulation  beginning  at  line  86. 

The  statement  of  the  acts  and  conditions  that  would  void  a 
policy  formerly  appeared  in  several  places.  Here  they  are  all  in 
one  place,  and  that  prominent  among  the  first  short  lines,  so  that 
no  policyholder  could  be  excused  for  overlooking  it.     Such  void- 

31 


The  Fire  Insurance  Contract 

able  conditions  as  cannot  be  waived  or  consented  to  by  the  com- 
pany are  clearly  mentioned  in  lines  7  to  10.  Those  that  may  be 
waived  or  consented  to  follow  in  lines  11  to  30. 

There   are  other   stipulations  comprised   in   the   printed  lines 
solely  for  the  information  and  understanding  of  policyholders 

There  are  also  provisions  designed  as  safeguards  against  ex- 
cess of  hostile  construction  by  courts.  At  line  73  it  is  provided 
that  the  prohibition  of  other  insurance  (unless  consented  to  by  the 
company)  applies  to  such  other  insurance,  whether  it  be  valid  or 
not.  The  stipulation  prevents  a  man  from  claiming  that  he  had 
no  other  insurance  if  he  had  done  some  act  to  invalidate  it. 
i  The  expression  "whether  valid  or  not"  was  intended  to  cover, 
also,  a  case  in  Iowa."  A  man  who  had  a  loss  presented  his  policies, 
we  will  say,  to  five  companies.  One  was  found  to  be  insolvent.  The 
man  said,  "Well,  then,  you  four  must  divide  the  loss  between  you." 
The  four  companies  said  "No,  you  have  been  carrying  this  in- 
surance. That  you  have  paid  for.  It  is  not  our  fault,  and  we  do 
not  prov30se  to  pay  that  company's  loss."  So  they  went  to  court, 
and  the  Iowa  court  decided  that  the  four  companies  must  pay,  thus 
virtually  making  solvent  companies  guarantors  of  the  solvency  of 
their  co-insurers.  So  the  companies  felt  it  was  quite  proper  that 
a  clause  should  be  inserted  in  our  insurance  policy  by  which  the 
owner,  and  not  the  solvent  company,  should  take  the  consequences 
of  his  buying  "cheap  and  nasty"  insurance. 

At  line  36,  the  provision  as  to  fallen  buildings  reads:  "If  a 
building  or  any  part  thereof  fall,  except  as  the  result  of  fire,  all 
insurance  by  this  policy  on  such  building  or  its  contents  shall  im- 
mediately cease."  We  knew,  of  course,  that  this  meant  any  im- 
portant part  of  a  building.  That  was  rendered  necessary  by  a  case 
in  Louisville,  Kentucky,  where  a  considerable  part  of  a  wholesale 
warehouse  fell,  and  fire  ensued,  completing  the  destruction  of  the 
contents ;  but  because  the  policy  conditions  read  "if  a  building  fall," 
and  because  the  zvhole  building  did  not  fall,  the  court  held  the  pol- 
icy had  not  been  invalidated,  and  the  companies  had  to  pay.  Most 
or  all  policies  used  to  contain  a  declaration  that 

I  Thi5  Brokkr  was  Agknt  of  the  Insured. 

Now  we  felt  that  was  unjust.  That  was  a  question  of  fact,  and 
sometimes  of  law,  in  each  case.  Sometimes  the  agent  of  the  com- 
pany becomes  also  the  agent  of  the  insured,  and  vice  versa.  This 
policy  avoids  the  folly  of  attempting  to  settle  that  question  in  ad- 

32 


Origin  of  the  Standard  Policy 

vance,  but  by  the  same  rule  of  reason  it  undertakes  to  prevent  hav- 
ing agents  appointed  for  the  company  or  foisted  upon  it  without 
its  consent.  You  will  find  the  stipulation  at  line  47;  "In  any  mat- 
ter relating  to  this  insurance  no  person,  unless  duly  authorized  in 
writing,  shall  be  deemed  the  agent  of  this  comprfny." 

We  refrained  from  any  declaration  as  to  who  shall  be  deemed 
the  agent  of  the  insured. 

One  of  the  leading  adjusters  of  the  present  time  came  to  me 
a  few  weeks  ago  and  said  he  was  about  to  deliver  an  address  on 
the  standard  policy.  He  had  adjusted  a  great  many  losses  under 
it  and  thought  he  understood  its  conditions — which  was  not  re- 
markable, since  he  is  a  man  of  at  least  average  intelligence,  and 
I  think  the  conditions  are  clearly  expressed.  But  there  was  one 
thing  in  the  policy  that  he  could  not  understand,  and  had  never 
found  any  one  who  could  explain  it  to  him.  He  called  my  atten- 
tion to  the  latter  part  of  line  100,  which  reads:  'Xiability  for  re- 
insurance shall  be  as  specifically  agreed  hereon." 

What  Doks  That  Mcan?'' 

To  understand  that  one  must  be  familiar  with  the  statute  creating 
this  policy,  and  with  all  the  circumstances.  Mr.  McMillan,  as  you 
know,  was  determined  to  secure  uniformity  in  fire  insurance  con- 
tracts in  this  state.  Even  after  we  had  secured  his  consent  to 
amendments  that  allowed  the  companies  to  write  in  descriptions  of 
property  and  a  few  indispensable  facts  and  conditions  applicable  to 
specific  risks,  the  bill  forbade  any  clause  "inconsistent  with  or  a 
waiver  of"  any  condition  of  the  standard  policy  and  prohibited 
"any  other  or  different"  rider  or  condition.  Fire  reinsurance  is 
substantially  fire  insurance  and  is  regulated  by  the  same  laws,  but 
reinsurance  varies  enough  from  direct  insurance  to  require  a  con- 
tract different  in  some  respects  from  a  contract  with  a  property 
owner.  Such  a  difiference  might  under  a  strict  construction  of  the 
statute,  be  regarded  as  prohibited.  So,  to  recognize  reinsurance 
and  enable  it  to  be  carried  on  under  Senator  McMillan's  law,  and 
in  accordance  with  the  conditions  of  the  standard  policy  with  such 
adaptions  as  were  requisite,  this  stipulation  at  line  100  was  in- 
corporated in  the  document. 

A  similar  explanation  will  account  for  the  provision  beginning 
at  line  56  and  another  provision  beginning  at  line  110.  The  law 
said:  "No  other  or  dififerent  provision,  agreement,  condition  or 
clause  shall  in  any  manner  be  made  a  part  of  said  contract  or  be 

«  33 


The  Fire  Insurance  Contract 

endorsed  thereon  or  delivered  therewith!'  Under  this  restriction 
even  a  mortg^agee  clause  could  not  have  been  used,  so  the  provision 
beginning  at  line  56  was  inserted.  Then  the  provision  beginning  at 
line  110  v^as  inserted  to  accommodate  mutual  companies,  of  which 
at  that  time  there  were  several  who  would  have  been  much  ham- 
pered in  their  natural  operations  without  some  such  stipulation. 

I  repeat  that  it  was  hard  work  to  persuade  Senator  McMillan 
of  the  necessity  of  some  of  the  amendments  we  proposed  to  his 
bill,  but  at  last  he  came  to  see  the  propriety  of  an  amendment  by 
which  "forms  of  description  and  specification,  or  any  schedules  of 
the  property  covered  by  any  particular  policy,  and  any  other  matter 
necessary  to  clearly  express  all  the  facts  and  conditions  of  insur- 
ance on  any  particular  risk  (which  facts  and  conditions  shall  in  no 
case  be  inconsistent  with  or  a  waiver  of  any  of  the  provisions  or 
conditions  of  the  standard  policy  herein  provided  for)  may  be 
written  upon,  or  attached  or  appended  to,  any  policy  issued  on 
property  in  this  State." 

Another  amendment  upon  which  we  agreed  was  that  "provi- 
sions required  by  law  to  be  stated  in  this  policy"  might  be  added 
thereon  or  attached  thereto.  This,  I  recollect,  was  intended  for 
the  convenience  of  the  companies  that  print  the  safety  fund  con- 
ditions on  their  policies,  and  I  do  not  remember  any  other  explana- 
tion. 

Six  Months'  Labor. 

Well,  we  worked  over  this  matter  assiduously  for  six  months.  Many 
of  us  gave  up  much  of  our  summer  holidays.  I  will  say  that  I 
never  served  on  a  committee  of  any  business  or  social  organization 
where  the  members  were  more  faithful,  more  punctual,  and  more 
conscientious,  and  I  trust  I  may  add  more  intelligent,  in  the  per- 
formance of  their  tasks.  And  I  shall  do  my  own  feelings  violence 
if  I  fail  to  mention  our  very  prompt  and  efficient  printer,  Mr.  L. 
W.  Lawrence,  and  his  foreman,  a  man  whom  I  knew  only  as  Billy. 
These  numbered  lines,  during  the  deliberations  of  the  policy, 
extended  all  the  way  across  a  sheet  of  the  size  of  a  policy,  with  am- 
ple space  between  for  notes — like  legislative  bills,  except  for  the 
size  of  the  paper,  and  I  suppose  that  during  the  deliberations  we 
had  at  least  50  prints  made,  as  conditions  were  altered,  introduced, 
or  eliminated.  Then,  when  we  were  through  and  the  policy  was 
ready,  Mr.  Butler  drew  our  attention  to  a  provision  of  the  statute 
that  called  not  only  for  a  policy,  but,  and  now  I  use  the  language 

a4 


Origin  of  the  Standard  Policy 

of  the  statute,  also  "Such  provisions,  agreements  or  conditions  as 
may  be  indorsed  thereon  or  added  thereto." 

And  he  advised  us  that  to  neglect  to  perform  this  duty  would 
work  for  forfeiture  of  our  right  to  make  and  file  the  policy.  So  we 
started  in  again  and  labored  for  another  month.  We  made  a  co- 
insurance clause  and  a  percentage  co-insurance  clause  and  a  light- 
ning clause  and  a  mortgage  clause — in  all  twenty-two  clauses.  Final- 
ly that  was  done  and  we  reported  to  the  Board.  There  was  a  strong 
effort  in  the  Board  to  force 

Th^  Co-Insurance  Clause 

into  the  printed  conditions,  and  we  opposed  that.  We  reminded 
the  members  that  for  the  task  of  supplying  a  policy  for  the  people 
of  this  State  the  Board  had  been  substituted  for  the  Legislature; 
that  the  Legislature  had  the  right  to  assume  that  the  people  would 
not  get  from  us  any  innovations  or  conditions  that  were  uncommon 
and  unfamiliar;  that  while  nobody  could  object  to  new  conditions 
more  liberal  to  policyholders  than  had  ever  been  placed  in  a  policy, 
we  were  expected  to  codify  and  carefully  express  the  conditions  to 
which  the  people  of  the  State  had  become  accustomed;  and  to  put 
in  a  new  condition  which  was  revolutionary  would  be  an  unwar- 
rantable exercise  of  the  authority  the  State  had  vested  in  the  Board 
and  would  discredit  us  all.  There  was  much  earnest  and  sincere 
debate  on  both  sides,  but  at  last  the  policy  and  all  the  twenty-two  ^ 
clauses  were  adopted  without  the  slightest  change.  We  realized  we 
were  not  to  make  a  new  policy,  especially,  but  a  policy  that  should 
produce  uniformity  throughout  the  State. 

The  statute  required  that  all  policies  should  conform  to  the 
standard  as  to  size,  type,  and  blanks.  As  one  legal  adviser  at  that 
time  said ;  "Every  policy  must  be  a  Chinese  copy  of  the  standard." 

We  never  contemplated  so  great  a  sheet  of  paper  as  the  present 
policy.  We  never  expected  that  these  numbered  lines  should  be 
hastily  run  together  in  one  place.  There  is  a  great  deal  of  blank 
paper  here  where  some  of  them  might  as  well  go,  and  we  expected 
to  take  this  policy  to  our  excellent  printer  and  also  some  other 
printer  of  renown  for  taste  and  ask  him  to  compose  a  policy  in 
which  the  type  should  be  large  and  legible  but  in  which  the  form 
and  shape  should  be  more  convenient  for  use.  By  permission  of  the 
legislature  that  might  even  now  be  done.  But  we  had  expended  so 
much  time — especially  on  those  twenty-two  riders — that  we  had  no 
more  time  to  obtain  the  typographical  arrangement  we  desired. 

35 


The  Fire  Insurance  Contract 

We  assembled  at  Mr.  Butler's  office  for  our  last  meeting.  Mem- 
bers had  felt  the  strain  of  the  prolonged  labors;  there  bad  been  some 
displays  of  impatience.  Now,  however,  there  was  the  best  of  feeling 
between  us  all,  and  we  received  Mr.  Butler's  benediction.  It  was  a 
tribute  to  the  fidelity,  the  zeal,  the  conscientiousness  of  the  mem- 
bers, and  we  felt  that  it  was  much  like  "approbation  from  Sir  Hubert 
Stanley."  I  think  we  all  felt  we  deserved  some  praise.  We  had 
completed  a  great  work,  and  we  had  put  into  it  the  best  of  which  we 
were  capable. 

I  shall  risk  your  good  opinion — it  is  the  business  of  insurance 
men  to  take  risks — when  I  say  that  I  shall  always  remember  with 
the  deepest  satisfaction  how  our  venerated  mentor  looked  in  my  eye, 
and  said :  "I  do  not  know  another  man  who  could  have  carried  this 
through." 

It  was  lat^  in  the  day  preceding  that  on  which  the  papers  must 
be  filed  with  the  Secretary  of  State  in  Albany  or  the  right  of  the 
Board  to  file  them  would  lapse.  We  were  unwilling  to  trust  to  the 
mail,  so  Mr.  Hull  sent  a  special  agent  of  the  Howard  Insurance 
Company  to  Albany,  and  the  Standard  Policy  was  launched. 

I  have  now  the  first  copy  of  the  standard  policy  that  was  ever 
printed.  I  saw  it  come  off  the  press  and  took  it  at  that  time.  It 
contains  the  autographs  of  the  members  of  the  committee  and  our 
three  legal  advisers.  Every  member  of  the  Committee  received  a 
copy  thus  signed. 

Mr.  Butler  once  told  me — jestingly — that  his  summer's  work 
for  our  Committee  was,  from  a  business  point  of  view,  the  worst 
thing  he  had  ever  done,  for  the  standard  policy  had  nearly  put  a 
stop  to  litigation  arising  from  policy  conditions.  Of  course,  it  was 
beyond  the  power  of  the  New  York  Board  to  eradicate  litigiousness 
altogether  from  human  nature, — the  legislature  hadn't  given  us  the 
authority^and  there  have  been  a  few  suits;  but  so  far  as  I  know 
there  have  been  only  two  subjects  concerning  which  the  New  York 
courts  have  interpreted  provisions  of  this  policy  contrary  to  the 
purpose  and  understanding  of  the  Committee  and  the  Board.  One 
was  in  construing  the  cancellation  clause,  which  begins  at  line  51. 
That  received  as  thorough  consideration  as  any  stipulation  in  the 
entire  policy.  European  policies  are  generally  not  subject  to  can- 
cellation at  all.  The  practice  in  America  differed,  and  we  felt  that 
we  must  continue  the  American  practice.  A  man  ought  to  be  able 
to  get  rid  of  his  policy,  or  the  company  get  rid  of  a  disagreeable 
customer,  as  easily,  at  least,  as  a  man  can  get  rid  of  his  wife  when 

36 


Origin  of  the  Standard  Policy 

they  become  tired  of  eadi  other.  If  property  owners  are  able  to 
cancel  at  any  time  there  is  no  hardship  to  the  company  in  that.  Pol- 
icies had  always  preserved  the  same  right  to  the  companies.  There 
are  several  good  reasons  why  companies  should  be  able  to  cancel. 
The  Committee  never  questioned  the  equity  or  the  wisdom  of  con- 
tinuing the  practice,  but,  as  already  stated,  we  determined  to  give 
the  insured  five  days'  notice. 

How  Give  Notice? 

It  was  proposed  that  it  should  be  done — here  is  the  language 
of  one  of  the  clauses  suggested :  "By  registered  letter  or  otherwise," 
Mr.  Butler  thought  that  a  poor  provision.  How  prove  that  a  regis- 
tered letter  had  been  delivered?  One  member  of  the  Committee 
pulled  out  his  scrap  book  and  displayed  three  receipts  for  notices 
that  had  been  sent  by  registered  letters  to  one  man.  "Do  you  mean 
to  tell  me,"  exclaimed  the  committeeman,/*that  those  three  policies 
are  not  cancelled?"  Mr.  Butler,  like  a  thorough  lawyer,  said,  "Let 
me  take  the  book."  Then  he  added,  "Each  of  the  three  notices  is 
signed  in  the  name  of  the  insured,  but  they  are  all  in  different  hand 
writings."  The  member  of  the  committee  collapsed  and  the  regis- 
tered letter  provision  was  striken  out.  We  concluded  to  require  the 
company  to  give  'ts  notice  in  any  way  convenient  or  practicable, 
leaving  the  burden  on  the  company  of  proving  that  it  had  actually 
given  notice.    Then  came 

The  Question  of  Return  Premium. 

The  principle  that  had  governed  was  that  if  you  take  a  man's 
insurance  away  from  him,  you  must  put  him  back  in  as  good  position 
as  he  was  in  before  he  paid  you  for  it.  You  must  return  or  tender 
him  the  unearned  part  of  his  premium.  The  committee  recognized 
the  equity  of  that  principle,  but  w^e  were  very  desirous  that  the 
company  should  be  relieved  of  the  necessity  of  actually  paying  with- 
out getting  a  receipt  or  any  acknowledgement.  In  cases  of  moral 
hazard — the  very  cases  that  troubled  the  companies — the  insured 
would  decline  to  receive  the  return  premium  and  deny  on  oath  that 
it  ever  had  been  tendered  to  him.  So  the  committee  determined 
that,  while  the  companies  should  restore  to  the  insured  what  he  was 
entitled  to,  the  companies  should  have  something  to  show  for  it.  I 
think  Judge  Sawyer  drew  up  the  first  clause.  The  clause  proposed 
received  very  thorough  discussion.  Finally,  Mr.  Skilton  took  it  to 
Hartford.    Mr.  Chamberlain  and  Mr.  Skilton,  after  a  week's  delib- 


The  Fire  Insurance  Contract 

cration  in  Hartford,  came  back  to  another  rheeting  of  the  Committee. 
I  remember  very  well  how  Mr.  Chamberlain  presented  the  new  form 
of  the  clause  to  the  committee.  Judge  Sawyer  looked  it  over  and 
smilingly  approved  it.  Then  it  was  passed  around  to  all  present, 
and  at  last  Mr.  Butler  examined  it  very  thoroughly,  altered  a  word, 
and  said,  '*I  think  that  will  do,''  and  that  is  just  as  it  stands  in  the 
policy  now,  beginning  at  line  51. 

Under  this  method  the  business  went  on  for  many  years.  Then 
a  talented  young  lawyer  was  able  to  persuade  the  Court  of  Appeals 
of  this  State,  in  the  case  of  Tisdell  versus  the  New  Hampshire  Fire 
Insurance  Company,  155th  New  York,  page  163,  that  this  clause 
did  not  mean  what  it  says,  and  that  when  a  company  wishes  to  can- 
cel, the  return  premium  must  be  paid  or  tendered  without  the  in- 
sured's complying  with  the  stipulation  that  he  must  return  the  policy. 
The  honorable  judge  who  wrote  the  opinion  for  the  majority  of  the 
court  based  his  conclusion  on  a  decision  of  the  same  court  on  an 
earlier  policy  and  a  different  provision.  Now  I  could  not  speak  dis- 
respectfully of  the  Justice  who  made  that  decision,  because  I  have 
a  profound  respect  and  admiration  for  him ;  but  when  the  same 
question  came  up  in  the  United  States  Circuit  Court  here,  in  the 
case  of  Swarzchild  &  Sulzberger  versus  the  Phoenix  Insurance  Com- 
pany of  Hartford,  the  learned  judge  decided  the  other  way.  (145 
Federal  Reporter,  653.)  The  syllabus  reads:  "It  is  not  essential 
to  the  effectiveness  of  cancellation  by  the  insurer  that  the  unearned 
premium  be  returned  or  tendered  before  the  surrender  of  the  pol- 
icy," and  in  rendering  his  decision  Judge  Wallace  used  this  lan- 
guage :  "The  decision  of  the  Court  of  Appeals  of  New  York  hold- 
ing the  contrary  in  respect  to  a  similar  condition  is  entitled  to  great 
consideration,  but  it  is  not  controlling  upon  this  court;  and  the 
view  of  the  minority  of  the  court,  expressed  in  the  dissenting  opin- 
ion, commends  itself  to  me  as  presenting  the  better  reasoning."  In 
the  United  States  Court  of  Appeals  (124  Federal  Reporter,  52), 
Judge  Wallace's  decision  was  affirmed.  The  three  judges  refer  to 
the  State  Court  of  Appeals  decision  in 

]  DeFE:RENTiAi.  Tkrms  01^  Disrespect. 

And  concerning  this  clause  in  the  policy  they  say:  "It  is  diffi- 
cult to  conceive  how  language  more  definite  could  have  been  em- 
ployed to  show  that  the  right  to  claim  such  unearned  premium  could 
only  occur  after  cancellation  by  the  insurer  and  surrender  of  the 
policy  by  the  insured." 

38 


Origin  of  the  Standard  Policy 

This  ought  to  be  some  time  again  submitted  to  the  State  Court 
of  Appeals. 

The  other  matter  in  which  the  courts  have  held  contrary  to 
the  purpose  and  understanding  of  the  Committee  and  of  all  under- 
writers is  in  the  case  of  Denley  versus  Glens  Falls  Insurance  Com- 
pany (184  New  York,  107).  Line  7  and  line  11  read,  "This  entire 
policy,  unless  otherwise  provided,  etc.,  shall  be  void"  in  certain  cases 
clearly  set  forth.  There  were  several  items  in  the  policy,  and  it  was, 
as  to  one  item,  unquestionable  that  the  insured  had  voided  something 
— the  ^'entire  policy,"  the  Glens  Falls  people  thought,  but  the  court 
held,  as  the  syllabus  expresses  it,  that  "Breach  of  warranty  as  to  one 
subject  of  insurance  does  not  affect  the  policy  as  to  the  other  sub- 
jects." 

I  cannot  feel  that  the  policy  is  to  blame  for  a  state  of  mind 
that  could  produce  such  a  decision.  Still,  able  and  unbiased  ex- 
pounders of  this  policy  appear  to  have  been  unaware  of  the  business 
considerations  that  led  to  the  adoption  of  this  clause  in  this  foim. 

The  companies  at  once  began  issuing  the  New  York  standard 
policy  everywhere.  Soon  other  States  passed  enactments  forbid- 
ding the  use  of  any  other  form.  Michigan  was  the  next  State  to 
establish  a  standard,  after  New  York.  That  policy  was  prepared 
by  a  commission  consisting  of  the  Superintendent  of  Insurance,  one 
lawyer,  and  one  Detroit  merchant,  and  when  they  had  their  policy 
completed  it  was  precisely  the  New  York  policy,  with  two  slight 
verbal  changes  and  one  change  of  condition.  It  was  hoped  before 
the  policy  went  into  force,  since  they  had  so  nearly  followed  the 
New  York  model,  that  they  might  be  persuaded  to  adopt  it  alto- 
gether. So  the  Western  Union  committee  came  on  from  Chicago 
to  Detroit  and,  obedient  to  a  request  from  the  committee  of  the 
National  Board,  I  went  there  to  meet  them.  The  State  Commission 
gave  us  a  very  courteous,  considerate,  and  patient  hearing,  and  the 
Superintendent  of  Insurance,  who  was  an  open-minded  and  fair 
man,  said,  after  the  hearing,  "If  we  had  known  the  enormous  pains 
taken  to  make  that  New  York  policy,  and  had  heard  your  explana- 
tion of  the  one  clause  in  which  we  have  differed,  I  feel  sure  there 
would  have  been  no  time  spent  in  working  up  this  matter  at  all,  but 
we  would  have  adopted  your  policy.'^  They  found,  however,  that  a 
good  many  companies  had  printed  the  new  policies  as  made  by  the 
commission,  and  they  felt  it  would  be  unfair  then  to  adopt  a  policy 
that  would  require  them  to  print  another  supply.  The  Phoenix  of 
Hartford  was  one  of  those  companies.    I  telegraphed  to  our  fellow 

39 


The  Fire  Insurance  Contract 

member,  Mr.  Skilton,  who  sits  here,  and  he  telegraphed  back :  "The 
Phoenix  would  much  rather  destroy  its  policies  than  have  a  varia- 
tion from  the  New  York  form."     But  it  was  too  late. 

The  National  Board  at  its  next  meeting  passed  a  resolution 
thanking  its  Committee  on  Laws  and  Legislation  for  the  effort ! 

Superintendent  Hendricks,  some  years  later,  secured  the  pass- 
age of  a  bill  authorizing  the  New  York  Board  to  make  additional 
clauses  for  riders,  which  the  developments  of  time  had  shown  were 
required,  and  at  the  last  session  Superintendent  Hotchkiss,  who  has 
greatly  honored  me  by  coming  to  hear  this  long  talk,  induced  the 
Legislature  to  authorize  a  form  of  blank  for  use  on  the  typewriter — 
which  has  taken  the  place,  in  so  many  offices,  of  pencils  and  pens. 
That  was  a  very  sensible  and  businesslike  provision.  There  is,  how- 
ever, after  the  twenty-five  years  which  we  celebrate  this  fall,  no 
"change  in  the  contract. 

I  look  back  with  profound  satisfaction  that  I  was  privileged  to 
serve  in  this  important  matter,  and  no  doubt  the  other  members  of 
the  committee  have  the  same  feeling  as  to  their  own  share  in  the 
work.  I  rejoice  that  I  have  lived  the  quarter  of  a  cenutry  since, 
and  that  you  have  given  me  this  opportunity  of  narrating  the  history 
of  the  origin  of  the  Standard  Fire  Insurance  Policy  of  New  York 
State. 

"Reported  stenographically  by  The  Weekly  Underwriter  and  subsequently 
edited  by  Mr.  Kennedy.  Published  first  in  The  Weekly  Underwriter,  December 
2,  1911.  Copyrighted  1911  by  The  Weekly  Underwriter  Printing  &  Publishing 
Company.     Used  by  permission." 

(1)  Seaman  v.  Fonereau,  2  Strange  1183. 

(2)  Burgess  v.  Equitable  Mar.  Ins.  Co.,  126  Mass.  70. 

(3)  Walker  v.  Maitland,    (1821)   5  Barnewall  &  Alderson,  17Ju 

(4)  Dehahn  v.  Hartley,   (1786)  1  T.  R.  343. 

(5)  Jeffery  v.    Legender,    (1691)    3   Lev.   320. 

(6)  Gaines  v.  Fidelity  &  Cas.  Co.,  188  N.  Y.  411. 

(7)  Capital  Fire  Ins.  Co.  v.  King,  82  Ark.  400. 

(8)  Westchester  F.  Ins.  Co.  v.  Ocean  View  Pleasure  Pier  Co.,  106  Va    633 

(9)  In  re  Bradley,  etc.,  Accident  Indem.  Soc,   (1912)   1  K.  B.  415 

(10)  Burleigh  v.  Gebhard  Fire  Ins.  Co.,   90  N.  Y.  220. 

(11)  Bean  v.   Stupart,   1  Dougl.  11. 

(12)  Owen  v.  Metropolitan  Life  Ins.  Co.,  74  N.  J.  L.  770. 


40 


Ill 

THE  NEW  STANDARD  FIRE  INSURANCE  POLICY 
OF  THE  STATE  OF  NEW  YORK 

(Adopted  January  1 J  1918) 

David  Eumsey 

Attorney;  Formerly  Vice-President  and  General  Counsel,  Continental 

Insurance  Company,  and  of  the  Committee  which  Drew 

Up  the  New  Policy 

The  fire  insurance  policy  is  probably  the  most  important 
contract  in  the  world,  and  the  New  York  standard  form  is  a 
document  upon  which  the  safety  of  practically  all  property  values 
in  this  country  is  dependent.  While  there  are  other  forms  of 
fire  policies  in  use  in  the  United  States,  the  New  York  standard 
is  the  legalized  contract  in  twenty-six  states  and  serves  as  the 
foundation  for  establishing,  and  the  gui'de  for  modification  of 
fire  insurance  contracts  in  use  throughout  the  rest  of  the  country. 
The  New  York  standard  form  was  established  by  law  in  1886. 
It  was  created  at  the  insistence  of  the  Legislature,  but  was  pre- 
pared by  the  Committee  on  Laws  and  Legislation  of  the  New 
York  Board  of  Fire  Underwriters.  The  interesting  history  of  its 
origin  by  Mr.  Kennedy,  one  of  the  members  of  the  Committee 
which  drafted  the  original  New  York  standard  policy,  was  pre- 
sented to  this  society  in  an  address  delivered  in  November,  1911. 
I  think  it  would  be  impossible  to  praise  too  highly  the  work  done 
in  the  preparation  of  the  original  New  York  standard  form.  The 
difificulty  of  formulating  a  single  contract  to  be  applicable  to  the 
vast  number  of  varying  conditions  of  property  insurance  can 
scarcely  be  overestimated.  The  successful  accomplishment  of  a 
most  dif^cult  purpose  is  indicated  by  the  fact  that  the  New  York 
standard  fire  policy  was  continued  in  use  without  change  for 
thirty-two  years,  and  during  that  time  comparatively  few  of  its 
provisions  have  been  nullified  by  the  courts  or  disregarded  as 
obsolete. 

The  original  New  York  standard  form  was  a  liberal  docu- 
ment, judged  by  the  standards  of  the  time  in  which  it  was  pre- 
pared. The  fact  remains,  however,  that  with  the  passage  of  time 
— with  the  broadening  and  uplifting  of  business  standards  and 
the  increased  public  impatience  with  technicalities,  the  old  con- 

41 


The  Fire  Insurance  Contract 

tract  became,  in  many  respects,  archaic  and  illiberal.  It  was  pre- 
pared in  an  age  which  antedated  the  agitation  against  capital  and 
trusts.  The  representatives  of  insurance  companies  were  jealous 
of  their  right  to  impose  their  views  upon  the  insurance  business. 
They  intended  to  be  just  to  their  customers  but  they  also  in- 
tended that  in  case  of  doubt,  the  companies'  interests  should  not 
be  imperiled  and  this  solicitude  for  the  companies'  interests  re- 
sulted in  certain  provisions  of  the  policy  contract  which,  tested 
by  modern  standards,  are,  in  certain  cases  unfair  and  in  other 
cases  unworkable. 

The  determination  to  revise  the  New  York  standard  policy 
took  official  form  in  the  year  1913  when  the  New  York  Legisla- 
ture adopted  a  joint  resolution  directing  the  Superintendent  of 
Insurance  to  submit  to  the  National  Convention  of  Insurance 
Commissioners  a  request  for  the' appointment  of  a  committee  to 
investigate  the  necessity  for  changes  and  to  recommend  to  the 
Legislature  such  changes  as,  in  the  opinion  of  the  Committee, 
might  be  necessary.  The  Committee  of  Insurance  Commission- 
ers was  composed  of  Mr.  Emmet  of  New  York,  Mr.  Young  of 
North  Carolina,  Mr.  Johnson  of  Pennsylvania,  Mr.  Mansfield  of 
Connecticut  and  Mr.  Ekern  of  Wisconsin.  They  requested  the 
cooperation  in  their  work  of  Mr.  Shallcross,  now  of  the  North 
British  &  Mercantile  Insurance  Company,  and  myself  acting  for 
The  Continental  Insurance  Company.  As  the  work  progressed 
it  was  done,  not  only  in  conference  with  the  Insurance  Commis- 
sioners Committee,  but  with  the  Committee  on  Laws  and  Legis- 
lation of  the  National  Board  of  Fire  Underwriters  >and  with  a 
.lumber  of  more  specialized  committees,  such  as  informal  confer- 
ences of  agents,  brokers  and  adjusters,  and  the  work  continued 
intermittently  for  about  four  years  before  the  new  standard  form 
was  completed  and  enacted  into  law  in  the  year  1917,  the  new 
policy  to  take  effect  January  1,  1918. 

The  new  policy  contains  upon  its  first  page  what  may  be 
termed  the  contract  of  insurance  reduced  to  its  simplest  form, 
relegating  all  of  what  may  be  regarded  as  the  incidental  provis- 
ions to  the  second  page.  These  become  incorporated  into  the 
contract  by  reference  thereto  in  the  main  contract. 

The  contract,  stripped  of  all  qualifying  clauses,  may  be  de- 
fined as  follows : 

The  company  agrees  to  insure,  or,  in  other  words,  to  indem- 

42 


The  New  Standard  Fire  Policy 

nify  against  loss  or  damage  by  fire  to  the  extent  of  the  value  of 
the  property. 

This  broad  undertaking  is  subject  to  three  vital  limitations, 
namely,  that  the  liability  of  the  company  shall  not  exceed  either — 

(1)  The  value  of  the  property,  or 

(2)  The  replacement  or  repair  cost,  or 

(3)  The  amount  of  the  insurance  named  in  the  policy. 
The  value  of  the  property,  as  used  in  the  contract,  is  more 

precisely  defined  as  meaning  the  "actual  cash"  value  "at  the  time 
of  loss  or  damage."  Thus,  the  idea  of  speculative  or  future  value 
is  eliminated  and  the  idea  of  any  fictitious  valuation  founded  upon 
the  relation  of  the  owner  to  the  property  is  negatived.  In  ascer- 
taining value,  "proper  deductions  for  depreciation"  must  be  made. 

The  cost  of  repair  or  replacement,  which  is  referred  to  in 
the  policy,  is  subject  to  three  qualifications: 

(1)  The  replacement  is  to  be  with  material  of  like  kind  and 
quality ; 

(2)  Its  cost  is  to  be  estimated  on  the  basis  of  a  reasonable  time 
to  make  the  repair  or  replacement. 

(3)  In  estimating  the  cost  of  replacement,  no  allowance  shall 
be  made  by  reason  of  the  fact  that  ordinances  or  laws  require  recon- 
struction or  repair  in  a  manner  or  with  material  more  expensive 
than  that  which  was  destroyed. 

Neither  value  nor  replacement  cost  shall  include  compensa- 
tion for  loss  resulting  from  interruption  of  business  or  manu- 
facture. 

A  contract  of  insurance  is  a  contract  of  indemnity.  This  has 
been  established  by  a  uniform  line  of  judicial  decisions  founded 
upon  sound  reasoning.  It  is  only  as  insurance  effects  indemnity 
that  it  can  be  economically  justified  and  freed  from  the  objec- 
tions which  would  attach  to  gambling  contracts  which  are 
against  the  public  policy  and  void.  It  was  with  this  view  that 
many  of  those  who  were  concerned  with  the  drafting  of  the  new 
form  proposed  to  substitute  for  the  words  "does  insure"  the 
words  "does  hereby  agree  to  indemnify,"  but  the  proposed 
change  of  phraseology  was  considered  to  be  unnecessary  in  view 
of  the  many  decisions  to  the  effect  that  the  word  "insure"  is  prac- 
tically synonomous  with  the  word  "indemnify."  This  idea  of 
indemnity  and  indemnity  only  is,  however,  expressive  of  the 
guiding  principle  of  a  valid  insurance  contract.  It  explains  all 
of  the  limitations  upon  the  company's  liability  and  the  qualifi- 

43 


The  Fire  Insurance  Contract 

cations  of  the  phrases  used  as  set  forth  in  the  main  contract  of 
the  new  form.  It  shows  that  the  purpose  of  the  contract  is  to 
restore  the  insured  to  the  position  in  which  he  was  prior  to  the 
loss  up  to  the  Hmit  of  the  indemnity  which  he  has  paid  for 
(namely,  the  amount  of  the  insurance)  but  that  the  values  which 
shall  be  restored  are  only  actual  or  commercial  values,  and  that 
a  proper  limit  of  indemnity  restricts  insurance  to  cost  of  replace- 
ment of  the  thing  destroyed  as  nearly  as  possible  in  the  condi- 
tion in  which  it  was  at  the  time  of  the  loss. 

The  first  page  of  the  new  form,  viewed  as  a  whole,  is  a  con- 
tract of  indemnity,  and  many  perplexing  questions  will  be  solved 
wisely  in  the  future,  as  they  have  been  in  the  past,  by  bearing  in 
mind  that  such  is  the  meaning  and  the  only  legitimate  scope  of 
a  policy  of  fire  insurance. 

The  new  form  runs  to  the  insured  *'and  legal  representa- 
tives." This  is  a  substitute  for  the  following  language  in  the  old 
form:  "Wherever  in  this  policy  the  word  'insured'  occurs,  it 
shall  be  held  to  include  the  legal  representative  of  the  insured." 

The  new  form  defines  the  insurance  as  covering  "to  the  ex- 
tent of  the  actual  cash  value  (ascertained  with  proper  deductions 
for  depreciation)  of  the  property  at  the  time  of  loss  or  damage." 
This  is  a  substitute  for  the  following  language  of  the  old  form: 

This  Company  shall  not  be  liable  beyond  the  actual  cash  value  of 
the  property  at  the  time  any  loss  or  damage  occurs^  and  the  loss  or 
damage  shall  be  ascertained  or  estimated  according  to  such  actual  cash 
value,  with  proper  deduction  for  depreciation  however  caused. — (Lines 
1  'and  2.) 

Thus  the  undertaking  of  the  company  becomes  expressed  in 

the  affirmative  instead  of  in  the  negative  as  formerly.  The  con- 
struction of  the  old  policy  and  the  new  should  be  the  same,  for 
under  the  old  policy  the  obligation  of  the  company  was  held  to 
extend  to  the  value  of  the  property,  subject  to  the  other  limita- 
tions of  the  contract,  although  it  was  based  altogether  upon  the 
judicial  interpretation  of  the  word  "insure." 

The  new  form  limits  the  insurance  as  follows:  "But  not  ex- 
ceeding the  amount  which  it  would  cost  to  repair  or  replace  the 
same  with  material  of  like  kind  and  quality  within  a  reasonable 
time  after  such  loss  or  damage,  without  allowance  for  any  in* 
creased  cost  of  repair  or  reconstruction  by  reason  of  any  ordinance 
or  law  regulating  construction  or  repair."  This  is  an  adaptation  of 
the  following  in  the  old  form : 

and  shall  in  no  event  exceed  what  it  would  then  cost  the  insured  to 
repair  or  replace  the  same  with  material  of  like  kind  and  quality; 
in  line  2  and  also  the  following: 

44 


The  New  Standard  Fire  Policy 

nor,  beyond  the  actual  value  destroyed  by  fire,  for  loss  occasioned  by 
ordinance  or  law  regulating  construction  or  repair  of  buildings; 
in  lines  41  and  42. 

As  a  matter  of  form,  the  clause  which  was  at  lines  41  and 
42  should  follow  the  clause  which  it  qualifies  instead  of  being 
forty  lines  removed  from  it. 

As  a  matter  of  substance,  the  omission  of  the  words  ''the  in- 
sured" in  old  line  number  2  renders  it  unnecessary  in  the  future 
to  consider  the  relation  of  the  insured  to  the  cost  of  repair  or 
replacement.  Hereafter  the  subject  will  be  treated  upon  an  ab- 
solute rather  than  a  relative  basis.  If  the  insured  is  in  such  a 
position  as  to  be  able  to  repair  or  replace  at  less  than  market  cost, 
that  circumstance  would  not  necessarily  be  available  to  the 
company  to  decrease  its  Uability  in  so  far  as  it  may  be  measured 
by  the  replacement  cost  and,  on  the  other  hand,  if  for  any  rea- 
son it  is  peculiarly  difficult  for  the  insured  to  replace  and,  con- 
sequently, the  cost  of  replacement  would  be  greater  than  market 
cost  if  done  by  the  assured,  that  circumstance  cannot  be  used 
against  the  company's  interests.  Cost  of  repair  or  replacement 
should  be  treated  on  the  basis  of  general  market  conditions 
rather  than  in  its  relation  to  any  particular  party,  and  it  was 
with  this  view  that  the  change  from  the  old  form  was  made. 

Again,  the  change  by  striking  out  the  word  "then"  and  add- 
ing in  the  new  form  the  phrase  "within  a  reasonable  time  after 
s«ch  loss  or  damage"  is  in  line  with  a  rational  and  fair  treat- 
ment  of  this  subject  instead  of  a  technical  one.  As  a  result  of 
this  change,  there  should  be  no  room  for  argument  that  the  re- 
placement cost  which  is  referred  to  involves  immediate  action 
and  the  increased  expense  thereof  instead  of  a  reasonable  time 
allowance  in  view  of  the  situation  and  the  character  of  the  work 
of  replacement. 

The  elimination  of  the  words  "of  buildings"  as  formerly  in 
line  42  was  not  intended  as  a  change  of  substance,  but  was  done 
merely  because  the  words  added  nothing  to  the  meaning  of  the 
sentence. 

The  insurance  is  further  limited  by  the  new  form  as  follows : 
and  without  compensation  for  loss  resulting  from  interruption  of  busi- 
ness or  manufacture. 
The  corresponding  provision  of  the  old  policy  v/as  found  in  the 

paragraph  at  lines  38  to  44 : 

This  Company  shall  not  be  liable  for  loss  to. or  by  interruption  of 

business,  manufacturing  processes,  or  otherwise. — (Line  42.) 

45 


The  Fire  Insurance  Contract 

The  change  is  not  one  of  substance  but  of  form.  As  neither 
computations  of  the  value  of  destroyed  or  damaged  property  nor 
estimates  of  its  replacement  cost  are  to  be  increased  by  loss  from 
interruption  of  business  or  manufacture,  it  is  important  to  the 
policyholder  to  be  informed  of  this  by  an  expression  of  the  limi- 
tation as  a  qualifying  clause  immediately  connected  with  the 
statement  of  the  company's  principal  undertaking.  If  the  in- 
direct loss  due  to  interruption  of  business  or  manufacture  is  to 
be  insured  it  should  be  covered  by  use  and  occupancy  or  profits 
insurance. 

The  new  form  provides  for  insurance  not  only  by  fire  but  "by 
removal  from  premises  endangered  by  fire."  This  provision  is 
new.  The  provision  in  the  old  form  was  restricted  to  a  qualified 
continuance  of  the  insurance  against  fire  loss  in  a  new  location, 
but  provided  for  no  liability  for  loss  or  damage  incident  to  the 
removal  (Old  form  lines  60  to  66).  Some  courts  have  held  that 
loss  or  damage  incurred  in  the  process  of  removal  made  neces- 
sary by  danger  of  fire,  are  proximately  caused  by  the  fire  and 
therefore  the  insurer  is  liable.  While  this  rs  open  to  question  as 
a  legal  proposition,  a  sound  public  policy  and  the  interest  both 
of  the  insured  and  the  insurers  require  that  the  company  should 
assume  such  liability.  Hereafter  the  obligation  will  depend  upon 
a  clear  provision  in  the  contract  and  uniform  treatment  of  the 
subject  will  be  required. 

The  new  form  refers  to  the  property  covered  in  the  follow- 
ing language: 

to  the  following  described  property  while  located  and  contained  as 
described  herein,  (or  pro  rata  for  five  days  at  each  proper  place  to  which 
any  of  the  property  shall  necessarily  be  removed  for  preservation  from 
fire),  but  not  elsewhere,  to-wit: 

In  the  old  form  this  clause  read  as  follows : 
to    the    following    described    property   while    located    and    contained    as 
described  herein  and  not  elsewhere,  to-wit: 

All  of  this  language  is  retained  but  between  the  word  **here- 
in"  and  the  word  "and"  is  inserted  a  clause  in  parenthesis  con- 
tinuing the  insurance  for  five  days  at  a  place  to  which  property 
is  necessarily  removed  to  preserve  it  from  fire.  The  correspond- 
ing provision  of  the  old  policy  was  as  follows : 

If  property  covered  by  this  policy  is  so  endangered  by  fire  as  to 
require  removal  to  a  place  of  safety,  and  is  so  removed,  that  part  of  this 
policy  in  excess  of  its  proportion  of  any  loss  and  of  the  value  of  property, 
remaining  in  the  original  location,  shall  for  the  ensuing  five  days  only, 
cover  the  property  so  removed  in  the  new  location;  if  removed  to  more 
than  one  location,  such  excess  of  this  policy  shall  cover  therein  for  such 
five  days  in  the  proportion  that  the  value  in  any  one  such  new  location 

46 


\ 
\ 

The  New  Standard  Fire  Policy 

bears  to  the  value  In  all  such  new  locations;  but  this  company  shall  not, 
in  any  case  of  removal,  whether  to  one  or  more  locations,  be  liable  be- 
yond the  proportion  that  the  amount  hereby  insured  shall  bear  to  the 
total  insurance  on  the  whole  property  at  the  time  of  fire,  whether  the 
same  cover  in  new  location  or  not. — (Lines  60-66.) 

This  provision  of  the  old  form  was  in  terms  flatly  contradic- 
tory to  the  clause  limiting  the  risk  to  the  described  location.  It 
was  more  elaborate  than  the  importance  of  the  five-day  risk  war- 
ranted and  it  was  ambiguous.  The  necessity  for  the  elabora- 
tion was  only  because,  by  the  old  form,  property  removed  as 
a  precaution  thereupon  became  outside  the  scope  of  the  policy 
and  had  to  be  brought  back  under  the  terms  of  the  policy  for  the 
five-day  period  by  means  of  a  clause  which  defined  its  participa- 
tion in  the  insurance  with  the  property  not  so  removed.  The 
efiFect  of  qualifying  the  general  limitation  as  to  location  by  the 
words  in  parenthesis,  is  to  leave  the  removed  property  within  the 
description  of  property  insured,  for  five  days  after  removal,  and 
the  words  pro  rata,  which  now  have  a  recognized  meaning  in  in- 
surance terminology,  define  the  extent  of  participation  in  the  in- 
surance, by  property  rciiioved  to  one  or  more  places,  precisely 
the  same  as  if  the  entire  clause  of  the  old  policy  were  used. 

The  new  policy  reads : 

^  Fraud    misrcDre   '^^^^  entire  policy  shall  be  void  if  the  insured 

^  sentation   etc        ^^^    concealed    or    misrepresented    any    ma-^ 

3  '        •  terial    fact    or   circumstance    concerning:   this 

4  insurance  or  the  subject  thereof;  or  in  case  of  any  fraud  or  false 

5  swearing  by  the  insured  touching  any  matter  relating  to  this 

6  insurance  or  the  subject  thereof,  whether  before  or  after  a  loss. 

The  old  form  read  as  follows : 

This  entire  policy  shall  be  void  if  the  insured  has  concealed  or  mis- 
represented, in  writing  or  otherwise,  any  material  fact  or  circumstance 
concerning  this  insurance  or  the  subject  thereof;  or  if  the  interest  of  the 
insured  in  the  property  be  not  truly  stated  herein;  or  in  case  of  any 
fraud  or  false  swearing  by  the  insured  touching  any  matter  relating  to 
this  insurance  or  the  subject  thereof,  whether  before  or  after  a  loss. — 
(Lines  7-10.) 

The  omitted  words  "in  writing  or  otherwise"  added  nothing. 
In  the  absence  of  expressed  restriction  upon  the  kind  of  conceal- 
ment or  misrepresentation  intended,  it  is  manifestly  impossible 
to  limit  their  meaning  by  implicaton,  so  as  to  require  an  addi- 
tional phrase  for  the  purpose  of  extending  the  meaning  which 
results  from  the  simple  use  of  the  words,  without  qualification. 
It  was  thought  that  the  omitted  words,  "or  if  the  interest  of  the 
insured  in  the  property  be  not  truly  stated  herein,"  have  some- 
times worked  injustice  upon  the  insured,  without  being  necessary 
for  the  protection  of  the  company  against  dishonesty.  The  state- 
ment of  the  interest  of  the  insured,  as  set  forth  in  the  policy,  may 

47 


The  Fire  Insurance  Contract 

be  made  by  the  company  or  its  agent,  not  by  the  insured.  If  the 
statement  is  erroneous  by  reason  of  concealment  or  misrepresen- 
tation by  the  insured,  the  policy  becomes  void  by  the  operation 
of  the  clause  at  lines  1  to  6  referring  to  fraud  and  misrepresenta- 
tion. But  in  the  absence  of  fraud,  the  insurance  should  not  be 
invalidated  through  any  error  of  expression  made  by  the  com- 
pany's agent  but  not  induced  by  the  wrongdoing  of  the  insured. 
The  new  policy  contains  a  clause  similar  to  the  old  form  as 
to  property  which  is  not,  and  cannot  be  insured  (new  policy  lines 
7-9,  old  policy  line  38).  But  the  provision  as  to  property  ex- 
cepted from  the  coverage  now  provides  that  the  policy  shall  not 
cover  » 

9  nor,  unless  specifically 

10  named    hereon    in    writing,    bullion,    manu- 

11  scripts,  mechanical  drawings,  dies  or  patterns. 

The  old  form  provided  as  follows : 
nor,  unless  liability  is  specifically  assumed  hereon,  for  loss  to  awnirugs, 
bullion,  casts,  curiosities,  drawings,  dies,  implements,  jewels,  manu- 
scripts, medals,  models,  patterns,  pictures,  scientific  apparatus,  signs, 
store  or  office  furniture  or  fixtures,  sculpture  tools,  or  property  held  on 
storage  or  for  repairs. — (Lines  39-41.) 

Thus  under  the  new  form  unless  so  stated  in  the  policy  the 
company  is  not  liablff  for  loss  "to  bullion,  manuscripts,  mechani- 
cal drawings,  dies  or  patterns"  even  though  such  property  be 
within  the  general  'description  of  the  property  insured  as  shown 
by  the  description  upon  the  first  page  of  the  policy.  But  all  of 
the  other  kinds  of  property  which  by  the  old  form  could  be  cov- 
ered only  by  rider  now  are  within  the  general  coverage  of  the 
policy  if  they  are  fairly  within  the  general  description  of  the 
property  insured  although  not  specifically  mentioned. 

The  clause  as  to  hazards  which  are  not  covered  is  the  same 
as  in  the  old  policy  (new  policy,  lines  12-19,  old  policy,  lines 
31-34). 

The  new  policy  reads  as  follows : 

20  This  entire  policy  shall  be  void,  unless  otherwise  provided   , 

21  by  agreement  in  writing  added  hereto,  i 

22  n«,«o,.oV,;T%    ««■«.      (^)  'f  the  interest  of  the  insured  be  other  than 

23  uwnersnip,  etc.     ^unconditional  and  sole  ownership;  or  (b)  if 

24  the  subject  of  insurance  be  a  building  on  ground  not  owned  by 

25  the  insured  in  fee  simple;  or  (c)  if,  with  the  knowledge  of  the 

26  insured,  foreclosure  proceedings  be  commenced  or  notice  given 

27  of  sale  of  any  property  insured  hereunder  by  reason  of  any  mort- 

28  gage  or  trust  deed;  or  (d)  if  any  change,  other  than  by  the  death 

29  of  an  insured,  take  place  in  the  interest,  title  or  possession  of 

30  the  subject  of  insurance  (except  change  of  occupants  without 

31  increase  of  hazard);  or  (e)  if  this  policy  be  assigned  before  a  loss. 

Lines  20  and  21  are  similar  to  the  old  form  which  read  as 
follows : 

48 


The  New  Standard  Fire  Policy 

This  entire  policy,  unless  otherwise  provided  by  agreement  indorsed 
hereon  or  added  hereto,  shall  be  void. — (Line  IL) 

The  specific  changes  of  language  are  that  the  wording  of 

what  is  now  clause  (c)  (Lines  25-28)  formerly  was: 

if,  with  the  knowledge  of  the  insured,  foreclosure  proceedings  be  com- 
menced or  notice  given  of  sale  of  any  propertj'^  covered  by  this  policy 
by  virtue  of  any  mortgage  or  trust  deed. — (Lines  18-20.) 

At  the  end  of  the  present  clause  (d)  the  old  form  contained 

the  following: 

whether  by  legal  process  or  judgment  or  by  voluntary  act  of  the  insured, 
or  otherwise. — (Lines  21-22.) 

These  words  were  omitted  in  order  to  eliminate  from  the 
policy  a  qualifying  clause  which  had  been  ins^erted  as  an  attempt 
to  make  a  change  of  interest,  not  attributable  to  any  act  of  the 
insured,  a  voidance  of  the  entire  policy. 

Except  as  explained,  all  the  language  in  lines  20  to  31  of  the 
new  policy  is  taken  verbatim  from  the  old  form  and  is  to  be 
found  in  line  11  and  lines  16  to  22. 

The  important  change  of  substance  which  should  be  ob- 
served in  this  connection  is  that  in  the  old  policy  there  were 
fourteen  conditions,  a  violation  of  any  one  of  which  would  termi- 
nate the  entire  insurance  (Lines  11  to  30).  Under  the  new 
policy,  the  number  of  conditions  which  terminate  the  entire  in- 
surance is  reduced  to  five. 

The  five  conditions  retained  in  the  new  policy,  as  being  of 
sufficient  importance  to  justify  the  termination  of  the  entire  in- 
surance unless  brought  to  the  attention  of  the  company  by  writ- 
ten endorsement  added  to  the  policy,  were  placed  in  this  cate- 
gory because  of  their  vital  importance  and  their  essentially  ir- 
revocable character  from  the  insurance  point  of  view. 

(a).  If  the  insured  is  not  the  unconditional  and  sole  owner 
of  the  property,  he  lacks  insurable  interest  to  the  extent  of  the 
full  value  of  the  property  insured.  The  case  presented,  then,  is 
one  where,  in  case  of  destruction  of  the  property,  the  insured 
loses  only  the  value  of  a  partial  interest,  but  collects  the  value 
of  the  entire  property.  It  is  a  case  where  over-insurance  is  nec- 
essarily involved  and  incentive  to  protect  the  property  from  de- 
struction is  necessarily  removed.  Knowledge  of  the  facts,  brought 
home  to  the  compan)'-,  is  necessary  in  order  to  enable  the  com- 
pany to  limit  the  amount  of  the  insurance  to  the  insured's  partial 
interest  in  the  property,  and  the  condition  presented  by  such 
ca*es  is,  practically  speaking,  a  permanent  condition  instead  of 
a  temporary  one  subject  to  removal  during  the  life  of  the  policy. 

49 


The  Fire  Insurance  Contract 

(b)  A  somewhat  similar  condition  is  presented  when  a 
building  insured  is  upon  ground  not  owned  by  the  insured  in 
fee  simple,  for,  in  such  cases,  the  building  is  subject  to  be  taken 
away  from  the  beneficial  ownership  of  the  insured  and  the 
knowledge  of  this  fact  frequently  presents  a  case  where  the  in- 
sured becomes  tempted  to  permit  a  destruction  of  the  property 
which  will  enable  him  to  collect  the  value  of  the  building  before 
it  passes  out  of  his  possession.  This  condition  also  is  a  perma- 
nent rather  than  a  temporary  one  as  a  matter  of  fire  underwrit- 
ing, for  it  is  improbable  that,  during  the  life  of  the  policy,  the 
condition  will  be  rectified  by  purchase  of  the  fee  of  the  property 
upon  which  the  buifding  stands. 

(c)  The  beginning  of  foreclosure  proceedings  or  notice  of 
sale  by  virtue  of  a  power  of  sale  in  a  mortgage  increases  the 
moral  hazard  of  the  risk  for  obvious  reasons  and,  as  such  pro- 
ceedings will,  in  ordinary  course,  be  followed  by  terminating  the 
insured's  interest  in  the  property,  the  condition  presented  is  not 
temporary  or  subject  to  removal  during  the  existence  of  the  in- 
surance contract. 

(d)  A  change  of  interest,  title  or  possession  (except  change 
of  occupants  without  increase  of  hazard)  is  practically  always 
a  permanent  change  so  far  as  the  fife  of  any  particular  policy  is 
concerned.  It  affects  the  essential  conditions  of  the  insurance 
and  it  may  increase  the  moral  hazard  or  require  an  increase  of 
premium. 

(e)  An  assignment  of  the  policy  before  loss  would  change 
the  most  essential  feature  of  the  contract.  If  this  were  permit- 
ted without  notice  to,  and  consent  by,  the  company,  there  would 
remain  no  opportunity  for  the  company  to  select  the  parties 
which  it  is  willing  to  indemnify.  Such  a  change  amounts  to  the 
making  of  a  new  and  different  contract  of  insurance. 

The  next  paragraph  of  the  new  policy  begins : 

32  Unless   otherwise   provided  by   agreement   in   writing   added 

33  hereto  this   Company  shall  not  be  liable  for  loss   or  damage 

34  occuring. 

This  clause  is  new.  It  must  be  read  in  connection  with  each 
of  the  clauses  marked  (a)  to  (g)  following  it  (lines  35  to  61)  as 
if  each  of  the  lettered  clauses  was  immediately  preceded  by  the 
words  in  lines  32  to  34  above  quoted.  The  arrangement  is  for 
convenience  and  to  avoid  repetition. 

It  should  be  observed  here  that,  while  all  of  the  conditions 
which  follow,  numbered  (a)   to   (f)   inclusive   (Hnes  35  to  58) 

50 


The  New  Standard  Fire  Policy 

were  conditions  of  the  old  policy,  the  violation  of  which  voided 
the  contract,  an  essential  change  has  been  made  as  between  the 
new  policy  and  the  old  in  that  these  conditions  hereafter  will  void 
the  policy  only  while  the  prohibited  conditions  exist,  but  will  not 
void  the  entire  policy  for  its  entire  term  as  was  provided  in  the 
old  form  of  contract.  In  other  words,  there  is  an  automatic  re- 
instatement of  the  insurance  as  soon  as  the  prohibited  condition 
ceases  to  exist.  It  is  true  that  in  certain  jurisdictions  and  in 
certain  circumstances  courts  have  refused  a  literal  enforcement 
of  the  old  policy,  but  it  has  been  unfortunate  that  the  language 
of  the  old  form  was  either  so  harsh  or  so  ambiguous  as  to  permit 
inconsistent  treatment  by  the  courts  of  various  states  in  the  mat- 
ter of  essential  conditions  of  the  fire  insurance  policy.  It  is 
hoped  that  the  changes  made  in  the  new  form  will  so  clearly 
differentiate  between  the  conditions  which  are  intended  to  termi- 
nate the  entire  policy  (lines  22  to  31)  and  the  conditions  which 
are  intended  only  to  suspend  the  insurance  while  the  violations 
exist,  that  uniform  treatment  of  the  subject  may  hereafter  be 
secured. 

As  to  the  various  matters  which  suspend  the  insurance,  if 
not  permitted  by  indorsement  the  (a)  clause  (Hues  35-37)  as  to 
other  insurance  and  the  (b)  clause  (lines  38-40)  as  to  increase  of 
hazard,  remain  in  substantially  the  same  wording  as  the  old 
policy. 

The  next  clause  (c)  as  to  repairs  now  reads  as  follows : 

"^^  Repairs    etc  ^^^  while  mechanics  are  employed  In  building 

42  ^       '  altering  or  repairing  the  described  premises 

43  beyond  a  period  of  fifteen  days;,  or 

The  old  form  read : 
or  if  mechanics  be  employed  in  building,  altering  or  repairing  the  within 
described  premises  for  more  than  fifteen  days  at  any  one  time. — (Lines 
15-16.) 

It  will  be  noted  that  the  substitute  for  the  words :  "for  more 
than  fifteen  days  at  any  one  time"  is  the  following:  ''beyond  a 
period  of  fifteen  days."  This  change  was  made  in  order  to  bring 
out  clearly,  as  the  old  form  failed  to  do,  the  idea  that  a  period 
of  time  is  intended  during  which  alteration  or  repair  work  is 
conducted  although  the  work  may  not  be  continuous  for  some 
such  reason  as  that  a  Sunday  intervenes  during  the  period. 

The  next  clause  (d)  providing  for  suspension  of  insurance 
while  certain  fire  producing  materials  are  on  the  premises,  war- 
rants rather  careful  consideration.     The  new  policy  reads: 

51 


TlHE  Fire  Insurance  Contract 

^^  Explosives  ^^^  ^^^^^  illuminating  gas  or  vapor  is  genen- 

45  o-oc    etc       *  ^^^^    ^^    ^^^    described    premises;    or    while 

46  ^     '        '  (anj-   usage  or   custom   to   the   contrary   not- 

47  withstanding)  there  is  kept,  used  or  allowed  on  the  described 

48  premises  fireworks,  greek  fire,  phosphorus,  explosives,  benzine, 

49  gasolene,  naptha   or  any   other  petroleum   product   of  greater 

50  inflammability  than  kerosene  oil,  gunpowder  exceeding  twenty- 

51  five  pounds,  or  kerosene  oil  exceeding  five  barrels; 

The  corresponding  provision  of  the  old  form  was  as  follows : 
or  if  illuminating  gas  or  vapor  be  generated  in  the  described  building 
(or  adjacent  thereto)  for  use  therein;  or  if  (any  usage  or  custom  of 
trade  or  manufacture  to  the  contrary  notwithstanding)  there  be  kept, 
used  or  allowed  on  the  above  described  premises,  benzine,  benzole,  dyna- 
mite, ether,  fireworks,  gasoline,  greek  fire,  gunpowder  exceeding  twenty- 
five  pounds  in  quantity,  naptha,  nitro-glycerine  or  other  explosiviiB, 
phosphorus,  or  petroleum  or  any  of  its  products  of  greater  inflammability 
than  kerosene  oil  of  the  United  States  standard  (which  last  may  be  used 
for  lights  and  kept  for  sale  according  to  law  but  in  quantities  not  exceed- 
ing five  barrels,  provided  it  be  drawn  and  lamps  filled  by  daylight  or  at  a 
distance  not  less  than  ten  feet  from  artificial  light.) — (Lines  22-28.) 

The  changes  are  as  follows : 

The  word  "Building"  (old  form,  line  23)  is  changed  to 
''premises"  (new  form,  line  45). 

The  words  following  the  word  "building"  which  read  "(pr 
adjacent  thereto)  for  use  therein"  are  omitted.  Thus,  under  the 
new  policy,  the  generation  of  illuminating  gas  in  an  adjacent 
building  which  is  not  a  part  of  the  "premises"  will  not  void  the 
insurance,  although  the  gas  is  for  use  in  the  insured  premises. 

The  words  "of  trade  or  manufacture"  which,  in  the  old 
policy,  qualified  the  words  "usage  or  custom"  are  omitted  (old 
form,  lines  23-24)  because  believed  to  be  unnecessary  as  usage 
or  custom  include  the  usages  of  trade  or  manufacture  as  w^ell  as 
all  other  usages. 

The  following  dangerous  products  which  were  prohibited 
by  the  old  poHcy  are  retained  as  voiding  the  new  policy  while 
they  are  on  the  premises :  Fireworks,  greek  fire,  phosphorous, 
explosives,  benzine,  gasoline,  naptha,  petroleum  products  of 
greater  inflammability  than  kerosene  oil,  gunpowder  exceeding 
25  pounds,  kerosene  exceeding  five  barrels. 

The  having  of  ether  on  the  premises  is  permitted  by  the  new 
policy. 

Dynamite  and  nitroglycerine  become  prohibited  because 
they  are  "explosives"  although  no  longer  mentioned  by  name. 

Benzole  is  the  same  as  benzine. 

One  of  the  important  changes  in  this  section  is  the  elimina- 
tion of  the  reference  to  the  "United  States  standard"  for  kero- 
sene oil.    Present  day  conditions  have  rendered  this  unimportant 

52 


The  New  Standard  Fire  Policy 

and  it  is  not  feasible  for  the  great  number  of  policyholders  to  test 
the  grade  of  kerosene.  Also,  the  prohibition  against  drawing 
kerosene  and  filling  lamps  except  by  daylight  and  at  least  ten 
feet  from  artificial  light,  is  omitted.  That  proper  care  should  be 
taken  will  be  admitted,  but  to  invalidate  insurance  for  its  omis- 
sion was  too  severe  a  penalty. 

The  new  suspension  clause,  which  is  applicable  to  factories 
only  is  as  follows: 

^^  Factories  ^^^  ^^  ^^^  subject  of  insurance  be  a  manufac- 

53  *  turing      establishment      while      operated      in 

54  whole  or  in  part  between  the  hours  of  ten  P.  M.  and  five  A.  M., 
*55  or  while  it  ceases  to  be  operated  beyond  a  period  of  ten  days; 

The  old  form  read : 

or  if  the  subject  of  insurance  be  a  manufacturing  establishment  and  it  be 
opetated  in  whole  or  in  part  at  night  later  than  ten  o'clock  or  if  it 
cease  to  be  operated  for  more  than  ten  consecutive  days. — (Lines  13-14.) 

The  words  "at  night"  are  omitted  as  unnecessary  because 
the  words  "later  than  ten  o'clock"  are  changed  to  read  "between 
the  hours  of  ten  p.  m.  and  five  a..m^  ^ 

*It  was  appreciated  that  continuous  operation  of  a  factory  day 
and  night  increases  the  physical  hazard  of  the  risk  during  the 
day  as  well  as  during  the  night,  as  the  continuous  use  may  re- 
sult in  overheating  of  bearings,  etc.  The  new  form,  however, 
not  only  prevents  a  voidance  of  the  entire  policy  but  continues 
the  insurance  in  force  during  the  day  time,  even  when  the  clause 
is  being  violated  by  night  operation  without  consent  of  the  com- 
pany. 

This  treatment  was  thought  sufficient  for  the  protection  of 
the  company's  interests  as  the  penalty  for  violation,  while  much 
less  severe  than  in  the  old  policy,  should  be  sufficient  to  induce 
the  great  number  of  factory  owners  to  give  the  necessary  notice 
and  secure  the  necessary  consent  of  the  Company. 

In  the  last  part  of  the  sentence  (line  55)  the  only  change  of 
substance  is  the  substitution  of  "while  it  ceases"  for  "if  it  cease." 
The  effect  of  this  has  been  fully  discussed. 

The  unoccupancy  clause  (f)  (lines  56-58)  is  in  the  old 
language. 

By  the  new  policy  the  company  is  not,  unless  assumed  by 
rider,  liable  for  loss : 

5^  Explosion  ^^^    ^^    explosion    or    lightning,    unless    fire 

Lightnine'  ensue,   and,  in    that   event,   for   loss   or  dam- 

61        ^  ^'  age  by  fire  only. 

The  old  form  was  as  follows : 
or  (unless  fire  ensues,  and,  in  that  event  for  the  damage  by  fire  on'y)  by 

53 
3 


'The  Fire  Insurance  Contract 

explosion  of  any  kind,  or  lightning;  but  liability  for  direct  damage  by 
lightning  may  be  assumed  by  specific  agreement  hereon. — (Lines  34-35.) 

By  the  old  form  liability  was  limited  to  the  fire  loss  follow- 
ing explosion  or  lightning.  Direct  loss  by  explosion  could  not 
be  covered.    Direct  loss  by  lightning  might  be  assumed  by  rider. 

By  the  new  form  fire  loss  following  explosion  or  lightning 
is  covered  by  the  policy  without  the  necessity  for  a  rider. 

Both  direct  loss  by  explosion  and  by  lightning  may  be  cov- 
ered provided  the  additional  liability  be  assumed  by  rider. 

The  new  chattel  mortgage  clause  is : 

^2  Chattel  mort2-a     Unless  otherwise  provided  by  agreement  in 

63  *•  ^Svriting    added    hereto    this    Company    shall 

64  not  be  liable  for  loss  or  damage  to  any  property  insured  here- 

65  under  while  incumbered  by  a  chattel  mortgage,  and  durtng  the"" 

66  time  of  such  incumbrance   this   Company  shall  be  liable   only* 

67  for  loss  or  damage  to  any  other  property  insured  hereunder. 

The  old  form  provided  that 

This  entire  policy,  unless  otherwise  provided  by  ag^reement  endorsed 
hereon  or  added  hereto,  shall  be  void.     *     ♦     * — (Line  IL) 
or  if  the  subject  of  insurance  be  personal  property  and  be  or  become  in- 
cumbered by  a  chattel  mortgage. — (Line  18.)  • 

It  was  felt  that  the  operation  of  this  clause  was  too  harsh, 
although  the  principle  underlying  the  clause  was  a  sound  one. 
It  was  thought  that  a  chattel  mortgage  should  only  suspend  the 
insurance  upon  the  mortgaged  property  but  should  not  affect 
the  validity  of  the  insurance  upon  any  other  property  cov- 
ered by  the  policy.  It  was  also  thought  that  when  the  prohibited 
condition  was  removed  the  insurance  should  be  reinstated  as  to 
the  property  which  formerly  had  been  mortgaged.  The  clause 
was  revised  to  accomplish  these  two  purposes. 

In  testing  the  scope  and  effect  of  the  chattel  mortgage  clause 
in  the  new  form,  the  question  arose  whether,  in  a  case  of  under- 
insurance of  property,  a  part  of  which  was  encumbered  by  a 
chattel  mortgage  not  permitted  by  endorsement  upon  the  policy 
so  that  the  company  would  not  be  liable  for  loss  to  the  mort- 
gaged portion  of  the  property,  the  portion  of  the  insurance  other- 
wise applicable  to  the  mortgaged  part  would  go  to  increase  the 
insurance  of  the  unmortgaged  part  of  the  property.  It  was  felt 
that  the  clause  as  drafted  for  the  new  policy  would  not  be 
susceptible  to  this  construction,  for  it  seems  clear  that,  while 
liability  to  pay  for  loss  or  damage  to  the  mortgaged  property 
was  suspended,  the  insurance  effected  by  the  policy  covers  the 
whole  of  the  property  described  in  the  policy,  including  the 
mortgaged  portion,  and  the  reason  why  the  company  is  not  liable 

54 


The  New  Standard  Fire  Policy 

for  the  loss  to  the  mortgaged  part  of  the  property  is  not  because 

that  property  has  been  excluded  from  the  coverage,  but  because 

the  insurance  protection  is  suspended  as  to  part  of  the  property 

while  the  prohibited  conditions  are  in  existence. 

The  fallen  building  clause  now  reads : 

68  17-11  rtf  t?ii,-m;««.    If  ^  building,  or  any  material  part   thereof, 
^^  ran  01  nunaing.  ^^jj  ^^^^^^  ^^  ^^^  ^^^^j^  ^^  ^^^^  ^^j  insurance 

70  by  this  policy  on  such  building  or  its  contents  shall  immediaiely 

71  cease. 

The  old  form  was  the  same  except  for  the  insertion  of  the 
word  "material." 

Many  courts  h^ld  that  the  old  clause  must  be  construed  as 
limited  to  cases  where  a  material  part  of  the  building  fell — mate- 
rial in  the  sense  of  a  substantial  or  an  integral  part.  Such  con- 
sti'lictions  are  reasonable  and  the  authority  for  them  should  be 
found  in  the  coi^tract  itself  so  that  all  may  know  their  rights 
without  the  necessity  of  consulting  judicial  reports  in  order  to 
learn  them. 

As  to  the  subject  of  adding  clauses  to  the  policy,  the  new 
form  provides  as  follows : 

'       ^^  Added  Clauses      '^^^^   extent    of   the   application    of  insurance 

73  '     under  this  policy  and  of  the  contribution  to 

74  be  made  by  this  Company  in  case  of  loss  or  damage,  and  any 

75  other  agreement  not  inconsistent  with  or  a  waiver  of  any  of 

76  the  conditions  qr  provisions  of  this  policy,  may  be  provided  for 

77  by  agreement  in  writing  added  hereto. 

The  old  form  provided  that : 

the  extent  of  the  application  of  the  insurance  under  this  policy  or  ot 
the  contribution  to  be  made  by  this  company  in  case  of  loss,  may  be  pro- 
vided for  by  agreement  or  condition  written  hereon  or  attached  or  ap- 
pended hereto.— (Lines  98-100.) 

This  clause  is  continued  without  substantial  change. 

But  there  was  another  and  an  essential  rule  in  reference  to 

clauses  which  might  be  added  to  the  policy,  yet  which  nowhere 

appeared  in  the  policy  itself.    The  law  of  New  York  (Insurance 

Law,  Section  121)  provided  that  there  might  be  added  to  the 

contract 

any  other  matter  necessary  to  clearly  express  all  the  facts  and  conditions 
of  insurance  on  any  particular  risk  not  inconsistent  with  or  a  waiver  of 
any  of  the  conditions  or  provisions  of  the  standard  policy  herein  pro- 
vided for. 

The  policy  should  show  on  its  face  what  additional  clauses 

may  lawfully  be  added  and  it  was  with  this  in  mind  that  the  new 

matter  was  included  as  a  part  of  this  clause. 

The  new  clause  as  to  waiver  is  as  follows : 

78  \^aiver  ^^  °"^  shall  have  power  to  waive  any  pro- 

79  *  vision  or  condition  of  this  policy  except  such 

80  as  by  the  terms  of  this  policy  may  be  the  subject  of  agreement 

55 


The  Fire  Insurance  Contract 

81  added  hereto,  nor  shall  any  such  provision  or  condition  be  held 

82  to  be  waived  unless  such  waiver  shall  be  in  writing  added  hereto, 
S3  nor  shall  any  provision  or  condition  of  this  policy  or  any  for- 

84  feiture  be  held  to  be  waived  by  any  requirement,  act  on  proceed- 

85  ing  on  the  part  of  this  Company  relating  to  appraisal  or  to  any 

86  examination  herein  provided  for;  nor  shall  any  privilege  or  per- 

87  mission  aflFecting  the  insurance  hereunder  exist  or  be  claimed  by 

88  the  insured  unless  granted  herein  or  by  rider  added  hereto. 

In  this   clause   there  are  brought  together  under   a   single 

heading  all  the  provisions  of  the  old  form  relating  to  the  subject 

of  waiver,  a  part  of  w^hich  were  to  be  ^ound  on  the  first  page  of 

the  policy  as  follows : 

and  no  officer,  agent  or  other  representative  of  this  Company  shall 
have  power  to  waive  any  provision  or  condition  of  this  Policy  except 
such  as  by  the  terms  of  this  Policy  may  be  the  subject  of  agreement 
endorsed  hereon  or  added  hereto;  and  as  to  such  provisions  and  condi- 
tions no  officer,  agent  or  representative  shall  have  such  power  op  be 
deemed  or  held  to  have  waived  such  provisions  or  conditions  unless 
such  waiver,  if  any,  shall  be  written  upon  or  attached  nereto,  nor  shall 
any  privilege  or  permission  affecting  the  insurance  under  this  Policy 
exist  or  be  claimed  by  the  insured  unless  so  written  or  attached. 

And  another  part  on  the  second  page  as  follows : 

This  Company  shall  not  be  held  to  have  waived  any  provision  6r 
condition  of  this  policy  or  any  forfeiture  thereof  by  any  requirement,  act, 
or  proceeding  on  its  part  relating  to  the  appraisal  or  to  any  examination 
herein  provided  for. — (Lines  92-93.) 

By  doing  this  the  revisers  were  able  to  eliminate  repetition 

and  useless  verbiage  and  to  place  all  provisions  relating  to  the 

subject  of  waiver  where  they  could  readily  be  found. 

I  he  new  cancellation  clause  is  as  follows: 

8^  Cancellation  '^^'^   policy   shall   be  cancelled   at  any   time 

90  q£  policy  ^^  ^^^  request  of  the  insured,  in  which  case 

91  the    Company   shall,   upon   demand   ana    t>ur- 

92  render  of  this  policy,  refund  the  excess  of  paid  premium  above 

93  the  customary  short  rates  for  the  expired  time.     This  policy 

94  may  be  cancelled  at  any  time  by  the  Company  by  giving  to  the 

95  insured  a  five  days'  written  notice  of  cancellation  with  or  with- 

96  out  tender  of  the  excess  of  paid  premium  above  the  pro  rata 

97  premium  for  the  expired  time,  which  excess,  if  not  tendered, 

98  shall  be  refunded  on  demand.  Notice  of  cancellation  shall  state 

99  that  said  excess  premium  (if  not  tendered)  will  be  refunded  on 
100  demand. 

The  old  form  was  as  follows : 

This  policy  shall  be  cancelled  at  any  time  at  the  request  of  the 
insured;  or  by  the  Company  by  giving  five  days'  notice  of  such  cancella- 
tion. If  this  policy  shall  be  cancelled  as  hereinbefore  provided,  or  be- 
come void  or  cease,  the  premium  having  been  actually  paid,  the  unearned 
portion  shall  be  returned  on  surrender  of  this  policy  or  last  renewal, 
this  Company  retaining  the  customary  short  rate;  except  that  when  this 
policy  is  cancelled  by  this  Company  by  giving  notice  it  shall  retain  only 
the  pro  rata  premium. — (Lines  51-55.) 

The  cancellation  clause  of  the  old  standard  form  is  a  strik- 
ing example  of  the  difficulty  of  making  the  language  of  a  con- 

56 


The  New  Standard  Fire  Policy 

tract  not  only  clear  but  so  clear  as  to  render  it  impossible  of 
misunderstanding. 

Notwithstanding  the  meticulous  and  careful  work  of  the 
drafters  of  the  New  York  standard  form  of  1886  as  applied  to 
this  clause,  the  weight  of  judicial  authority  has  determined  its 
meaning  to  be  contrary  to  what  was  intended.  The  clause  pro- 
vided that  upon  cancellation  of  a  policy,  the  premium  upon  which 
had  been  paid 

the  unearned  portion  shall  be  returned  on  surrender  of  this  policy  or 
last  renewal, 

yet  many  courts  have  construed  the  clause  to  mean  that  the  un- 
earned premium  must  be  tendered  at  the  time  of  cancellation  in 
order  that  an  attempted  cancellation  by  the  company  might  be 
effective.  Perhaps  the  leading  case  on  this  subject  is  Tisdell  v. 
New  Hampshire  Insurance  Co.  (155  N.  Y.  163).  There  is  no 
question  that  the  public  interest,  as  well  as  fairness  to  the  com- 
panies, requires  that  an  insurance  company  shall  be  permitted  to 
cancel  a  policy  without  tender  of  unearned  premium.  It  is  fre- 
quently difficult  for  the  company  to  reach  the  insured  with  a 
notice  of  cancellation  and  this  is  rendered  increasingly  difficult 
in  cases  where  the  insured  is  dishonest  and  tries  to  evade  a  can- 
cellation notice.  The  undertaking  may  involve  the  sending  of 
several  notices  to  different  addresses,  but  should  not  involve  mul- 
tiple tenders  of  unearned  premium.  The  public  has  a  vital  inter- 
est, though  an  indirect  one,  in  having  insurance  cancelled  in  cases 
where  suspicion  of  intended  incendiarism  is  aroused  and,  there- 
fore, the  companies  should  be  facilitated  in  effecting  such  can- 
cellation provided  the  rights  of  the  insured  are  protected. 
Assuming  that  a  company  was  insolvent,  it  would  be  of  benefit 
to  any  insured  to  have  his  policy  cancelled  so  as  to  enable  him 
to  transfer  the  policy  to  a  solvent  company  even  at  the  risk  of 
losing  the  unearned  portion  of  the  premium,  but,  practically 
speaking  companies  are  always  in  a  position  to  respond  to  their 
obligation  to  refund  return  premium.  It  sometimes  happens, 
however  that  a  policyholder  is  unaware  of  his  right  to  collect  a 
return  premium  on  cancellation  and  provision  is  made  in  the  new 
form  for  giving  this  information  in  all  cases  by  requiring  a  state- 
ment in  the  cancellation  notice  to  the  effect  that  the  excess  prem- 
ium, if  not  tendered,  will  be  refunded  on  cjfnand. 

It  is  hoped  that  the  statement  of  the  new  form  that  the 
policy  may  be  cancelled  by  giving  the  insured  a  five  days'  written 
notice  of  cancellation 

57 


The  Fire  Insurance  Contract 

with  or  without  tender  of  the  excess  of  paid  premium  above  the  pro 
rata  premium  for  the  expired  time,  which  excess,  if  not  tendered,  shall 
be  refunded  on  demand, 

may  state  the  proposition  with  sufficient  clearness  and  elabora- 
tion to  avoid  conflicting  decisions  upon  this  point  in  the  future. 

It  is  also  hoped  that  the  clause  is  drafted  with  sufficient 
clearness  so  that  the  intention  may  be  effective  that  only  a  single 
notice  of  cancellation  is  required,  to  effect  termination  of  liability 
at  the  expiration  of  five  days  from  receipt  of  the  notice  by  the 
assured. 

The  new  policy  provides : 

}01   Pro  rata  liabilitv'^^'^    Company    shall    not    be    liable    for    a 
10^  •'^•greater   proportion    of   any   loss    or   damage 

103  than    the    amount    hereby    insured    shall    bear    to    the    whole 

104  insurance   covering   the   property,   whether   valid    or    not   and 

105  whether  collectible  or  not. 

The  old  form  was  as  follows : 

This  Company  shall  not  be  liable  under  this  policy  for  a  greatet 
proportion  of  any  loss  on  the  described  property,  or  for  loss  by  and 
expense  of  removal  from  premises  endangered  by  fire,  than  the  amount 
hereby  insured  shall  bear  to  the  whole  insurance,  whether  valid  or  not, 
or  by  solvent  or  insolvent  insurers,  covering  such  property. — (Lines 
96-98.) 

The  words  "any  loss  or  damage"  are  of  broader  import  than 
the  phrase  used  in  the  old  form  and  include  loss  or  damage  by 
removal  from  endangered  premises,  as  this  kind  of  loss  or  dam- 
age is  expressly  insured  against  under  the  new  form.  The  phrase 
"whether  collectible  or  not"  is  somewhat  broader  in  its  meaning 
than  the  phrase  "or  by  solvent  or  insolvent  insurers"  and  in- 
cludes all  that  the  old,  phrase  meant. 

The  new  policy  provides  that: 

106  The    word    "noon"    herein    means    noon    of 

107  Noon.  standard  time  at  the  place  of  loss  or  damage. 

This  clause  is  new.  It  effects  a  change  in  the  policy  as  un- 
der judicial  construction  the  Avord  "noon"  was  generally  held  to 
refer  to  solar  instead  of  standard  time.  In  view  of  the  recent 
custom  of  changing  time  pieces  as  the  result  of  law  or  ordinance 
or  common  consent,  for  daylight  saving,  it  becomes  important 
to  remember  what  constitutes  standard  time.  Generally  speak-' 
ing  standard  time  is  the  time  used  by  railroads  under  an  arrange- 
ment made  in  the  year  1883  effective  in  the  United  States  and 
Canada.  The  continent  is  divided  into  four  sections,  each  of  fif- 
teen degrees  of  longitude  and  each  section  takes  the  solar  time 
of  the  centre  meridian.  Thus  "eastern  time"  is  the  solar  time 
of  the  seventy-fifth  meridian.    It  is  this  system  which  is  now  read 

58 


The  New  Standard  Fire  Policy 

into  the  insurance  policy.  It  continues  regardless  of  daylight 
saving  regulations  based  on  custom  or  ordinance  rather  than 
statute  law. 

While  such  is  the  general  situation  as  to  construction  of  the 
words  "noon  of  standard  time"  the  subject  has  been  controlled  for 
the  state  of  New  York  by  statute  since  the  year  1892  (Statutory 
Construction  Law,  Section  28;  General  Construction  Law,  Sec- 
tion 52).  It  was  at  that  time  enacted  that  standard  time  through- 
out this  state  should  be  that  of  the  seventy-fifth  meridian  of 
longitude  and  the  New  York  statute  has  recently  been  amended 
(Laws  1918,  Chapter  112)  so  as  to  provide  that  the  time  of  the 
seventy-fifth  meridian  of  longitude  should  remain  as  standard 
throughout  the  state  except  that  the  standard  time  of  the  state 
should  be  advanced  one  hour  on  the  last  Sunday  of  March  and 
retarded  one  hour  on  the  last  Sunday  of  October.  Thus,  the  day- 
light  saving  time  is  standard  in  New  York  state  although  it  dif- 
fers from  the  time  used  by  the  railroads. 

In  March,  1918,  (Act  of  March  19,  1918)  Congress  enacted  a 
statute  described  as  being 
for  the  purpose  of  establishing  the  standard  time  of  the  United  States. 

The  act  legalized  the  standard  time  which  had  been  estab- 
lished by  railroad  custom,  except  that  it  gave  to  the  Interstate 
Commerce  Commission  authority  to  define  the  limits  of  each 
time  zone  and  modify  those  limits  from  time  to  time,  having 
regard  for  convenience  of  commerce,  and  it  also  carried  into  the 
law  the  daylight  saving  plan  of  advancing  the  time  one  hour 
between  the  last  Sunday  in  March  and  the  last  Sunday  in  Oc- 
tober. In  August,  1919  (Act  of  August  20,  1919)  the  daylight 
saving  feature  of  the  act  of  Congress  was  repealed.  The  exist- 
ence of  the  federal  law  presents  a  somewhat  interesting  question 
in  view  of  its  present  conflict  with  the  New  York  State  law.  In 
this  connection  it  should  be  observed  that  the  only  effect  which 
the  act  of  Congress  purports  to  have  is  that  the  time  estab- 
lished by  Congress  shall  govern  the  movement  of  common  car- 
riers engaged  in  interstate  commerce  and  shall  govern  the  acts 
of  officers  of  the  United  States  and  the  construction  of  statutes 
of  the  United  States  (Section  2).  It  seems  clear  that  in  view 
of  the  limitations  of  the  federal  act,  the  clause  of  the  standard 
policy  of  the  State  of  New  York  established  by  the  legislature  is 
subject  to  the  provisions  of  the  General  Construction  Law  in  this 
state  rather  than  the  federal  act,  and  that  so  long  a?  the  daylight 
saving  provisions  remain  a  part  of  the  state  law  they  are  read 

59 


The  Fire  Insurance  Contract 

into  the  fire  insurance  policy  as  indicating  the  time  when  the 
policy  takes  effect  and  when  the  insurance  ceases.  No  doubt, 
the  same  condition  exists  in  any  other  states  which  may  now 
or  hereafter  establish  the  standard  policy  by  act  of  legislature 
and  then  by  another  state  law  standardize  time  for  the  state  on 
a  basis  other  than  that  fixed  by  the  federal  statute. 

Of  course,  in  the  absence  of  a  state  law  on  the  subject,  stand- 
ard time  is  railroad  time  as  there  is  no  conflict  between  the  fed- 
eral act  and  the  custom  of  railroads,  nor  can  there  be  any  such 
conflict,  as  the  effect  of  any  federal  legislation  necessarily 
changes  the  custom  of  railroads  which  constitutes  standard  time 
and  controls  the  interpretation  of  the  policy  in  the  absence  of 
specific  statutes  to  the  contrary. 

The  new  clause  as  to  mortgage  interests  should  be  critically  con 
sidered.    It  reads : 

^^^  Mortc-apc  ^^  ^^^^  °'"  ^^^^^^^  ^^  made  payable,  in  whole 

109  i_i.gj.itl  ^^  '"  P^irt,  to  a  mortgagee  not  named  herein 

110  *  as  the  insured,  this  policy  may  be  cancelled' 

111  as  to  such  interest  by  giving  to  such  mortgagee  a  ten  days' 

112  written  notice  of  cancellation.     Upon  failure  of  the  insured  to 

113  render  proof  of  loss  such  mortgagee  shall,  as  if  named  as  insured 

114  hereunder,  but  within  sixty  days  after  notice  of  such  failure  ren- 

115  der  proof  of  loss  and  shall  be  subject  to  the  provisions  hereof  as 

116  to  appraisal  and  times  of  payment  and  of  bringing  suit.  On  pay- 

117  ment  to  such  mortgagee  of  any  sum  for  loss  or  damage  here- 

118  under,  if  this  Company  shall  claim  that  as  to  the  mortgagor  or 

119  owner,  no  liability  existed,  it  shall,  to  the  extent  of  such  pay- 

120  ment  be  subrogated  to  the  mortgagee's  right  of  recovery  and 

121  claim  upon   the   collateral   to   th«^  mortgage  debt,  but  without 

122  impairing  the  mortgagee's  right  to  sue;  or  it  may  pay  the  mort- 

123  gage  debt  and  require  an  assignment  thereof  and  of  the  mortgage. 

124  Other  provisions  relating  to  the  interests  and  obligations  of  such 

125  mortgagee  may  be  added  hereto  by  agreement  in  writing. 

The  only  reference  to  mortgagee  interests  contained  in  the 

old  policy  was  the  following : 

If,  with  the  consent  of  this  Company,  an  interest  under  this  policy 
shall  exist  in  favor  of  a  mortgagee  or  of  any  person  or  corporation  having 
an  interest  in  the  subject  of  insurance  other  than  the  interest  of  the 
insured  as  described  herein,  the  conditions  hereinbefore  contained  shall 
apply  in  the  manner  expressed  in  such  provisions  and  conditions  of  in 
surance  relating  to  such  interest  as  shall  be  written  upon,  attached,  oi 
appended  hereto. — (Lines   56-59.) 

It  will  be  observed  that  under  the  old  form,  the  only  piur- 
visions  of  the  policy  referred  to  were  "the  conditions  hereinbetore 
contained."  In  other  words,  the  clause  in  reference  to  mortgagee 
interest  provided  the  manner  in  which  the  provisions  of  the 
policy  could  be  made  to  apply  to  mortgagee  interests,  but  pro- 
vided only  a  means  for  making  applicable  to  mortgagee's  inter- 
est the  provisions  of  the  policy  preceding  lines  56  to  59  and  did 

60 


The  New  Standard  Fire  Policy 

not  provide  any  means  whatever  for  making  them  apply  to  mort- 
gagee interests  any  of  the  provisions  of  the  poHcy  which  followed 
lines  56  to  59. 

It  will  also  be  observed  that  as  to  the  provisions  preceding 
lines  56  to  59  the  form  provided  that  they  were  to  apply  in  the 
manner  expressed  in  such  provisions  and  conditions  as  shall  be 
written  upon,  attached  or  appended  to  the  policy.  In  other  words, 
the  rider  relating  to  mortgagee  interests  must  be  looked  to  to 
ascertain  how  the  conditions  of  the  policy  were  to  apply  to  such 
interests,  and  it  was  only  as  the  rider  in  reference  to  mortgagee 
interests  indicated  the  manner  in  which  the  policy  provisions 
preceding  line  56  should  apply  to  such  interests  that  they  could 
be  held  to  apply  at  all. 

Under  the  old  form,  mortgagee  interests  were  covered  in  one 
of  two  ways,  either  by  a  simple  loss  payable  clause  reading 
"Loss,  if  any,  payable  to  John  Doe,  mortgagee"  or  by  the  standard 
mortgagee  clause. 

In  the  first  case,  the  use  of  the  words  "Loss,  if  any,  payable 
to  John  Doe,  mortgagee"  read  in  connection  with  the  provisions 
in  lines  56  to  59  to  the  effect  that  the  policy  provisions  preced- 
ing line  56  should  "apply  in  the  manner  expressed  in  such  pro- 
visions *  *  *  as  shall  be  written  upon  or  attached"  to  the  policy 
rendered  it  necessary  to  examine  all  of  the  provisions  of  the 
policy  preceding  line  56  in  order  to  ascertain  what,  if  any,  loss 
was  payable  under  the  policy,  and  only  such  loss,  as  by  this 
examination  of  the  policy  should  be  found  to  be  payable,  was  due 
from  the  company  to  the  mortgagee  who  had  been  made  the  ap- 
pointeee  for  payment  of  the  loss.  This  made  the  mortgagee's  in- 
terest in  the  policy  subject  to  all  of  the  policy  conditions  preced- 
ing line  56  which  might  constitute  a  defense  available  to  the 
company  against  payment  on  account  of  loss.  In  other  words, 
the  mortgagee  was  subject  to  defenses  available  against  the  in- 
sured. 

The  situation  thus  presented  was,  in  many  respects,  unfair. 

To  meet  it,  the  standard  mortgagee  clauses  were  prepared  and 

very  largely  used  for  the  protection  of  mortgagee  interests.     By 

these  clauses,  a  mortgagee  is  made  an  appointee  for  payment 

through  the  use  of  the  following  language  at  the  beginning  of 

such  clauses 

Loss  or  damage,  if  any,  under  this  policy,  shall  be  payable  to  blank  as 
mortgagee  [or  trustee]  as  interest  may  appear     *     *     *, 

ThuS;  as  in  the  first  case  above  referred  to,  where  the  mort- 

61 


The  Fire  Insurance  Contract 

gagee  is  merely  made  an  appointee  of  payment,  the  conditions 
of  the  policy  preceding  line  56  are  read  into  the  contract  between 
the  company  and  the  mortgagee,  but  this  situation  is  immediately 
qualified  by  the  subsequent  language  of  the  standard  mortgagee 
clauses  which  expressly  provide  that  certain  of  the  defenses 
which  would  be  available  against  the  insured  shall  not  be  avail- 
able as  against  the  mortgagee,  that  is  to  say,  the  mortgagee's  in- 
terest in  the  insurance  shall  not  be  invalid  by  reason  of  any  act 
or  neglect  of  the  owner  nor  by  foreclosure  proceedings  or  notice 
of  sale  or  change  of  title  or  ownership  nor  more  hazardous  oc- 
cupation of  the  property,  provided  the  mortgagee  shall  notify 
the  company  of  change  of  ownership,  occupancy  or  increase  of 
hazard  which  shall  come  to  his  knowledge,  and,  on  demand,  pay 
an  increased  premium.  Also,  express  provision  is  made  for  can- 
cellation of  the  policy  as  to  mortgagee  inteiests  and  for  subro- 
gation. In  certain  cases,  the  mortgagee  clau.se,  providing  as  out- 
lined above,  has  been  used,  but  with  the  addition  of  a  provision 
for  full  contribution  of  all  insurance  whether  carried  by  owner 
or  mortgagee. 

By  the  use  of  standard  mortgagee  clauses,  a  contract  reason- 
ably equitable  in  most  respects  as  to  the  interests  both  of  the 
mortgagees  and  the  companies  was  created,  for,  under  such  claus- 
es, the  provisions  of  the  policy  preceding  line  56  were  read  into 
the  contract  except  as  the  mortgagee  was  freed  from  forfeiture 
of  the  insurance  by  acts  or  neglects  for  which  the  mortgagee  was 
not  responsible  and  of  which  he  had  no  knowledge.  But,  even 
in  the  case  of  use  of  a  mortgagee  clause,  no  part  of  the  policy  fol- 
lowing line  59  was  applicable  to  the  insurance  of  mortgagee  inter- 
ests. Therefore,  such  important  provisions,  as  those  which  re- 
quire notice  of  loss,  right  of  appraisal  and  limitation  upon  time 
of  suit  were  entirely  omitted  from  the  contract  with  the  mortga- 
gee. This  feature  of  the  situation  was  the  same  whether  a  simple 
loss  payable  clause  was  used  to  cover  mortgagee  interests  or 
whether  a  standard  mortgagee  clause  was  used  for  that  purpose. 
In  other  words,  the  conditions  of  the  policy  following  line  59 
were  completely  omitted  from  the  insurance  contract  in  reference 
to  mortgagee  interests  and  could  not  be  made  a  part  of  that  con- 
tract because  of  the  unfortunate  use  of  the  word  "hereinbefore" 
in  line  58.  This  situation  was  pointed  out  in  a  number  of  cases, 
the  principal  one  being  Heilbrunn  v.  German  Alliance  Insurance 
Co.  (140  App.  Div.  557,  which  was  affirmed  by  the  New  York 

62 


The  New  Standard  Fire  Policy 

Court  of  Appeals  and  is  reported  in  202  N.  Y.  610.)  In  the  Heil- 
brunn  case,  the  unsatisfactory  character  of  the  contract  was  com- 
mented upon  and  the  suggestion  made  that  the  standard  fire  in- 
surance policy  should  be  revised  to  correct  it. 

The  purpose  of  the  new  clause  (lines  108  to  125)  of  the  new 
policy  is  to  continue  the  rule  that  the  standard  policy  conditions 
shall  apply  to  mortgagee  interests  as  the  policy  conditions  may  be 
referred  to  and  made  applicable  to  such  interests  by  rider  added 
to  the  policy,  but  to  broaden  the  old  form  so  that  any  of  the 
policy  conditions  may  be  made  to  apply  to  mortgagee  interests 
instead  of  limiting  the  conditions  which  may  be  made  so  to 
apply,  to  a  part  only  of  the  conditions  set  forth  in  the  policy.  In 
addition  to  this,  the  purpose  of  the  revisers  of  the  new  form  was 
to  provide  expressly  certain  minimum  essential  conditions  of  the 
insurance  contract  covering  mortgagee  interests  which  should  ap- 
ply although  not  mentioned  in  the  mortgagee  clause  attached  to 
the  policy.  These  minimum  conditions  are  (1)  cancellation  as 
to  the  mortgagee  upon  ten  days'  written  notice,  (2)  obligation 
of  the  mortgagee  to  render  proof  of  loss  within  sixty  days  after 
notice  of  failure  of  the  insured  to  do  so  (3)  making  the  mort- 
gagee interests  subject  to  the  provisions  for  appraisal  (4)  time  of 
payment  (5)  time  of  bringing  suit,  and  (6)  providing  for  sub- 
rogation. Thus,  under  the  new  form,  if  the  only  clause  in  refer- 
ence to  a  mortgagee  interest  which  is  added  to  the  policy  is  the 
ordinary  loss  payable  clause  there  will  thereby  be  read  into  the 
contract  with  the  mortgagee  all  of  the  provisions  of  the  standard 
form  which  are  necessary  to  ascertain  what  loss  is  payable  under 
the  policy  and,  in  addition,  the  provisions  of  lines  108  to  125  will 
apply  to  the  contract  with  the  mortgagee.  If,  on  the  other  hand, 
a  mortgagee  clause  is  used,  the  conditions  of  the  policy  necessary 
to  be  examined  in  order  to  ascertain  whether  there  is  any  loss 
under  the  policy  will  apply  except  as  modified  by  the  mortgagee 
clause  and,  in  addition,  the  provisions  of  lines  108  to  125  will  be 
a  part  of  the  contract  with  the  mortgagee  and  will  supercede  any 
inconsistent  provisions  which  might  be  inserted  in  a  mortgagee 
clause. 

The  new  requirements  in  case  of  loss  read  as  follows : 

126  -D^„„,v«^«„*e  ;«   The  insured  shall  give  immediate  notice,  in 

127  /«^  irTnc:  writing,  ,to    this    Company,    of   any   loss    or 

128  ^^  damage,"  protect   the   property   from    further 

129  damage,    forthwith    separate    the    damaged    and    undamaged 

130  personal  property,  put  it  in  the  best  possible  order,  furnish  a 

131  complete  inventory  of  the  destroyed,  damaged  and  undamaged 

63 


The  Fire  Insurance  Contract 

132  property,  stating  the  quantity  and  cost  of  each  article  and  the 

133  amount  claimed  thereon;  and,  the  insured  shall,  within  sixty 

134  days  after  the  fire,  unless  such  time  is  extended  in  writing  by 

135  this  Company,  render  to  this  Company  a  proof  of  loss,  signed 

136  and  sworn  to  by  the  insured,  stating  the  knowledge  and  belief 

137  of  the  insured  as  to  the  following:  the  time  and  origin  of  the  fire, 

138  the  interest  of  the  insured  and  of  all  others  in  the  property,  the 

139  cash    value  of  each  item  thereof  and  the  amount  of  loss  or  damage 

140  thereto,  all  incumbrances   thereon,   all   other  contracts   of  in- 

141  surance,  whether  valid  or  not,  covering  any  of  said  property, 

142  any  changes  in  the  title,  use,  occupation,  location,  possession,  or 

143  exposures  of  said  property  since  the  issuing  of  this  policy,  by 

144  whom  and  for  what  purpose  any  building  herein  described  and 

145  the  several  parts  thereof  were  occupied  at  the  time  of  fire;  and 

146  shall  furnish  a  copy  of  alJ  the  descriptions  and  schedules  in  all 

147  policies  and  if  required,  verified  plans  and  specifications  of  any 

148  building,   fixtures  or  machinery  destroyed  or  damaged.     The 

149  insured,  as  often  as  may  be  reasonably  required;  shall  exhibit 

150  to  any  person  designated  by  this  Company  all  that  remains  of 

151  any   property   herein    described,    and    submit    to    examinations 

152  under    oath    by    any    person    named    by    this    Company,    and 

153  subscribe    the    same;    and,    as    often    as    may    be    reasonably 

154  required,  shall  produce  for  examination  all  books  of  account, 

155  bills,  invoices,  and  other  vouchers,  or  certified  copies  thereof, 

156  if  originals  be  lost,  at  such  reasonable  time  and  place  as  may 

157  be  designated  by  this  Company  or  its  representative,  and  shall 

158  permit  extracts  and  copies  thereof  to  be  made. 

This  is  a  revision  of  lines  67  to  85  of  the  old  form. 

The  substantial  changes  from  the  old  form  are  as  follows : 

(1)  The  insured  must  not  only  make  an  inventory  but 
"furnish"  the  inventory  to  the  company.  Under  the  old  form, 
it  sometimes  happened  that  an  insured  would  insist  that  he  had 
complied  with  the  policy  conditions  by  making  the  inventory 
without  giving  the  company  any  beneficial  use  of  it. 

(2)  The  inventory,  under  the  new  form,  shall  include  not 
only  the  damaged  and  undamaged  personal  property  as  formerly, 
but  all  property  which  was  damaged  or  undamaged  and,  in  ad- 
dition, an  inventory  of  the  destroyed  property.  Such  clauses  are 
always  interpreted  as  limited  by  the  ability  of  the  party  to  per- 
form them  and  the  insured  will  be  required  under  the  new  clause 
to  state  all  that  he  knows  or  can,  with  reasonable  diligence,  find 
out  as  to  the  items  of  destroyed,  damaged  and  undamaged  prop- 
erty. 

(3)  The  obligations  of  the  assured  to  exhibit  all  that  re- 
mains of  property  and  to  submit  to  examination  under  oath  and 
to  produce  books  and  vouchers  are  all  qualified  by  the  phrase 
"may  be  reasonably  required." 

(4)  Under  the  old  policy,  the  place  required  for  production 
of  books  must  be  reasonable  and  under  the  new  policy,  not  only 

64 


The  New  Standard  Fire  Policy 

the  place,  but  the  time  for  such  production  as  may  be  required 
by  the  company  must  be  reasonable. 

(5)  The  old  policy  provided  that  the  insured 
shall  also,  if  required,  furnish  a  certificate  of  the  magistrate  or  notary 
public  (not  interested  in  the  claim  as  a  creditor  or  otherwise,  nor  related 
to  the  insured)  living  nearest  the  place  of  fire,  stating  that  he  has  exam- 
ined the  circumstances  and  believes  the  insured  has  honestly  sustained 
loss  to  the  amount  that  such  magistrate  or  notary  public  shall  certify. — 
(Unes  77-80.) 

This  clause  is  omitted  from  the  new  policy.  As  Mark  Twain 
might  have  said — just  this  one  omission  would  make  a  reason- 
ably good  policy  out  of  a  policy  that  had  no  other  clauses  in  it. 

The  provisions  of  the  new  policy  as  to  appraisal  are  as 
follows : 

^^^  Aooraisal  ^"  ^^^^  *^^  insured  and  this  Company  shall 

160  ^^  '  fail    to   agree   as   to    the   amount   of   loss    or 

161  damage,  each   shall,   on   the   written   demand   of  either,   select 

162  a    competent    and    disinterested    appraiser.      The    appraisers 

163  shall   first   select   a   competent   and   disinterested  umpire;   and 

164  failing   for   fifteen   days   to  agree   upon   such  umpire   then,   on 

165  request  of  the  insured  or  this  Company,  such  umpire  shall  be 

166  selected  by  a  judge  of  a  court  of  record  in  the  state  in  which 

167  the   property   insured    is    located.      The    appraisers    shall    then 

168  appraise  the  loss  and  damage  stating  separately  sound  value 

169  and  loss  or  damage  to  each  item;  and  failing  to  agree,  shall 

170  submit    their   differences    only,    to    the    umpire.      An    award    in 

171  writing,  so  itemized,  of  any  two  when  filed  with  this  Company 

172  shall    determine    the    amount    of    sound    value    and    loss    or 

173  damage.     Each  appraiser  shall  be  paid  by  the  party  selecting 

174  him  and  the  expenses  of  appraisal  and  umpire  shall  be  paid 

175  by  the  parties  equally. 
The  old  form  read  : 

In  the  event  of  disagreement  as  to  the  amount  of  loss  the  same  shall, 
as  above  provided,  be  ascertained  by  two  Competent  and  disinterested 
appraisers,  the  insured  and  this  Company  each  selecting  one,  and  the  two 
so  chosen  shall  first  select  a  competent  and  disinterested  umpire;  the 
appraisers  together  shall  then  estimate  and  appraise  the  loss,  stating 
separately  sound  value  and  damage,  and,  failing  to  agree,  shall  submit 
their  differences  to  the  umpire;  and  the  award  in  writing  of  any  two 
shall  determine  the  amount  of  such  loss;  the  parties  thereto  shall  pay  the 
appraiser  respectively  selected  by  them  and  shall  bear  equally  the  ex- 
penses of  the  appraisal  and  umpire. — (Lines  86-91.) 

The  important  changes  made  by  the  new  form,  in  so  far  as 
the  subject  of  appraisal  is  concerned,  are  as  follows : 

(1)  Compulsory  selection  of  an  umpire  by  an  impartial 
tribunal  is  provided  for.  Appraisals  under  the  old  form  frequent- 
ly failed  because  of  the  necessity  that  the  two  appraisers  should 
be  able  to  agree  upon  an  umpire  in  order  that  he  might  be  select- 
ed. Their  disagreement,  whether  from  design  or  otherwise,  was 
sufficient  to  block  the  appraisal  and  throw  the  matter  of  loss 
adjustment  into  the  courts.  In  the  year  1913,  the  State  of  New 
York,  following  the  example  of  some  of  the  other  states,  enacted 

65 


The  Fire  Insurance  Contract 

a  law  to  the  effect  that  when  the  appraisers  had  failed  or  neg- 
lected for  a  space  of  ten  days  after  both  had  been  chosen  to  agree 
upon  and  select  an  umpire,  it  should  be  lav\'ful  for  either  the 
assured  or  the  company  to  apply  to  any  court  of  record  in  the 
county  in  which  the  property  was  situated,  on  five  days'  notice 
to  the  other  party,  to  appoint  a  competent  and  disinterested  um- 
pire (Laws  of  1913,  Chapter  181). 

The  new  sentence  (lines  162  to  167)  is  in  line  with  the  recent 
legislation  for  the  selection  of  an  umpire  in  case  of  failure  to 
agree  and  is  undoubtedly  in  the  interest  of  the  efficient  adjust^ 
ment  of  losses  where  only  questions  of  value  are  involved.  Un- 
der the  new  clause,  if  the  appraisers  fail  for  fifteen  days  to  agree 
upon  an  umpire  either  party  may,  without  notice  to  the  other, 
apply  to  a  judge  of  any  court  of  record  in  the  state  for  the  ap- 
pointment of  such  umpire.  The  effect  of  this  clause  should  be 
for  the  future  what  it  has  been  in  the  past,  that  is  to  say,  in  most 
cases  the  opportunity  to  compel  the  selection  of  an  umpire  re- 
sults in  the  appraisers  agreeing  as  to  the  person  who  shall  be 
selected  before  the  expiration  of  the  fifteen-day  limit. 

(2)  The  new  form  requires  that  the  appraisal  shall  be 
itemized.  To  this  end,  it  is  provided  that  the  appraisal  shall 
state  the  sound  value  and  the  loss  or  damage  "to  each  item" 
(line  169)  and  that  the  award  "so  itemized"  (line  171)  shall  de- 
termine the  amount.  The  purpose  of  this  change  is  to  compel 
the  appraisers  to  do  their  duty  intelligently  and  to  avoid  the 
loose  and  unsatisfactory  work  which,  in  the  past,  has  frequently 
been  prejudicial  to  one  or  the  other  of  the  parties  in  interest. 

(3)  Another  change  in  the  new  form  is  the  addition  of  the 
word  "only"  in  line  170.  It  was  implied  in  the  old  form  that 
only  differences  arising  between  appraisers  should  be  submitted 
to  the  umpire.  But  the  failure  to  state  this  clearly  has  resulted, 
in  many  cases  where  the  umpire  and  one  of  the  appraisers  prac- 
tically make  the  award  without  participation  by  the  other  ap- 
praiser. The  appraisers  should  be  compelled  to  attempt,  in  so 
far  as  possible,  to  agree  before  calling  upon  the  umpire  to  settle 
their  differences. 

•  (4)  Under  the  old  form,  the  award  determined  only  the 
amount  of  loss  and  damage.  Under  the  new  form,  the  award 
will,  in  addition,  determine  the  sound  value  of  the  property 
(line  172).  Thus,  the  award,  in  the  future,  will  be  in  such  form 
as  to  serve  as  a  foundation  for  a  settlement  of  all  differences  as 

66 


The  New  Standard  Fire  Policy 

to   value,    including   such   differences   as   may   arise   as    to   the 
relation   of   insurance   to   value,   which   becomes   of   importance 
wherever  there  is  a  question  involving  co-insurance. 
The  clause  as  to  the  company's  options  now  reads : 

176  f^  »  It   shall   be   optional   with   this    Company  to 

177  <-ompanys  ^^^^  ^H^  ^^  ^^y  p^^.^^  ^f  ^^^  articles  at  the 

178  °P"°^^'  agreed     or    appraised    value,     and    also     to 

179  repair,  rebuild,  or  replace  the  property  lost  or  damaged  with 

180  other   of  like  kind   and   quality   within   a   reasonable   time,   on 

181  giving    notice    of    its    intention    so    to    do    within    thirty    days 

182  after  the  receipt  of  the  proof  of  loss  herein  required. 

The  old  form  was  as  follows : 

It  shall  be  optional,  however,  with  this  company  to  take  all,  or  any 
part,  of  the  articles  at  such  ascertained  or  appraised  value,  and  also  to 
repair,  rebuild,  or  replace  the  property  lost  or  darnaged  with  other  of  like 
kind  and  quality  within  a  reasonable  tirne  on  giving  notice  within  thirty 
days  after  the  receipt  of  the  proof  herein  required,  of  its  intention  so  to 
do. — Lines  4-5. 

The  changes  of  phraseology  are  as  follows:  The  word 
"however"  is  omitted.  The  words  "such  ascertained"  are  changed 
to  "the  agreed."  The  words  "of  loss"  are  added  after  "proof" 
(Hne  182).  The  phrase  "of  its  intention  so  to  do"  is  transferred 
so  as  to  follow  the  word  "notice." 

The  clause  prohibiting  abandonment  of  property  (lines  183- 
184)  is  substantially  unchanged. 

The  new  policy  provides : 

185  When  loss  '^^^    amount    of  loss   or   damage   for   which 

186  payable  *^^^    Company   may   be   liable   shall   be   pay- 

187  .able  sixty  days  after  proof  of  loss,  as  herein 

188  provided,  is  received  by  this   Company  and  ascertainment  of 

189  the  loss  or  damage  is  made  either  by  agreement  between  the 

190  insured    and    this    Company    expressed    in    writing    or    by    the 

191  filing  with  this  Company  of  an  award  as  herein  provided. 

The  old  policy  contained  two  clauses  in  reference  to  time  of 
payment,  one  expressed  in  the  affirmative,  as  follows : 
and,  the  amount  of  loss  or  damage  having  been  thus  determined,  the  sum 
for  which  this  company  is  liable  pursuant  to  this  policy  shall  be  payable 
sixty  days  after  due  'notice,  ascertainment,  estimate,  and  satisfactory 
proof  of  the  loss  have  been  received  by  this  company  in  accordance  with 
the  terms  of  this  policy.  (Lines  3-4.) 

and  the  other  expressed  in  negative  form,  which  read  as  follows : 
and  the  loss  shall  not  become  payable  until  sixty  days  after  the  notice, 
ascertainment,  estimate,  and  satisfactory  proof  of  the  loss  herein  re- 
quired have  b^een  received  by  this  company,  including  an  award  by  ap- 
praisers when  appraisal  has  been  required.  (Lines  93-95.) 

Except  in  the  case  of  denial  of  liability,  which  throws  the 
claim  into  controversy  and  litigation,  the  "ascertainment"  of 
the  amount  due  under  the  poUcy  is  made  in  either  one  of  two 
ways: 

1.     By  agreement  between  the  insured  and  the  company, 

67 


The  Fire  Insurance  Contract 

2.     By  award  of  appraisers. 

The  "ascertainment"  may  be  made  within  the  sixty-day 
period  allowed  for  filing  proof  of  loss.  It  may,  and  in  the  case 
of  appraisal  and  award,  usually  does  follow  that  period.  As  a 
matter  of  sound  public  policy,  as  well  as  for  the  protection  of  the 
company's  interests,  a  means  should  be  provided  for  compelling 
the  rendition  of  a  proof  of  loss  in  connection  with  the  payment 
of  any  loss,  however,  the  amount  thereof  may  be  ascertained,  and 
the  policy  clause  provides  that  tho  liability  for  payment  shall 
be  sixty  days  after  the  two  acts  necessary  to  fix  and  prove  the 
amount  due,  have  been  performed  by  the  assured.  One  of  these 
acts  is  the  filing  of  proof  of  loss  with  the  cornpany,  and  the  other 
is  the  ascertainment  of  the  amount,  either  by  written  agreement 
or  the  filing  of  an  award  of  appraisers,  depending  upon  which  of 
the  two  means  of  ascertainment  is  taken  by  the  parties. 

By  the  old  form  the  time  of  payment  was  dependent,  not 
only  on  the  rendition  of  the  proof  of  loss  and  the  ascertainment 
of  the  amount  due,  but  also  upon  the  giving  "due  notice"  of  the 
loss  and  an  "estimate"  thereof.  The  conditions  of  notice  of  loss 
and  estimate  thereof  as  bearing  upon  the  time  of  payment,  are 
eliminated.  In  the  old  form,  it  was  provided  that  the  time  of 
payment  was  sixty  days  after  "satisfactory  proof  of  loss."  The 
word  "satisfactory"  has  been  omitted  and  no  longer  qualifies  the 
phrase  "proof  of  loss."  The  question  of  what  is  satisfactory  to 
the  company  as  a  proof  of  loss  no  longer  arises  and  the  only 
test  of  what  constitutes  a  proof  of  loss  is  the  definition  thereof 
as  contained  on  the  face  of  the  policy.  If  the  proof  conforms  to 
the  requirement  of  the  policy  it  must  hereafter  be  satisfactory 
to  the  company. 

The  provision  as  to  limitation  of  action  on  the  policy  is  as 

follows : 

192  _    .  No    suit    or    action    on    this    policy,    for    the 

193  recovery   of  any   claim,   shall   be   sustainable 

194  in  any  court  of  law  or  equity  unless  all  the  requirements  of 

195  this   policy   shall   have   been   complied   with,   nor   unless    com- 

196  menced  within  twelve  months  next  after  the  fire. 

This  compares  with  the  following  language  of  the  old  form : 
No  suit  or  action  on  this  policy,  for  the  recovery  of  any  claim,  shall 
be  sustainable  in  any  court  of  law  or  equity  until  after  full  compliance 
by   the   insured   with    all    the    foregoing   requirements,    nor   unless    com- 
menced within  twelve  months  next  after  the  fire.  (Lines  106-107.) 

The  compUance  required  by  the  old  form  "by  the  insured" 
was  unnecessarily  restrictive.  The  compliance  which  should 
be  required  as  a  condition  precedent  to  recovery  by  suit  is  a 

68 


The  New  Standard  Fire  Policy 

compliance  with  the  terms  and  conditions  of  the  contract,  either 
by  the  party  plaintiff  to  the  suit  or  by  his  predecessor  in  interest 
under  the  contract,  or  both,  as  the  case  may  require.  It  may  be 
that  suit  is  instituted  by  the  legal  representatives  of  the  insured 
after  death  or  by  the  legal  successor  in  case  the  insured  is  a 
corporation.  It  may  be  that  the  cause  of  action  for  loss  under 
the  policy  is  assigned  by  the  assured  after  loss.  It  may  be  that 
the  suit  is  founded  upon  a  mortgagee  interest  in  property  de- 
stroyed and  that  the  contract  covering  such  interest  is  valid 
and  binding  upon  the  company,  although  the  insured  has  failed 
to  comply  with  the  provisions  of  the  policy.  The  duty  of  com- 
pliance with  the  contract  under  the  new  clause  falls  upon  the 
party  plaintiff  to  the  suit  and  any  prior  party  to  the  contract 
through  whom  he  derives  his  interest. 

The  new  subrogation  clause  is  as  follows: 

^^^  Subrogation  This  Company  may  require  from  the  insured 

198  an     assignment     of     all     right     of     recovery 

199  against  any  party  for  loss  or  damage  to  the  extent  that  pay- 

200  ment  therefor  is  made  by  this  Company. 

This  compares  with  the  language  of  the  old  policy  which 

reads : 

If  this  company  shall  claim  that  the  fire  was  caused  by  the  act  or 
neglect  of  any  person  or  corporation,  private  or  municipal,  this  com- 
pany shall,  on  payment  of  the  loss,  be  subrogated  to  the  extent  of  such 
payment  to  all  right  of  recovery  by  the  insured  for  the  loss  resulting 
therefrom,  and  such  right  shall  be  assigned  to  this  company  by  the  in- 
sured on  receiving  such  payment,     (Lines  102-105.) 

Under  the  new  form  it  is  not  necessary  that  the  company 
shall  assert  the  existence  of  a  claim  for  recovery  over  against  a 
third  party.  It  may  require  as  a  condition  of  payment  of  loss  an 
assignment  of  such  right  of  recovery  as  the  insured  may  have 
against  a  third  party,  leaving  the  question  of  the  existence  of  a 
valid  claim  to  be  ascertained  by  future  examination  of  the  facts 
bearing  upon  the  matter. 

It  may  be  interesting  to  note  the  differences  in  form,  ar- 
rangement and  length  as  between  the  old  and  the  new  policy  con- 
tracts. 

The  old  standard  form  was  so  long  and  so  lacking  in  ar- 
rangement that  the  assured  was  required  to  read  practically  the 
entire  policy  whenever  he  desired  to  ascertain  any  of  his  rights 
or  obligations.  In  revising  the  policy,  every  effort  was  made 
to  shorten  it.  It  was  found,  however,  to  be  utterly  impracticable 
to  make  the  policy  appreciably  shorter  without  sacrificing  either 
the  substantive  rights  of  the  parties  or  their  clear  expression. 

69 


The  Fire  Insurance  Contract 

The  old  policy  contained  2,441  words  while  the  new  policy 
contains  2,063  words,  a  shortening  to  the  extent  of  378  words. 

The  condition  of  the  law  in  reference  to  insurance  of  mort- 
gagee interests  was  found  to  require  additional  provisions  in 
the  new  policy  not  contained  in  the  old  standard  form.  Thus, 
the  part  of  the  new  policy  devoted  to  a  definition  of  the  rights 
and  obligations  of  mortgagees  contains  189  words,  whereas  the 
old  policy  provision  comprised  only  73  words,  so  that  aside  from 
the  mortgagee  interest  clauses  the  new  policy  has  been  short- 
ened to  the  extent  of  494  words  out  of  a  total  of  2,441. 

While  it  was  not  feasible  to  provide  for  the  policyholder's 
convenience  a  contract  very  much  shorter  than  the  old  standard 
form  so  far  as  the  actual  number  of  words  used,  a  great  im- 
provement in  this  respect  was  effected  by  dividing  the  policy 
into  three  parts — combining  in  the  first  part  of  the  policy  all 
the  provisions  defining  the  rights  and  obligations  of  the  assured 
before  loss,  following  this  by  the  provisions  relating  to  mort- 
gagee interest  and  then  adding  at  the  end  of  the  policy  all  the 
provisions  applicable  after  a  loss  has  occurred.  The  first  part 
of  the  policy  under  this  classification  comprises  1,159  words 
and,  thus,  the  policyholder,  for  his  protection  and  information, 
prior  to  a  loss,  is  required  to  read  less  than  half  the  number  of 
words  which  were  necessary  to  examine  under  the  old  standard 
form.  If  the  insured  is  a  mortgagee,  the  second  part  of  the  policy 
must  be  read,  comprising  189  words.  It  is  necessary  for  the 
assured  to  read  the  balance  of  the  policy  (comprising  716  words) 
only,  in  the  event  of  a  loss,  to  inform  himself  of  his  rights  and 
duties  after  the  happening  of  a  loss. 

The  convenience  of  the  assured  is  also  materially  increased 
by  the  use  of  a  marginal  index. 

In  conclusion,  I  shall  refer  to  a  single  point  which  may  prove 
to  be  the  most  important  feature  of  the  new  policy.  As  the  old 
policy  was  concededly  framed  by  the  companies  and  by  them 
presented  to,  and  filed  with  the  Secretary  of  State,  it  has  always 
for  that  reason,  been  judicially  construed  by  resolving  all  doubt- 
ful points  against  the  interests  of  the  companies  which  drew  the 
contract.  The  new  policy  does  not  admit  of  this  interpretation. 
It  was  prepared  at  the  direct  instance  of  the  New  York  Legis- 
lature. The  work  was  done  as  the  Legislature  prescribed,  under 
the  direct  auspices  of  the  National  Association  of  Insurance 
Commissioners.     Every  line  and  word  of  the  new  form  has  the 

70 


The  New  Standard  Fire  Policy 

authority  and  the  sanction  of  the  supervising  officers  of  the  country 
acting  in  the  general  interest  of  the  insurance  pubUc.  There  is  no 
longer  opportunity  to  claim  that  the  policy  should  be  construed 
against  the  interest  of  one  of  the  parties  and  in  favor  of  the  other. 
It  has  been  given  the  authority  and  the  prestige  of  a  clear  enactment 
of  the  New  York  Legislature,  and  in  addition  it  is  so  sompletely  the 
work  of  the  National  Asst>ctation  of  Insurance  Commissioners,  as 
to  entitle  it  to  be  called  henceforth  The  National  Insurance  Policy. 


71 


FUNDAMENTALS  IN  THE  LAW  OF  INSURANCE 
AND  WHY  ADOPTED 

George  Richards 

Richards  and  Affeld,  Lazvyers 

The  law  of  insurance  owes  its  origin  and  early  development  to 
the  skill  and  intelligence  of  business  men.  The  leading  doctrines  of 
insurance  law  are  founded  upon  trade  usage,  and  trade  usage  is  the 
result  of  the  experience,  not  of  lawyers,  but  of  the  mercantile  com- 
munity— underwriters,  brokers — lay  experts  like  yourselves. 

John  Duer,  one  of  our  most  learned  judges,  writing  of  insur- 
ance in  his  lectures,  says:  ''Merchants  were  its  sole  inventors;  the 
custom  of  merchants  supplied  the  rules  by  which  it  was  governed, 
and,  for  a  long  period,  all  its  controversies  were  exclusively  decided 
either  by  the  arbitration  of  merchants,  or  by  tribunals  especially 
established  for  their  use.  It  was  not  a  subject  of  positive  law,  nor 
within  the  jurisdiction  of  the  ordinary  courts  of  justice."  And  to 
similar  effect,  the  United  States  Supreme  Court  declares  "the  con- 
tract of  insurance  is  an  exotic  in  the  common  law." 

While  proud  of  some  of  our  American  institutions,  we  must 
frankly  admit  that  the  fundamentals  of  our  insurance  law,  like  our 
common  law  generally,  came  to  us  as  an  inheritance  from  England, 
and  the  amazing  fact  is  that  until  the  beginning  of  the  seventeenth 
century,  although  marine  insurance  had  been  practiced  to  a  con- 
siderable extent  in  that  and  other  countries  of  Europe  for  hundreds 
of  years,  we  find  no  English  statute  relating  to  the  subject,  and  no 
case  in  the  common  law  reports  shedding  light  on  the  meaning  of 
the  insurance  contract. 

In  the  earliest  act  of  Parliament  relating  to  insurance,  adopted 
in  1601,  occur  the  following  recitals: 

Whereas,  it  hath  been  time  out  of  mind  an  usage  amongst  mer- 
chants *  ♦  when  they  make  any  great  adventure  *  *  to  give  some  con- 
sideration of  money  to  other  persons,  *  *  to  have  from  them  assurance 
made  of  their  goods  *  ships  and  things  adventured  *  *  which  course 
of  dealing  is  commonly  termed  a  policie  of  assurance,  *  *  and,  whereas, 
heretofore,  such  assurers  have  used  to  stand  so  justly  and  precisely  upon 
their  credits  as  few  or  no  controversies  have  arisen  thereupon,  and  if 
they  have  grown,  the  same  have  from  time  to  time  been  ended  and 
ordered  by  certain  grave  and  discreet  merchants  appointed  by  the  Lord 
Mayor  of  the  City  of  London,  etc. 

72 


Fundamentals  in  the  Law  of  Insurance 

These  instructive  statements  sanctioned  by  Parliamentary  au- 
thority are  sufficient  guaranty  to  us  that  the  principles  of  insurance 
law,  prevailing  in  England  prior  to  the  year  1601,  must  have  been 
formulated  without  substantial  aid  from  the  common  law  courts  of 
that  country. 

To  investigate,  then,  the  origin  of  insurance  law  as  based  upon 
trade  custom,  I  shall  ask  you  to  take  a  brief  glance  at  the  maritime 
situation  as  it  existed  in  England  prior  to  the  date  of  that  statute, 
giving  special  attention  to  the  reign  of  Queen  Elizabeth  which  ex- 
tended from  1558  to  1603.  At  about  this  time  the  Lombard  mer- 
chants, who  probably  had  introduced  the  practice  of  marine  under- 
writing into  England  one  or  two  centuries  earlier,  were  drifting 
back  to  Italy,  leaving  as  mementoes  the  word  "policie,"  which  is  of 
Italian  derivation,  and  the  name  "Lombard  Street,"  which  is  still 
mentioned  in  the  English  policy.  With  the  aid  of  the  mariner's 
compass,  Drake,  Raleigh  and  other  adventurers  were  sailing  to  the 
four  quarters  of  the  globe.  In  this  reign,  the  East  India  Company 
was  chartered,  the  Royal  Exchange  was  built — the  famous  meeting 
place  for  underwriters  and  brokers  and  subsequently  the  home  of 
Lloyds — the  first  lay  commissioners  were  appointed  to  settle  in- 
surance disputes,  and  the  first  office  was  established  in  London  for 
registering  insurance  contracts. 

The  conventional  form  of  the  marine  insurance  contract  in 
common  use  was  simple  and  one-sided,  one-sided  in  favor  of  the 
Tnsured.  The  only  express  obligation  resting  upon  him  was  the 
duty  to  pay  the  premium.  If  some  special  warranty  was  required 
to  complete  the  agreement  of  the  parties,  it  became  the  subject  of 
present  consideration  and  was  added  to  the  policy  as  a  well  under- 
stood clause.  For  example,  "warranted  the  ship  in  good  safety;'* 
"warranted  the  ship  is  neutral;"  "warranted  no  Gulf  of  St.  Law- 
rence in  winter  months;"  "warranted  not  to  proceed  east  of  Sing- 
apore;" '^warranted  not  to  load  in  excess  of  a  certain  tonnage," 
etc. 

On  the  other  hand,  the  obligations  of  the  underwriters  were 
sweeping  and  liberal.  The  policy  established  by  Florentine  ordi- 
nance of  1523  reads  as  follows: 

The  said  assurers  taking  upon  themselves,  the  risk  of  all  perils  of 
the  seas,  fire,  jettison,  reprisals,  robbery  by  friend  or  foe,  and  every 
other  chance,  peril,  misfortune,  disaster,  hindrance,  misadventure,  though 
such  as  could  not  be  imagined  or  supposed  to  have  occurred,  or  be  likely 
to  occur.  ♦  *  And  the  insurers  are  bound  first  to  pay  to  the  aforesaid 
the  sums  insured,  and  to  litigate  afterwards. 

Compare  with  this  policy,  if  you  please,  the  form  of  the  pro- 

73 


The  Fire  Insurance  Contract 

posed  standard  fire  policy  now  before  our  legislature,  for  the  terms 
of  which  the  able  and  untiring  efforts  of  our  friends,  Mr.  Rumsey 
and  Mr.  Shallcross  are  so  largely  responsible.  I  am  not  here  to 
cast  reflections  upon  that  policy.  Indeed,  I  felt  greatly  honored 
to  be  able  to  share  in  the  -framing  of  certain  of  its  provisions.  But 
the  truth  is  that,  even  in  that  liberal  form,  the  major  part  is  occu- 
pied with  restrictive  clauses  and  with  statements  of  what  the  insured 
must  and  must  not  do. 

The  early  English  policies,  to  be  sure,  were  not  so  imprac- 
ticable as  to  require  payment  of  loss  before  litigation,  even  upon 
security  furnished  to  the  underwriter,  but,  nevertheless,  you  may 
easily  infer  that  the  mercantile  community,  and  subsequently  the 
common  law  judges,  felt  under  pressure  to  devise  rules  which  would 
adequately  protect  the  pioneer  insurers  from  fraud  and  imposition, 
and  also  from  mistake  as  to  the  character  of  the  risk  to  be  as- 
sumed. 

In  making  any  correct  estimate  of  the  proposed  hazard,  un- 
derwriters, in  those  early  times,  were  largely  at  the  mercy  of  the 
applicant.  An  inspector  could  not  be  despatched  over  night  even 
to  the  neighboring  cities  of  Antwerp  or  Havre  to  survey  ship  or 
cargo.  There  were  no  railroads,  or  steamships  or  telegraphs.  Mari- 
time intelligence  traveled  slowly.  Lloyds'  List,  with  cabled  news 
from  all  parts  of  the  civilized  world,  and  Lloyds'  Register  of  Ship- 
ping, with  detailed  description  of  all  vessels,  had  not  yet  been  so 
much  as  thought  of ;  and  the  Cofl:'ee  House  of  Edward  Lloyd,  in 
which  the  marvelous  institution  of  Lloyds,  named  after  him,  had  its 
beginnings,  had  not  yet  displayed  its  unpretentious  sign  in  Tower 
Street.  There  were  no  insurance  corporations  or  insurance  com- 
panies, such  as  we  know.  Insurance  was  a  matter  of  marine  under- 
writing, and  of  individual  dickering  without  aid  of  scientific  sched- 
ules of  rates  or  elaborate  surveys  of  risks. 

The  owners  of  ships  and  shipping  merchants  were  on  either 
side  of  the  contract.  In  one  instance  they  figured  as  insurers  and 
in  the  next  as  the  assured.  They  were  not  scattered  over  a  country 
three  thousand  miles  in  width.  Most  of  them  were  represented  in 
person,  or  by  agents  or  brokers,  in  the  one  metropolis  of  London, 
and  in  that  city,  not  too  far  from  the  River  Thames.  They  were 
extraordinarily  well  situated  for  the  conduct  of  their  trade,  and 
with  the  help,  doubtless,  of  certain  customs,  and  ordinances,  bor- 
rowed from  Barcelona,  Florence  and  other  cities,  they  gave  shape 
to  regulations  for  the  management  of  this  rapidly  expanding  busi- 

74 


Fundamentals  in  the  Law  of  Insurance 

ness  of  insurance,   so  vital  to  England's  prosperity,  especially  in 
times  of  war. 

And  what  were  some  of  the  leading  doctrines  which  these  lay 
experts  of  early  times  adopted  and  applied,  governed  as  they  were 
by  the  surrounding  circumstances  which  I  have  thus  endeavored 
to  portray? 

The  contract  of  insurance,  they  concluded,  is  peculiarly  a. con- 
tract calling  tor  go6d  faith.  It  l5  a  speculation  in  the  nature  of  a 
bet.  The  true  sport  must  not  bet  on  a  certainty.  The  subject  of 
the  contract  of  insurance  is  a  chance.  Both  parties  must  contract 
with  reference  to  the  same  chance.  Hence  facts  material  to  the 
risk,  known  to  one  party  only,  must  be  affirmatively  disclosed  to  the 
other  party.  What  is  naturally  unknown  to  both  parties  need  not 
be  ferreted  out  and  disclosed  by  either,  since  the  unknown  enters 
into  the  chance  which  is  to  be  assumed.  If  the  underwriter,  through 
some  private  channel,  is  informed  that  the  proposed  adventure  is 
already  ended,  it  would  manifestly  be  a  fraud  for  him  to  accept  a 
premium  for  insuring  it.  No  chance  remains.  If  the  owner  is  ad- 
vised that  his  ship  or  cargo  is  already  in  peculiar  peril,  or  in  any 
way  impaired,  and  does  not  say  so,  the  chance  to  him  is  one  thing, 
and,  to  the  underwriter,  another  thing.  j 

This  in  few  words  was  the  doctrine  of  concealment  and  the 
reasons  for  it.  On  this  subject  the  policy  was  silent,  but  the  ob- 
ligation to  disclose  material  facts  was  made  an  implied  condition  on 
which  the  validity  of  the  insurance  depended.  The  rule  was  ex- 
ceptional, and  at  variance  with  the  maxim  caveat  emptor,  let  the 
purchaser  beware,  governing  the  ordinary  contract  of  sale  when 
unaccompanied  by  express  guaranty.  The  rule  was  exceptional  in 
another  respect,  for  at  common  law  the  general  theory  is  that  where 
parties  have  reduced  their  agreement  to  writing,  the  contract  as 
written  is  presumed  to  embrace  the  entire  agreement,  and,  if  with- 
out ambiguity  In  its  phraseology,  is  the  sole  admissible  evidence  of 
the  agreement.  But  not  so  at  all  in  the  law  of  insurance.  Here, 
various  important  provisions,  though  unexpressed,  have  always  been 
implied  as  a  part  of  the  contract  of  marine  insurance ;  for  example, 
that  contributions  towards  general  average  losses  caused  by  a  peril 
named  are  covered  by  the  policy;  and  that,  if  the  insurance  is  short 
of  value,  the  insured  is  co-insurer  for  the  deficiency. 

This  same  doctrine  of  fair  dealing  imposed  upon  the  insured 
the  further  implied  warranties  that  at  the  start  the  ship  must  be 

75 


The  Fire  Insurance  Contract 

fit  for  the  adventure,  both  in  structure  and  equipment,  and  that  it 
must  not  deviate  from  the  customary  course  of  the  voyage  without 
legal  excuse. 

Again,  the  principle  was  recognized  that  insurance,  in  its  na- 
ture, is  a  contract  of  indemnity.  Hence  the  claimant  under  the 
policy  must  show  an  insurable  interest  unless  the  parties  had  ex- 
pressly stipulated  to  the  contrary.  The  doctrine  that  an  insurable 
interest  is  essential  to  sustain  the  validity  of  the  contract  was 
adopted  later,  on  grounds  of  public  policy.  The  doctrine  of  in- 
demnity involved  also  the  right  of  subrogation,  and  the  right  of 
insurers  to  exact  contribution  towards  the  loss  as  among  them- 
selves, rules  with  which  you  are  quite  familiar. 

In  actions  for  tort,  contributory  negligence  on  the  part  of  the 
plaintiff  constituted  a  good  defense,  but,  under  the  principles  of  in- 
surance law,  indemnity  was  allowed  to  the  insured  for  loss  by  the 
pedl  named,  despite  the  contributing  negligence  of  himself  or  oth- 
ers. 

Bearing  in  mind  the  form  of  the  early  contract,  and  the  manner 
in  which  the  business  was  conducted,  we  are  not  surprised  that 
where  the  parties  deliberately  inserted  upon  the  face  of  the  policy 
any  statement  of  fact  or  any  promise  of  performance,  it  became  a 
warranty  which  must  be  exactly  fulfilled,  a  failure  involving  for- 
feiture of  the  insurance.  This  doctrine,  so  conspicuous  in  the  law 
of  insurance,  has  descended  to  modern  times  by  force  of  precedent, 
and  is  often  applied  to  our  more  elaborate  and  complex  policies. 

With  all  proper  respect  to  the  merchants  and  brokers  of  Britain 
and  other  maritime  nations,  we  recognize  that  friendly  awards  and 
trade  understandings  do  not  quite  fill  the  place  of  a  system  of  law 
elaborated  by  trained  judges,  whose  decisions  are  enforcible  by 
sheriffs,  and  whose  opinions  are  officially  reported  for  the  future 
guidance  of  the  whole  community.  And  though  this  survey  of  our 
subject  is  necessarily  brief  we  must  not  altogether  ignore  the  rul- 
ings of  the  courts. 

Almost  exactly  two  hundred  years  after  Queen  Elizabeth  as- 
cended the  throne,  Lord  Mansfield  ascended  the  Kings  Bench.  He, 
doubtless,  did  more  than  any  other  judge  of  any  age  to  systematize 
the  law  of  insurance.  He  was  a  great  judge  in  commercial  law 
generally,  and  it  is  said  that  out  of  thousands  of  judgments  ren- 
dered by  him  only  two  cases  were  reversed  on  appeal.  Up  to  the 
beginning  of  his  term  in  1756,  there  had  been  very  few  decisions 
reported  in  the  common  law  courts  on  the  subject  of  insurance. 

76 


Fundamentals  in  the  Law  of  Insurance 

To  assist  him,  he  established  at  Guildhall  a  body  of  special  jury- 
men, expert  in  the  usages  of  trade,  and  Lord  Campbell  in  his  "Lives 
of  the  Chief  Justices"  says  that  one  of  these  jurymen,  who  wore  a 
cocked  hat,  had  almost  as  much  authority  as  Chief  Justice  Mans- 
field himself. 

And  now  may  I  ask  you  to  examine  with  me  a  few  cases, 
ancient  and  modern,  which  I  have  selected  from  the  official  reports 
with  some  care  to  aid  us  in  our  present  discussion. 

On  the  27th  of  June,  1740,  the  owner  of  the  ship  Davy  wrote 
from  abroad  to  his  London  agent  to  procure  insurance.  The  let- 
ter was  reecived  the  25th  of  the  following  August.  On  this  day 
the  defendant,,  as  requested,  underwrote  a  policy  on  the  ship  Davy, 
lost  or  not  lost,  Carolina,  U.  S.  to  Holland.  Two  days  before  this 
the  plaintiff's  agent  had  received  a  letter  dated  August  21st  from 
an  acquaintance  who  had  arrived  at  Cowes,  England,  containing 
these  statements:  "12th  this  month  I  was  in  company  with  ship 
•Davy;  at  12  in  night  lost  sight  of  her  all  at  once.  Captain  spoke 
to  me  day  before,  that  he  was  leaking.  Next  day  hard  gale."  The 
contents  of  this  letter  were  not  disclosed  to  the  underwriter  when 
application  was  made  for  the  policy.  The  condition  of  the  vessel, 
however,  had  nothing  to  do  with  the  loss,  for  the  voyage  was  safely 
continued  until  August  19th,  when  the  ship  was  captured  by  hostile 
Spaniards.  On  the  trial  at  Guildhall,  several  brokers  were  called, 
who  testified  that  the  plaintiff's  agent  ought  to  have  disclosed  the 
letter ;  that  upon  disclosure,  the  underwriter  would  not  have  accepted 
the  risk,  or  would  have  accepted  it  only  at  a  higher  premium.  The 
jury  found  for  the  defendant. 

The  entire  official  report  of  this  case^^^  occupies  little  more 
than  half  a  page,  but  it  is  instructive.  It  shows  a  leaning  upon 
the  opinion  and  experience  of  the  expert  brokers,  who  were  allowed 
to  usurp  the  function  of  judge  and  announce  from  the  witness  chair 
the  sound  rule  of  law.  The  matter  concealed  may  have  no  relation 
to  the  cause  of  loss ;  but  was  it  calculated  to  induce  the  underwriter 
to  reject  the  application,  or  to  accept  it  only  at  a  higher  premium? 
That  is  the  test. 

A  vessel  named  Christy  Johnstone  was  insured  "at  and  from 
Plymouth  to  the  Banks,  codfishing,  and  at  and  thence  back  to 
Plymoutb."  She  took  the  usual  quantity  of  bait,  insufficient,  how- 
ever, for  the  trip,  the  practice  being  to  rely  principally  on  catching 
squid  on  the  Banks  to  use  for  bait.  This  year  the  squid,  though 
formerly  ple«ty,   were  scarce,  and   in  order  to   procure  bait  the 

1     Seaman  v.  Fonereau,  2  Strange  118?; 


The  Fire  Insurance  Contract 

master  was  obliged  to  go  to  port  at  St.  Peters,  the  trip  thither  with 
return  to  the  Banks  occupying  about  a  week.  Subsequently,  while 
fishing  on  the  Banks,  the  vessel  sprung  a  leak  in  a  severe  gale  and 
was  totally  lost.  The  court  held  that  while  the  plaintiff's  vessel 
might  have  delayed  for  any  reasonable  time  upon  the  Banks  for  the 
purpose  of  the  voyage,  for  example  in  the  occupations  of  fishing  or 
geting  bait,  without  being  guilty  of  deviation,  yet  to  depart  from 
the  specified  route,  though  absolutely  essential  to  the  successful 
conduct  of  the  trip,  and  though  the  departure  had  nothing  to  do  with 
the  loss,  was  in  law  a  deviation,  which  avoided  the  policy.  ^^^ 

In  an  English  case  the  insurance  was  upon  any  craft  employed 
in  loading  the  ship  Britannia.  A  sloop  was  so  engaged  one  day  in 
transferring  sugar  to  this  ship  over  a  distance  of  some  fifteen  miles 
while  the  ship  was  anchored  at  St.  Kitts,  West  Indies.  The  sloop 
was  in  charge  of  the  ship's  mate  and  three  of  its  seamen  and  four 
negro  laborers.  There  is  sometimes  a  suspicion  of  the  presence  of 
Jamaica  rum  in  that  region,  and,  at  all  events,  at  about  eight  o'clock 
in  the  evening,  first  the  mate  and  shortly  thereafter  all  the  seamen 
and  negroes  fell  asleep  on  the  sloop,  which,  thus  neglected,  drifted 
ashore  where  it  was  seriously  injured  by  winds  and  waves.  Counsel 
for  the  underwriter  urged  that  the  cause  of  loss  was  the  negligence 
and  misconduct  of  plaintiff's  agents,  but  the  court  held  that  the  peril 
insured  against,' to  wit,  the  winds  and  the  waves,  must  be  taken  as 
the  controlling  cause,  in  spite  of  the  proven  negligence  of  the  agents 
of  the  insured.  The  court  further  held  that  while  the  warranty  of 
seaworthiness  demanded  a  competent  master  and  crew  at  the  start, 
it  did  not  require  that  they  should  be  careful  during  the  voyage.  ^^^ 

Another  ship  was  warranted  to  sail  with  fifty  hands  or  upwards. 
In  fact,  she  began  the  voyage  from  Liverpool  with  only  fort)'-six. 
But  six  hours  later,  at  the  island  of  Anglesea,  she  took  on  six  more 
seamen,  making  fifty-two  in  all,  and  this  while  the  pilot  was  still 
aboard,  and  before  there  was  any  occasion  for  employing  more  than 
forty-six.  Later,  on  the  high  seas,  the  ship  was  captured  by  the 
enemy.  Lord  Mansfield  held  that  the  policy  was  avoided  by  reason 
of  the  breach  of  warranty,  in  that  the  voyage  was  begun  without  the 
stipulated  fifty  hands. ^^^ 

This  case  strikingly  illustrates  the  severity  of  the  doctrine  of 
warranty  in  the  law  of  insurance,  which  is  in  marked  contrast  with 
other  branches  of  the  law.  For  example,  a  substantial  compliance 
will  avail,  with  equitable  adjustment  for  the  contract  price,  in  case  of 

2  Burgess  v.   Equitable  Mar.   Ins.   Co.,  126  Mass.   70. 

3  Walker  v.  Maltland,   (1821)   5  Barnewall  &  Alderson,  171. 

4  Dehahn  v.  Hartley,    (1786)  1  T.   R.   343. 

78 


Fundamentals  in  the  Law  of  Insurance 

a  building  contract ;  and  a  lease  still  stands,  despite  certain  breaches 
of  warranty,  for  which,  however,  a  claim  for  damages  may  be 
recoverable.  But  the  contract  of  insurance  is  exceptional;  you  pay 
two  dollars  and  purchase  two  dollars  worth  of  flour;  you  pay 
two  dollars  and  purchase  a  thousand  dollars  of  insurance,  based, 
howcA^er,  upon  conditions.  These  conditions  evidently  constitute 
a  most  essential  part  of  the  agreemcmt.  Except  as  they  are  precisely 
complied  with,  this  great  disparity  betwen  the  amount  of  premium 
and  the  amount  of  insurance  is  not  equalized. 

In  another  case  the  ship  was  warranted  to  sail  with  convoy. 
Voyage  from  London  to  Naples.  This  ship  started  with  convoy, 
but  was  separated  from  the  convoy  by  a  tempest,  which  drove  it 
out  to  sea,  and  off  its  course,  where  it  was  captured  by  pirates.  Here 
was  no  breach  of  warranty,  for  a  peril  insured  against  caused  the 
mischief  of  separation;  and  another  peril  insured  against  was  the 
proximate  cause  of  loss/^^ 

Courts  in  modern  times  have  continued  to  enforce  the  strict 
rule  regarding  warranties,  when  the  thing  warranted  is  expressed 
without  ambiguity. 

Thus,  in  his  accident  policy,  Gaines  warranted  that  the  payee 
was  his  wife.  Gaines  died.  The  wife  brought  suit  on  the  policy. 
It  was  shown  on  the  trial  that  when  the  policy  was  issued  the 
plaintiff  was  living  with  the  insured  as  his  wife,  to  all  appearance, 
and,  indeed,  had  gone  throu|;h  the  form  of  a  marriage  ceremony 
with  h.m.,  but  in  fact,  she  had  a  prior  husband  living.  She  was 
not  the  lawful  wife  of  the  insured.  The  misstatement  as  to  rela- 
tionship appeared  to  be  wholly  immaterial,  and  counsel  argued  that 
the  private  affairs  of  this  couple  were  of  no  concern  to  the  insurance 
company;  but  the  New  York  Court  of  Appeals  held  the  policy 
avoided  for  breach  of  warranty.  ^^^ 

In  an  Arkansas  case  the  application  was  made  part  of  the' 
contract  of  fire  insurance  and  warranted  by  the  insured.  In  it  h^ 
stated  that  his  house,  on  which  he  requested  a  policy  of  $1,200,  cost' 
$2,000,  when  in  fact  it  cost  but  $1,700.  This  slight  discrepancy,' 
however,  seemed  unsubstantial,  inasmuch  as  the  policy  amounted 
only  to  $1,200,  considerably  less  than  the  actual  cost  of  the  house. 
Nevertheless,  the  majority  of  the  court  adjudged  the  policy  void.^^^ 

In  a  Virginia  case,  the  insured,  having  erected  his  building  upon 
a  pier  built  upon  the  bed  of  Chesapeake  Bay,   rented  it  to  one 

5  Jeffery  v.  Legender,   (1691)    3  Lev.  320, 

6  Gaines  v.  Fidelity  &  Cas.  Co.,  188  N.   T.   411. 

7  Capital  Fire  Ins.  Co.  v.  King,  82  Ark.  400. 

79 


The  Fire  Insurance  Contract 

Livingston,  who,  without  consulting  with  the  insured,  gave  permis- 
sion to  a  man  by  the  name  of  Wells  to  set  off  fireworks  on  the  pier 
on  the  night  of  the  Fourth.  The  insured  building  was  ignited  and 
damaged  in  consequence.  Here  not  only  was  the  forbidden  use 
temporary,  but  the  insured,  having  no  knowledge  of  it,  was  no  more 
at  fault  than  he  would  have  been  if  his  house  had  been  struck  by 
lightning.  Nevertheless,  the  warranty  against  the  use  of  fireworks 
on  the  premises  had  not  been  kept,  and  the  recovery  by  the  insured 
below  was  reversed  on  appeal.  ^^^ 

Sometimes,  however,  the  literal  meaning  of  a  warranty,  in  a 
general  printed  form  of  contract,  seems  so  incongruous  when  applied 
to  the  particular  instance,  that  the  courts  have  evaded  it,  having 
regard  to  the  main  purpose  of  the  contract.  An  interesting  illustra- 
tion is  to  be  found  in  a  recent  case  under  the  English  Workmen's 
Compensation  Law.  A  farmer  insured  against  liability  under  that 
law.  There  was  a  warranty  in  the  policy  that  the  name  of  every 
employee  and  the  amount  of  wages  and  salary  paid  to  him  should  be 
duly  recorded  in  a  wages  book.  No  wages  book  was  kept.  The 
farmer  employed  only  one  person,  and  that  his  son,  at  seventy-five 
pounds  a  year.  The  son  lost  his  hand  and  was  paid  under  the  terms 
of  the  Act.  The  judges  of  Kings  Bench  on  appeal,  by  a  vote  of 
two  to  one,  refused  to  find  a  breach  of  condition  avoiding  the 
policy.  ^^^ 

By  similar  course  of  reasoning,  the  courts  in  this  country  and 
England  have  refused  to  apply  the  one  year  limitation  clause  of 
the  usual  fire  insurance  policy  to  a  policy  of  reinsurance,  though 
the  standard  conditions  were  a  part  of  it. 

In  order  to  avoid  technical  and  seemingly  unconscionable  for- 
feitures, the  courts,  and  especially  the  American  courts,  have  adopted 
certain  rules  modifying  the  strict  rule  of  warranty,  and  these  modi- 
fications in  certain  instances  have  introduced  great  uncertainty  and 
confusion  into  the  law  of  insurance. 

The  first  rule,  however,  can  hardly  be  criticized.  It  is  that  any 
ambiguity  in  the  language  of  a  policy,  the  policy  being  prepared  by 
insurance  men  and  in  their  interest,  shall  be  resolved  by  a  liberal 
construction  in  favor  of  granting  indemnity  for  the  loss. 

An  admirable  illustration  is  found  in  New  York.  The  insured 
personal  property  was  stated  to  be  contained  in  a  storehouse  situate 
detached  at  least  one  hundred  feet  on  the  east  side  of  Lake  Cham- 

8  Westchester  F.  Ins.  Co.  v.  Ocean  View  Pleasure  Pier  Co.,  106  Va.  63? 

9  In  re  Bradley,  etc.,  Accident  Indem.  See,  (1912)   1  K.  B.  415. 

80 


Fundamentals  in  the  Law  of  Insurance 

plain  in  the  town  of  Shoreham.  The  court  held  that  this  statement 
must  be  construed  to  be  a  warranty,  but  they  found  ambiguity  as 
to  what  the  warranty  was.  The  policy  said,  "detached  at  least  a 
hundred  feet,"  but  it  did  not  specify  the  object  from  which  it  was 
detached.  It  appeared  that  there  was  a  small  building  with  a  little 
gunpowder  in  it  located  seventy-five  feet  from  the  storehouse;  but 
it  also  appeared  that  this  did  not  increase  the  risk  on  the  property 
insured.  The  court,  accordingly,  construed  the  warranty  as  mean- 
ing detached  at  least  a  hundred  feet  from  some  building  which  would 
increase  the  hazard  on  the  property  insured.  ^^°^ 

This  rule  of  construction  is  not  a  novel  one.  Lord  Mansfield 
applied  it  in  the  year  1778  in  a  case  before  him  in  which  the  ship 
was  warranted  to  sail  with  thirty  seamen,  besides  passengers.  To 
n.ake  good  the  number  of  thirty  seamen  it  was  necessary  to  count 
in  the  steward,  the  cook,  the  surgeon  and  certain  boy  apprentices 
on  board.  Lord  Mansfield  held  that  the  insured  was  entitled  to  do 
this,  and  that  there  was  no  breach  of  warranty. ^^^^ 

Another  rule  in  mitigation  of  the  strict  doctrine  of  warranty 
is  this,  that  exact  compliance  will  be  required  only  as  applied  to 
statements  of  fact  or  promises  of  performance,  and  that  good  faith 
will  be  held  sufficient  in  the  case  of  statements  of  opinion,  expecta- 
tion or  belief,  though  in  the  form  of  warranties. 

Thus,  Owen,  the  insured,  died  about  a  month  after  procuring 
a  policy  from  the  IMetropolitan  Life  Insurance  Company.  Defense 
was  made  on  the  ground  that,  in  his  application,  he  had  warranted 
that  he  had  never  had  heart  disease.  Owen's  heart  was  seriously 
affected  prior  to  his  proposals,  but  he  did  not  know  it.  The  court 
concluded  that  only  good  faith  was  required,  and  that  the  jury 
were  at  liberty  to  find  that  his  representation  regarding  this  obscure 
disease  was  given  according  to  his  bona  fide  belief,  and  that  the 
policy  was  not  avoided.  ^^^^ 

•  The  last  of  these  rules  that  I  shall  mention  at  this  time  is  the 
one  which  has  occasioned  the  greatest  amount  of  confusion,  and 
that  is  the  doctrine  of  parol  waivers.  By  this  doctrine,  though  his 
action  is  brought  upon  the  policy,  the  insured  is  allowed  to  show  by 
oral  evidence  of  what  occurred  at  or  before  the  making  of  the  con- 
tract that  the  understanding  between  the  parties  was  radically  dif- 
ferent from  that  expressed  in  the  policy.  For  example,  the  insured 
has  avoided  his  policy  by  reason  of  other  insurance  without  written 

10  Burleigh  v.  Gebhard  Fire  Ins.   Co.,  90  N.  T.  220. 

11  Bean  v.  Stupai  t,  1  Dougl.  11. 

12  Owen  v.  Metropolitan  Life  Ins.  Co.,  74  N.  J.  L.  770. 

81 


The  Fire  Insurance  Contract 

permit,  or  by  some  breach  of  warranty.  You  will  recall  that  the 
courts  of  New  York  and  of  the  majority  of  the  States,  allow  the 
insured,  or  his  witness,  in  such  a  case,  to  testify  orally  that  the 
countersigning  agent  had  knowledge  of  the  other  insurance,  or  the 
other  facts  constituting  breach,  before  the  policy  issued.  The  agent 
generally  denies  this,  but  the  jury  attaches  little  importance  to  the 
point  one  way  or  the  other  and,  ignoring  it,  finds  for  the  insured. 
This  rule  of  course  is  utterly  at  variance  with  common  law  doctrines 
of  evidence,  and  is,  therefore  rejected  by  the  courts  of  England, 
by  our  federal  courts  and  the  state  courts  of  Massachusetts  and 
New  Jersey. 

Basing  my  opinion  upon  experience  as  well  as  theory,  I  am 
convinced  that  the  last  named  courts  have  much  the  better  of  the 
argument,  both  in  the  interest  of  justice  and  of  public  safely.  The 
sanction  of  the  written  agreement  is  needed  for  the  protection  of 
both  parties,  if  they  are  honest ;  and  the  fire  loss  per  caput  in  this 
country,  as  you  are  well  aware,  is  several  fold  greater  than  it  is 
abroad,  a  fact  carrying  persuasion  -that  the  public  are  entitled  to 
the  benefit  of  the  protective  clauses  of  the  policies.  Invoking  this 
doctrine  of  parol  waivers,  however,  claimants,  and  especially  un- 
scrupulous claimants,  sweep  out  of  our  policies,  both  fire  and  life, 
all  the  conditions  and  warranties  though  inserted  therein  by  legisla- 
tive enactment,  and  this  Is  done  without  the  payment  of  any  addi- 
tional premium.  To  try  the  issue  before  a  jury  seems  to  me  almost 
farcical.  If  the  contract  as  written  does  not  need  reforming,  it 
should  be  enforced  as  it  reads.  If  it  does  need  reforming,  the  is- 
sue should,  in  my  opinion,  be  determined,  as  in  all  other  cases,  by  a 
judge  sitting  in  equity,  and  under  tlie  rules  of  evidence  peculiar  to 
that  procedure.  An  equity  issue  is  promptly  disposed  of  in  this  and 
many  States,  and  in  the  same  action  the  insured  may  collect  any 
insurance  money  to  which  he  is  entitled. 

Observing  the  marked  disposition  of  courts  and  legislatures 
to  favor  the  underwriter,  under  the  simple  conditions  of  the  early 
marine  policy,  and  their  no  less  marked  disposition  to  favor  the  in- 
sured, under  the  modern  fire  insurance  policy,  the  question  presents 
itself  to  us,  whether  it  would  have  been  wiser  for  the  fire  insurance 
companies  to  have  omitted  from  their  early  policies  most  of  the  fine 
print  conditions  appertaining  to  the  situation  prior  to  the  fire,  rely- 
ing instead  upon  the  two  common  law  doctrines,  first,  that  all  mat- 
ters material  to  the  risk  must  in  general  be  affirmatively  disclosed 
by  the  applicant  for  insurance,  and,  second,  that  the  insured  must 

82 


Fundamentals  in  the  Law  of  Insurance 

not  voluntarily  enhance  the  risk  during  the  term  of  insurance.  This 
inquiry,  which  has  for  many  years  enhsted  my  interest,  has  a  direct 
bearing  upon  the  vastly  important  proposal  now  pending  (March, 
1917)  to  adopt  a  new  and  simpler  fire  insurance  policy  for  the 
whole  country,  and  I  submit  the  question,  suggesting  that  the  marine 
underwriter  has  undoubtedly  fared  far  better  with  the  aid  of  the 
common  law  doctrine  of  concealment,  enforced  as  it  is  by  the 
courts,  than  has  the  fire  insurance  company  with  its  express  and 
apparently  sweeping  warranty  upon  that  subject,  limited  as  it  usually 
is  in  the  United  States  to  intentional  or  fraudulent  concealment. 
Referring  to  a  fine  print  condition  of  an  elaborate  fire  policy  in 
common  use  before  the  standard  policies  were  adopted,  our  Court 
of  Appeals  likened  the  clause  to  a  tiger  "crouched  unseen  in  the 
jungle  of  printed  matter  with  which  a  modern  policy  is  overgrown," 
and  thereupon  concluded  to  sustain  a  finding  of  waiver.  Indeed 
it  may  be  truly  stated,  in  a  general  way,  that  while  the  implied  war- 
ranties of  the  marine  policy  have  been  respected  by  all  our  courts, 
the  express  warranties  of  the  fire  and  life  policies,  have  been  to 
considerable  extent  evaded  by  our  courts,  though  no  doubt  with 
the  intention  of  accomplishing  justice. 

In  conclusion,  the  four  doctrines  of  indemnity,  concealment, 
warranty,  and  parol  waivers,  seem  to  me  to  be  the  most  disfiHHive 
and  practically  important  in  the  law  of  insurance.  These  doctrines 
and  the  reasons  for  their  adoption  we  have  thus  briefly  reviewed. 


83 


y< 

CASH  VALUE 

L.  C.  Williams 

General  Agent  and  General  Adjuster,  Atlas  Assurance  Co.,  Ltd. 

The  meaning  of  the  phrase  "Cash  Value"  as  appHed  to  a  policy 
of  fire  insurance  is  the  cash  value  of  property  insured  to  an  owner 
at  the  time  a  fire  occurs,  and  is  the  measure  of  damage. 

On  account  of  the  many  classes  of  property  and  interests  in- 
sured there  are  of  necessity  varied  phases  of  what  constitutes  an 
actual  cash  value. 

Unfortunately  many  laymen  labor  under  the  impression  that 
an  amount  agreed  upon  between  an  agent  of  the  Company  or  a 
broker  as  the  amount  of  insurance  to  be  carried  constitutes  the  cash 
value  of  the  property  insured  or  the  sum  to  be  collected  in  the 
event  of  a  fire.  Some  agents  even  overlook  the  most  important  fact 
that  the  underlying  "principle  of  a  fire  insurance  contract  is  in- 
demnity. 

My  intention,  therefore,  is  to  touch  upon  the  value  of  such  a 
clause  as  the  Cash  Value  Clause  and  its  necessity  in  a  contract  of 
fire  insurance  and  to  further  explain  briefly  how  a  cash  value  of 
insured  property  is  arrived  at  under  varying  conditions  . 

Contract  One  of  Indemnity. 

Insurance,  it  has  been  most  aptly  stated,  is  a  contract  of  in- 
demnity, whereby  one  party  in  consideration  of  a  specified  payment 
called  the  "premium"  undertakes  to  guarantee  another  against  risk 
of  loss. 

The  processes  in  vogue  in  the  United  States  are  practically  the 
same  as  in  England,  whence  they  are  derived.  In  fact,  there  are 
still  extant  rules  of  sundry  "guilds  or  social  organizations  of  the 
Anglo  Saxons  whereby  in  return  for  certain  fixed  contributions, 
the  members  guaranteed  each  other  against  loss  from  fire,  water, 
robbery  or  other  calamity." 

The  Fire  Insurance  policy  or  contract  of  today  is  the  covenant 
or  "bond  of  indemnity"  as  between  the  insurer  and  insured,  to  pro- 
tect him  from  loss  by  fire;  and  the  printed  conditions  thereof  are 
stipulations  determining  the  rights  and  duties  of  both  the  insured 

84 


Cash  Value 

and  insurer,  and  determine  the  liability  of  the  Insurance  Com- 
pany. 

It  is,  moreover,  a  personal  contract  which  insures  an  owner 
against  loss  on  account  of  fire,  but  does  not  insure  against  fire,  nor 
does  it  insure  the  goods  themselves. 

Fire  Insurance,  therefore,  being  a  Contract  of  Indemnity,  the 
value  of  the  property  destroyed,  immediately  before  the  fire,  must 
be  the  limit  of  the  assured's  claim ;  and  this  doctrine  is  clearly  set 
forth  in  the  Limitation  Clause  embodied  in  the  "Standard  Policy" 
forms  in  use  today. 

Massachusetts,  the  first  State  to  adopt  by  law  a  standard  form 
of  policy,  was  shortly  followed  by  New  York  State,  and  subse- 
quently by  others. 

In  those  States  where  no  Standard  form  of  policy  is  prescribed, 
that  of  New  York  State  is  generally  used,  being  subject,  however, 
in  many  cases  to  Statutory  Provisions. 

By  reference  to  the  New  York  Standard  form  of  policy,  lines 

1  and  2,  you  will  note  the  following  provision : 

This  Company  shall  not  be  liable  beyond  the  actual  cash  value  of 
the  property  at  the  time  any  loss  or  damage  occurs,  and  the  loss  or 
damage  shall  be  ascertained  or  estimated  according  to  such  actual  cash 
value,  with  proper  deduction  for  depreciation  however  caused,  and  shall 
in  no  event  exceed  what  it  would  then  cost  the  insured  to  repair  or  re- 
place the  same  with  materials  of  like  kind  and  quality. 

This  provision  of  the  policy  contract  clearly  limits  the  insured's 
recovery  to  an  amount  that  will  indemnify  him  for  his  loss  without 
gain  and  expressly  excludes  remote  or  consequential  damages,  such 
as  loss  of  profits,  trade,  rents  or  derangement  of  business  or  the 
payment  of  wages,  even  though  in  consequence  of  a  fire,  and 
the  legal  effect  of  this  clause  is  to  prevent  the  recovery  of  any 
damages  that  might  occur  by  fire  greater  than  that  measured  by  the 
actual  cash  value  of  the  property  injured  or  destroyed.  (Osborne 
vs.  Phenix  Ins.  Co.  S.  C.  Utah). 

Without  this  limitation  clause,  the  Fire  Insurance  policy  would 
lose  its  significance  as  a  contract  of  indemnity,  and  each  and  every 
risk  would  have  to  be  specifically  valued  before  the  issuance  of  a 
policy,  which  would  make  the  cost  almost  prohibitory. 

In  some  States  the  wording  of  this  provision  of  the  Standard 
policy  differs  slightly  from  that  of  New  York,  but  in  effect  they 
are  similar,  excepting,  of  course,  those  States  which  by  Statutory 
provision  or  otherwise,  have  elected  to  make  the  policy  a  valued 
one. 

MS 


The  Fire  Insurance  Contract 

It  is  to  be  hoped  that  in  the  near  future  all  States  will  adopt  a 
uniform  standard  policy  unrestricted  by  Statutory  Provisions  which 
are  more  or  less  detrimental  to  public  policy. 

"Actual  Cash  Value"  is  on  occasion  construed  as  equivalent 
to  market  value ;  but  in  general,  means  the  sound  value  of  property 
at  the  time  of  fire,  or  cost  to  an  insured  to  replace  damaged  or  de- 
stroyed property  in  the  same  condition  as  it  was  immediately  pre- 
ceding the  fire,  and  is  the  hypothesis  upon  which  all  losses  occurring 
under  policies,  where  the  valuation  in  the  policy  does  not  control, 
should  be  adjusted.  It  is  the  duty  of  an  insurer  to  endeavor  to 
agree  with  an  insured  on  the  cash  value  and  measure  of  damage, 
as,  otherwise,  there  is  no  authority  for  the  appointment  of  ap- 
praisers to  ascertain  same.     (Boyle  vs.  Ins.  Co.  169  Pa.  St.  349). 

To  arrive  at  the  actual  cash  value,  the  Insurance  Company  is 
entitled  to  any  depreciation,  however  caused,  but  nothing  can  be 
added  to  the  cash  value  on  account  of  estimated  profits,  in  esti- 
mating the  amount  of  loss. 

Cost  of  replacement,  while  it  limits  the  claim  and  may  furnish 
a  proper  estimate  upon  which  to  base  the  amount  of  loss,  is  not  in 
itself  conclusive  evidence  of  actual  cash  yalue  at  the  time  of  fire,, 
the  basis  of  indemnity  under  a  Fire  Insurance  policy  being  money 
value  at  the  time  of  fire  of  property  destroyed,  not  the  cost  of  re- 
placement, the  insurer  being  at  all  times  entitled  to  any  depreciation 
that  may  exist.  Where  property  is  damaged  by  fire  and  there  is  a 
clause  in  the  policy  which  permits  an  insurer  to  lepair  damages  with 
"material  of  like  kind  and  quality,"  nothing  more  than  the  cost  of 
repairing  can  be  recovered,  and  the  difference  between  the  actual 
cash  .Value  of  such  property  at  the  time  of  fire  and  value  in  its 
damaged  condition  after  the  fire  cannot  be  claimed  as  the  measure 
of  indemnity^ 

An  Insurer  always  has  a  right  to  re-instatement  or  replacement 
of  damaged  or  destroyed  property,  but  the  privilege  is  optional 
with  the  Company. 

Buildings. 

Actual  cash  value  of  an  insured  building  is  its  value  as  it  stood 
on  the  day  of  the  fire.  To  determine  such  \ralue  the  method  usually 
adopted  is  to  take  into  consideration  the  cjriginal  cost,  to  which  must 
be  added  the  cost  of  any  improvements  subsequently  made,  and  as 
the  provision  in  the  policy  specifies,  "what  it  would  theit  cost  the  in- 
sured to  replace,"  due  allowance  must  be  made  for  increase  in  cost 
of  material  or  labor,  should  any  exist.     This  is  true  also  as  to  de- 

86 


Cash  Value 

preciation,  if  any,  and  proper  allowance  must  be  made  on  account 
of  same.  The  burden  of  proof  in  establishing  depreciation,  how- 
ever, rests  upon  the  Insurer. 

In  some  instances  appreciation  on  account  of  increase  of  price 
for  material  and  labor  is  greater  than  the  depreciation,  as  in  the 
case  of  Stenzel  vs.  Phila.  Fire,  in  which  case  the  building  insured 
originally  cost  $8,061.  Depreciation  was  estimated  at  10%.  In- 
sured claimed  an  increase  of  cost  of  material  and  labor  of  20%, 
valuing  the  property  at  time  of  fire  at  $8,500.  A  total  loss  under 
the  insurance  was  allowed  by  the  Courts. 

Depreciation  may  be  proper  on  account  of  age  or  condition  or 
it  may  be  proper  from  other  causes;  "however  caused"  is  the  pro- 
vision of  the  policy.  A  building  may  have  been  constructed  for  some 
particular  purpose,  but  on  account  of  failure  of  the  enterprise,  or 
unsuitable  location,  or  subsequent  change  of  trade  centres,  it  could 
not  be  used  for  the  purposes  for  which  it  had  been  erected,  and 
had  become,  therefore,  in  a  measure  useless.  The  "actual  cash 
value"  in  the  event  of  fire,  of  such  a  building  could  not  be  deter- 
mined upon  an  original  cost,  less  depreciation  for  ordinary  wear 
and  tear,  and  neither  could  the  measure  of  indemnity  be  based  upon 
an  estimate  of  the  cost  of  replacement  or  repairing.  Then,  again, 
take  the  case  of  a  dwelling  house  built  in  what  was  once  an  outlying 
section  of  a  City.  Subsequently,  in  consequence  of  a  natural  growth, 
a  street  was  cut  and  a  sewer  built  within  a  few  feet  of  the  build- 
ing, making  condemnation  proceedings  necessary,  and  which  pro- 
ceedings had  been  commenced  prior  to  fire. 

In  such  like  cases  the  value  of  the  building  as  it  stood  on  the 
day  of  the  fire,  must  be  predicated  upon  commercial  or  intrinsic 
value,  taking  into  consideration  all  the  circumstances  and  facts  sur- 
rounding the  case. 

It  has  been  held  that  where  a  building  stands  on  leased  ground 
with  a  proviso  in  the  lease  to  the  effect  that  it  must  be  removed  at  its 
expiration,  or  become  the  property  of  the  owner  of  the  land,  and  the 
lease  has  but  a  short  time  to  run  after  the  date  of  fire,  that  "intrinsic 
value  only  of  the  building"  is  the  measure  of  indemnity. 

When  a  building  is  located  within  the  jurisdiction  of  a  civil  ordi- 
nance which  calls  for  a  shingle  roof  to  be  replaced  with  slate  or  other 
non-combustible  material,  or  that  fire-proof  stairways  must  be  pro- 
vided and  fire  escapes,  placed  on  a  building,  such  increased  cost  in 
the  event  of  fire  is  a  proper  charf;e  to  be  taken  into  consideration  in 
ascertaining  actual  cash  value  even  though  such  improvements  had 

87 


The  Fire  Insurance  Contract 

not  been  made  to  the  building  before  the  fire,  provided  there  be  no 
stipulation  in  the  policy  excluding  liability  on  account  of  such  in- 
crease of  cost  as  there  is  in  the  New  York  Standard  Policy;  but 
where  there  is  a  Statute  nullifying  such  a  policy  provision  such  a 
charge  would  be  proper. 

'  Vai.ue:d  Policy. 

As  a  general  rule  in  States  where  a  valued  policy  law  prevails, 
and  there  is  no  question  of  fraud,  misrepresentation  or  over  valua- 
tion, the  amount  of  insurance  carried  upon  real  estate  constitutes 
the  actual  cash  value,  and  in  the  event  of  a  total  loss  is  the  measure 
of  indemnity.  In  Wisconsin  and  Missouri  this  rule  applies  even 
though  over  valuation  can  be  proven,  and  that  it  was  knowingly  too 
high  when  the  insurance  was  taken  out,  and  in  the  event  of  there 
being  several  policies  on  a  building,  the  whole  sum  insured  must  be 
paid  by  each  Company. 

Where  the  insurer  and  insured  have  agreed  beforehand  as  to 
the  value  of  the  thing  insured,  as  might  be  in  cases  of  insurance  of 
profits,  commissions  or  use  and  occupancy,  in  the  absence  of 
fraud  or  misrepresentation  such  valuation  is  probably  conclusive 
evidence  of  money  value  and  is  to  be  taken  as  the  measure  of  in- 
demnity;  but  where  pictures,bric-a-brac,or  other  valuable  articles 
are  insured  specifically  under  a  valued  schedule,  this  is  not  neces- 
sarily so,  as  while  the  valuation  named  in  the  policy  binds  the  In- 
surance Company,  unless  it  is  able  to  show  fraud, the  onus  of  proof 
that  the  property  destroyed  or  damaged  was  actually  the  property 
described  in  the  policy  and  upon  which  the  valuation  was  based, 
remains  upon  the  insured.  For  example,  a  person  may  purchase 
a  painting  for  $25,000,  on  the  assumption  that  it  was  a  Corot,  and 
insures  it  as  such  under  a  valued  policy  for  that  amount.  The 
painting  is  destroyed  by  fire,  but  it  subsequently  develops  that  it 
was  not  a  Corot,  but  only  a  reproduction  of  one  of  Corot's  paintings. 
The  insured  was  perfectly  innocent,  and  there  had  been  no  attempt 
at  fraud,  still  he  could  only  collect,  if  anything  at  all,  an  amount 
equivalent  to  the  commercial  value  of  reproduction  of  like  nature  as 
the  one  destroyed. 

In  the  case  of  property  specifically  insured  under  a  Schedule, 
without  a  qualifying  clause  in  the  form  attached  to  the  policy,  ex- 
pressly stipulating  that  the  value  stated  shall  be  the  agreed  value 
of  the  property  insured,  the  conditions  of  the  policy  prevail,  the 
valuation  named  being  but  the  limit  of  liability. 


Cash  Value 

Patte:»ns. 

Patterns,  models,  moulds,  designs  and  other  kindred  articles 
used  by  manufacturers  have  no  market  value.  Therefore,  "mar- 
ket value"  cannot  be  a  basis  of  money  value;  neither  does  cost  of 
reproduction  always  represent  a  basis  for  ascertaining  the  measure 
of  indemnity,  as  they  may  not  be  worth  reproduction,  being  what 
are  known  as  "dead  patterns."  The  cash  value  of  such  articles  is 
sometimes  arrived  at  upon  a  basis  of  reproduction, -but  is  always 
an  uncertain  quantity,  their  value  depending  not  only  upon  the  con-  ^ 
dition  they  may  be  in  at  the  time  of  fire,  but  also  upon  the  uses  to 
which  they  can  be  put. 

The  prudent  Underwriter  will  see  to  it,  when  issuing  insurance 
upon  such  class  of  property,  that  the  amount  of  indemnity  is  at  least 
limited  in  the  policy  to  a  specified  sum. 

Personal  Property. 

In  the  case  of  personal  property  such  as  household  furniture, 
wearing  apparel,  bedding,  etc.,  the  actual  cash  value  at  the  time  of  ^ 
fire  is  the  market  value  of  such  property  if  there  be  one,  otherwise, 
it  is  a  fair  valuation  not  to  be  determined  by  what  the  goods  might 
bring  at  auction  or  at  a  forced  sale  or  even  what  a  second-hand 
dealer  might  offer  for  such  property,  but  based  upon  original  cost  or  I 
cost  of  reproduction  in  like  kind  and  quality,  less  a  proper  allowance  | 
for  depreciation  on  account  of  age,  condition,  usage,  etc.     As  was 
stated  in  Grenier  vs.  Springfield  S.  C.  La.  "the  original  cost  price 
of  movables,  a  large  proportion  of  which  had  been  in  use  for  several 
years,  falls  somewhat  short  of  establishing  their  value." 

An  insured  is  entitled  to  the  actual  cash  value  of  his  prop- 
erty  at  the  time  of  a  fire  even  though  it  cost  him  nothing. 

If  the  damaged  property  is  capable  of  repair,  the  measure  of 
damage  is  the  sum  it  will  take  to  put  it  in  the  same  or  as  good  as 
the  same  condition  as  it  was  immediately  before  the  fire. 

Machinery  and  Fixtures. 

The  same  would  hold  true  as  to  machinery,  fixtures,  and  such 
like  articles,  though  should  the  property  be  damaged  to  such  an 
extent  as  to  be  rendered  worthless  or  beyond  repair,  then  the  cash 
market  value  of  the  cost  to  replace  the  destroyed  property  at  the 
date  and  place  of  fire,  less  any  difference  there  may  be  proven  to 
exist  as  between  the  property  new  and  its  condition  at  the  time  of 
fire,  would  be  the  actual  cash  value  and  measure  of  indemnity,  but 

89 


The  Fire  Insurance  Contract 

this  value  of  cost  does  not  necessarily  mean  original  cost,  as  the 
articles  destroyed  might  be  bought  at  the  time  of  fire  for  less  than 
original  cost,  or  on  the  other  hand,  the  cost  at  time  of  fire  might  be 
more.  In  either  case,  the  Insurance  Company  or  the  assured  is  en- 
titled to  the  benefit  of  such  existing  condition.  This  was  held  to  be 
so  in  the  recent  case  of  Gulf  Compress  Co.  vs.  Ins.  Co.  of  Pa. 
129  Tenn.  586.  A  machine  has  been  bought  at  a  sacrifice  sale  for 
$11,500  and  insured  for  $15,000.  Total  loss  occurred.  No  evidence 
was  produced  to  show  that  the  machine  could  "then"  (that  is  at  the 
time  of  fire)  nor,  in  fact,  for  several  months  after,  have  been  pro- 
cured for  less  than  $15,000.  Depreciation  was  nil,  as  the  machine 
was  practically  new.    The  Court  decided  loss  was  $15,000. 

Machine:ry  Manufacturers. 

Where  an  insured  is  a  manufacturer  of  machines,  however,  and 
machines  manufactured  by  him  are  destroyed,  the  foregoing  rule 
could  not  be  applied,  as  conditions  are  entirely  diflFerent,  so  except 
under  very  extraordinary  circumstances,  the  actual  cash  value  in 
such  cases  would  be  cost  of  reconstruction  to  the  manufacturer  at 
the  time  of  fire,  less  depreciation  on  account  of  age,  condition,  usage, 
etc.,  and  not  the  market  value.  This  was  so  held  in  the  case  of 
Standard  Sewing  Machine  Co.  vs.  Royal  Ins.  Co.  201  Pa.  St.  645. 
The  above  rule  would  also  hold  good  in  the  case  of  machines  manu- 
factured by  an  assured  for  economic  or  other  purposes  in  his  own 
work-shops  for  use  in  his  own  factory,  damaged  or  destroyed  on  his 
premises.  An  interesting  question  is  raised  in  this  connection  in 
the  following  manner : 

A  large  manufacturer  has  several  hundred  thousand  dollars 
worth  of  machinery,  mostly  purchased  in  the  usual  way  from 
machine  makers.  They  have,  however,  about  $50,000  worth  which 
they  have  made  themselves  on  the  premises.  These  machines  cost 
them  to  manufacture,  including  materials,  labor  and  proper  over- 
head charges,  say  $170  each.  If  they  had  a  certain  fire  and  all  of 
these  machines  were  destroyed  and  they  had  to  buy  them  in  the 
market,  they  would  cost  them  $300  each.  They  ask  at  what  figure 
should  these  particular  machines  be  taken  up  in  their  inventory  for 
the  purpose  of  co-insurance,  as  they  could  not  afiford  the  time  to  re- 
build the  machines  themselves.  May  on  Insurance  says  "the 
measure  of  damages  is  neither  the  value  of  convenience  nor  of 
affection."     The  policy  provision  stipulates  that  the  limit  of  the 

90 


Cash  Value 

insurer's  liability  is  what  it  would  then  cost  the  insjuredLto  replace 
with  materials  of  like  kind  and  quality  less  depreciation  however 
caused. 

It  was  held  in  the  case  of  Texas  Moline  Plow  Co.  vs.  Niagara 
87  S.  W.  Rep.  192  that  this  proviso  was  not  necessarily  intended  to 
mean  immediate  replacement,  but  within  a  reasonable  time.  In  the 
case  under  consideration,  either  the  time  of  fire  or  if  that  were 
momentarily  impracticable  on  account  say  of  the  destruction  of  the 
machine  shop,  then  so  soon  afterward  as  the  machines  could  be  re- 
constructed under  similar  conditions  as  they  were  originally  con- 
structed would  be  a  reasonable  time,  as  this  mode  of  procedure  was 
-saitisfactory  to  the  insured  at  the  time  the  insurance  was  effected, 
and  replacement  from  other  manufacturers  would  simply  be  a  matter 
of  convenience  to  him.  To  pay  on  a  basis  of  $300  would  be  to 
allow  a  gain  to  the  manufacturer,  which  is  contrary  to  the  principle 
of  indemnity  and  it  is  indemnity  only  that  is  guaranteed  by  the 
policy.  In  my  opinion,  therefore,  the  insured  would  only  be  entitled 
to  recovery  on  a  basis  of  $170,  a  machine,  less  depreciation  for  age, 
condition,  etc.,  the  measure  of  indemnity  being  a  sum  equal  to  the 
actual  cash  value  of  the  property  destroyed  on  the  day  of  the  fire. 

Machinery  on  Lipase. 

If  machinery  is  held  under  lease  with  a  proviso  that  at  the 
end  of  the  lease  it  is  to  be  returned  in  good  order  and  condition, 
and  insurer  had  insured  his  "working  interest"  therein,  the,  measure 
of  indemnity  is  the  value  at  the  time  of  fire,  of  the  property  which 
he  was  bound  to  replace  and  not  the  value  of  the  lease  from  the  date 
of  fire  to  expiration  of  same.     (May).  ^ 

Goods  in  the  Hands  oe  Manueacturers. 

When  staple  products  or  commodities  of  prime  necessity  such 
as  wheat,  wool,  cotton,  sugar,  etc.,  that  are  always  in  demand,  and 
readily  sold  with  practically  no  expense  or  trouble  on  what  are 
known  as  "market  quotations,"  are  destroyed,  the  only  way  to  effect 
restoration  is  by  purchase  in  the  open  market,  and  the  actual  cash 
value,  therefore,  of  such  like  commodities  would  be  the  market 
price  ruling  on  the  day  of  fire  at  the  point  where  fire  occurred,  or 
if  there  be  no  market  at  that  place,  it  would  be  proper  to  show  what 
it  was  worth  on  that  day  in  the  nearest  market,  and  such  worth  plus 
cost  of  transportation  would  be  a  fair  criterion  of  actual  cash  value. 

The  policy  defines  the  date  of  fire  as  the  date  at  which  the 

91 


The  Fire  Insurance  Contract 

n:arket  value  is  to  be  taken,  as  it  might  happen  that  in  the  event 
of  a  serious  conflagration  the  destruction  of  large  quantities  of 
commoditi-^s  might  cause  the  market  price  to  greatly  advance. 

As  d  general  rule,  where  goods  are  in  the  hands  of  a  manu- 
facturer, cost  of  production  of  the  unfinished  goods,  without  any 
allowance  for  profits,  plus  the  value  of  the  raw  materials,  would  be 
the  proper  method  of  ascertaining  actual  casn  value,  as  the  pay- 
ment of  "Market  Value"  to  a  manufacturer  would  include  the 
payment  of  an  anticipated  profit  and  be  contrary  to  the  principles 
of  indemnity.  Depreciation  must  be  taken  into  consideration,  as 
in  many  cases  both  finished  stock  and  raw  material  may  be  old, 
out  of  fashion,  or  for  other  reasons  would  cause  its  "actual  cash 
value"  at  the  time  of  fire  to  fall  far  below  its  cost  of  production. 

As  exceptions  to  this  rule,  however,  the  Courts  have  held,  in 
the  cases  of  Frick  vs.  United  Fireman's  Ins.  Co.  218  Pa.  St.  409, 
and  Mechanics  Ins.  Co.  vs.  Hoover  Distilling  Co.  40  Ins.  L.  J.  347, 
that  the  measure  of  damage  and  the  liability  of  •»  a  Insurance 
Company  under  its  policy  to  a  manufacturer  for  the  burning  of  a 
product  like  whiskey,  "wluse  manufacture  occupies  much  time 
and  whose  age  constantly  enhances  its  value,  is  not  the  cost  of 
raw  materials  for  and  of  the  labor  requisite  to  make  new  whiskey, 
but  it  is  the  cost  of  immediately  replacing  that  product  in  the  most 
inexpensive  way  by  purchase,  or  otherwise,  with  a  similar  prod- 
ust  of  like  kind  and  quality."  In  the  case  of  Hartford  Fire  Ins. 
Co.  vs.  Cannon  19  Tex.  Civ.  App.  305,  and  Mitchell  vs.  St.  Paul 
German  Ins.  Co.  92  Mich.  594,  it  was  held  that  the  cash  value  and 
and  place  of  fire;  and  in  the  case  of  Mitchell  et  al.  \.  St.  Paul 
German  Fire  Ins.  Co.,  (1892)  I.  L.  J.  XXI-1003,  the  Supreme 
Court  of  Michigan  held  that  the  proper  measure  of  damages  was 
the  cash  value  upon  the  yards  at  the  time  of  loss,  and  not  the 
cost  of  manufacturing  at  their  own  mill,  a  like  quantity  of  lumber 
from  their  own  timber.  This  latter  case,  however,  has  been 
severely  criticised  as  being  unsound  as  to  its  decision. 

Again,  in  Phillips  vs.  Home  Ins.  Co.,  the  Supreme  Court  of 
New  York  handed  down  a  somewhat  similar  decision  in  the  case  of 
a  manufactuier  of  straw  hats. 

A  careful  study  of  these  cases,  though,  shows  peculiar  circum- 
stances, and  leads  me  to  believe  that  they  can  be  regarded  as  the 
exceptions  that  might  be  found  to  any  rule.  Take,  for  instance, 
the  case  of  Phillips  vs.  Home,  above  mentioned,  .the  insured  was 
a  manufacturer  of  straw  hats.    His  plant  was  destroyed  just  prior 

92 


Cash  Value 

"to  the  opening  of  the  straw  hat  season.  It  was  claimed  that  he 
could  not  reproduce  his  stock  before  the  season  would  be  over, 
so  the  Court  decided  on  that  account  that  insured  was  entitled  to 
receive  market  value  of  his  stock  and  not  merely  cost  of  pro- 
duction. This  undoubtedly  included  a  manufacturer's  profit,  and 
to  my  mind  caused  the  policy  to  lose  its  value  as  one  of  indemnity. 
It  would  be  very  interesting  to  know  in  what  light  this  same  Court 
would  regard  profit  insurance,  had  this  insured  been  carrying  same. 
It  is  clearly  apparent,  however,  the  Courts  are  inclined  to  hold, 
at  least  as  regards  whiskey,  lumber,  sugar,  and  a  few  other  staple 
products  of  a  like  nature  in  the  hands  of  a  manufacturer,  that 
"actual  cash  value"  means  cost  to  insured  to  replace  at  the  time 
of  fire. 

Where  a  manufacturer  has  sold  his  entire  output  or  is  under 
contract  to  manufacture  and  deliver  a  certain  quantity  of  goods, 
and  delivery  is  to  be  made  within  a  stipulated  period,  m  the  event 
of  fire  occurring,  destroying  the  goods,  and  thus  obliging  the  insured 
to  purchase  similar  goods  from  other  manufacturers  to  carry  out  his 
contract,  the  cost  of  replacement  in  such  cases  must  be  taken  as 
the  cash  value. 

Goods  in  Bond. 

Cash  value  of  imported  goods  held  in  bond  ought  to  be  the  im- 
ported value  of  such  goods  without  duties,  except  in  cases  where 
the  form  on  the  policy  specifically  states  that  duties  shall  be  con- 
sidered as  part  of  the  value  insured. 

When  distilled  spirits,  tobacco,  and  the  like,  are  insured,  and 
the  ozvner  is  liable  to  the  Government  for  the  Internal  Revenue  Tax, 
the  amount  of  such  Tax  is  to  be  considered  as  part  of  the  value 
insured. 

The  above  subject  is  treated  at  length  in  another  chapter. 

Merchandise  Dealers. 

Where  manufactured  goods,  or  stocks  of  merchandise  in  the 
hands  of  dealers,  are  destroyed  or  damaged  by  fire,  the  actual 
cash  value  in  such  cases  would  be  the  "market  value,"  or  cash 
cost  to  the  insured  to  replace  his  stock  with  goods  of  like  kind 
and  quality  new  on  the  day  of  the  fire  from  the  markets  where 
such  goods  are  usually  manufactured  or  obtainable,  less  any  differ- 
ence there  may  be  in  value  as  between  new  and  the  condition  of 
the  destroyed  stock  at  the  time  of  fire,  the  insurer  being  entitled 


The  Fire  Insurance  Contract 

to  proper  allowances  for  any  depreciation  it  can  show  has  taken* 
place  in  the  stock  on  account  of  change  of  style,  shop  wear,  han- 
dling, or  for  any  other  proper  cause,  but  no  allowance  can  be  made 
on  account  of  estimated  profits,  as  profit  is  not  something  that 
inheres  to  merchandise,  it  being  a  merchant's  compensation  for  his 
trouble  and  expense  in  seeking  purchasers,  and  for  the  use  of 
capital  necessary  for  the  carrying  on  of  his  business.  Nor  can 
any  allowance  be  made  on  account  of  the  presumptive  profit  on 
merchandise  insured  under  the  phrase  "goods  sold  but  not  de- 
livered or  removed,"  which  may  be  destroyed  by  fire  while  still 
in  the  hands  of  the  vendor,  and  the  cash  value  of  such  merchan- 
dise must  be  estimated  on  the  market  value  at  the  time  of  fire,  to 
the  owner  who  is  the  vendor,  as  otherwise  it  would  be  allowing  an 
insured  to  make  two  sales  and  realize  two  profits  on  one  order,  ■ 
which  procedure  is  estopped  by  the  replacement  clause  in  the  policy 
contract. 

While  purchase  price  is  often  used  as  a  basis  for  estimating 
the  value  of  a  stock  of  merchandise  destroyed  by  fire,  and  books 
of  accounts  and  invoices  are  admissible  and  properly  acceptable 
in  support  of  an  insured's  claim,  they  are  not  conclusive  evidence 
of  cash  value  at  the  time  a  fire  occurs,  as  the  insurer  is  always 
entitled  to  any  depreciation  which  the  goods  may  have  suffered, 
however  caused.  It  sometimes  happens  that  an  insured's  books  of 
account  and  invoices  are  destroyed  by  the  fire,  or  it  may  be  that 
he  never  kept  any.  Usually  in  such  cases  a  statement  is  prepared 
by  the  insured  from  memory,  showing  the  nature  of  his  stock  and 
the  amounts  paid  for  same,  also  his  sales  and  profits,  which  state- 
ment when  properly  verified  by  original  or  duplicate  invoices  and 
/or  the  testimony  of  competent  witnesses,  such  as  persons  ex- 
perienced in  selling  or  handling  similar  goods  to  those  the  insured 
sold,  and  who  actually  saw  the  destroyed  stock  just  prior  to  the 
fire,  can  be  taken  as  a  basis  for  estimating  cash  value,  but  the 
burden  of  proof  resting  upon  the  insured,  it  is  obligatory  that  he 
produce  satisfactory  evidence  documentary,  or  otherwise,  in  sub- 
stantiation of  his  claim.  Memorized  statements,  however,  are  of 
uncertain  quality  and  should  always  be  accepted  with  a  great  deal 
of  caution,  as  experience  teaches  us  that  in  a  great  many  instances, 
the  claimant  has  a  most  wonderful  memory  as  to  the  quantities, 
nature  and  cost  of  his  goods,  but  a  most  larnentably  poor  one  when 
it  comes  to  when,  where  and  of  whom  the  goods  were  purchased. 

To  sum  up,  a  policy  of  Fire  Insurance  is  a  contract  of  indem- 


Cash  Value 

nity,  and  when  loss  occurs  thereunder,  it  must  be  given  a  con- 
struction which  under  ordinary  circumstances  and  conditions  will 
achieve  the  object  of  the  parties  making  same,  and  the  agreement 
is  made  that  cash  value  shall  be  the  limit  of  the  insurer's  liability, 
and  cash  value  means  the  money  value  of  the  thing  insured  in  its 
condition  at  the  time  of  the  fire,  but  in  the  event  of  an  article 
being  damaged  only  to  the  extent  where  it  can  be  repaired,  then 
the  cost  to  the  insured  to  repair  is  the  limit  of  the  insurer's 
liability. 


Vi    . 

CONCEALMENT,    MISREPRESENTATION,    FRAUD 
OR  FALSE  SWEARING 

Frank  Sowers 

Of  Richards  and  Affeld,  Lawyers 

With  respect  to  Concealment,  Misrepresentation,  Fraud  or 
False  Swearing,  the  Standard  Policy  provides : 

This  entire  policy  shall  be  void  if  the  insured  has  concealed  or  mis- 
represented, in  writing  or  otherwise,  any  material  fact  or  circumstance 
concerning  this  insurance  or  the  subject  thereof;  or  if  the  interest  of 
the  insured  in  the  property  be  not  truly  stated  herein;  or  in  case  of  any 
fraud  or  false  swearing  by  the  insured  touching  any  matter  relating  to 
this  insurance  or  the  subject  thereof,  whether  before  or  after  a  loss." 

Concealment  is  defined  generally  in  Bouvier's  Law  Diction- 
ary as: 

the  improper  suppression  of  any  fact  or  circumstance  by  one  of  the 
parties  to  a  contract  from  the  other,  which  in  justice  ought  tc  be  known. 

The  general  definition  contained  in  the  New  Standard  Dic- 
tionary as : 

the  injurious  and  intentional  suppression  or  non-disclosure  by  a  party 
to  a  contract  (as  of  insurance)  of  facts  that  he  was  bound  to  know  and 
reveal. 

is,  in  fact,  more  nearly  a  definition  of  concealment  in  fire  insurance. 
Neither  of  these  definitions  recognizes  the  distinction  between  con- 
cealment in  marine  insurance  and  concealment  in  fire  insurance,  a 
distinction  embodying  the  vital  element  of  intent. 

Duer  in  his  work  on  insurance,  (Lect.  XIIL,  P.  I.  Sec.  3),  says 
of  concealment  in  marine  insurance : 

It  is  not  necessary,  in  order  to  avoid  the  policy,  that  the  misrepre- 
sentation or  concealment  of  material  facts,  shall  appear  to  have  been 
intentional  and  fraudulent.  Whether  it  resulted  from  design,  or  from 
ignorance,  mistake  or  inadvertence,  the  effect  is  the  same. 

But  with  respect  to  concealment  in  fire  insurance,  long  before 

the  adoption  of  the  Standard  Policy,  Judge  Bronson,  writing  for  the 

New  York  Supreme  Court,  in  Burritt  v.  Saratoga  Co.   Mutual  Fire 

Ins.  Co.,  said : 

In  Marine  insurance  the  misrepresentation  or  concealment  by  the 
assured  of  a  fact  material  to  the  risk  will  avoid  the  policy,  although  no 
fraud  was  intended.  It  is  no  answer  for  the  assured  to  say  that  the 
error  or  suppression  was  the  result  of  mistake,  accident,  forgetfulness 
or  inadvertence.  It  is  enough  that  the  insurer  has  been  misled,  and  has 
thus  been  induced  to  enter  into  a  contract  which,  upon  correct  and  full 
information,  he  would  either  have  declined  or  would  have  made  upon 
dificrent  terms.     Although  no  fraud  was  intended  by  the  assured,  it  is 


Misrepresentation,  Fraud,  Etc. 

nevertheless  a  fraud  upon  the  underwriter,  and  avoids  the  policy.  The 
assured  is  bound,  although  no  inquiry  be  made,  to  disclose  every  fact 
within  his  knowledge  which  is  material  to  the  risk.  But  this  doctrine 
cannot  be  applicable,  at  least  not  in  its  full  extent,  to  policies  against 
fire.  If  a  man  is  content  to  insure  my  house  without  taking  the  trouble 
to  inquire  of  what  materials  it  is  constructed,  how  it  is  situated  in  refer- 
ence to  other  buildings,  or  to  what  use  it  is  applied,  he  has  no  ground 
for  complaint  that  the  hazard  proves  to  be  greater  than  he  had  antici- 
pated, unless  I  am  chargeable  with  some  misrepresentation  concerning 
the  nature  or  extent  of  the  risk.  It  is  therefore  the  practice  of  com- 
panies which  insure  against  fire  to  make  inquiries  of  the  assured  in  some 
form,  concerning  all  such  matters  as  are  deemed  material  to  the  risk,  or 
which  may  affect  the  amount  of  premium  to  be  paid.  This  is  sometimes 
done  by  the  conditions  of  insurance  annexed  to  the  policy,  and  sometimes 
by  requiring  the  applicant  to  state  particular  facts  in  a  written  application 
for  insurance. 

5  HILL  188,  at  191. 

May  in  his  work  on  insurance,  4th  Edn.,  Sec.  200,  accordingly 

works  out  the  rule  that  concealment  in  fire  insurance  is : 

a  positive  intentional  omission  to  state  what  the  applicant  knows,  or 
must  be  presumed  to  know,  ought  to  be  stated. 

And  the  courts,  departing  from  the  law  of  marine  insurance, 
have  now  generally  adopted  the  view  that  the  concealment  of  a 
material  fact,  when  not  made  the  subject  of  express  inquiry  by  the 
insurers,  must  be  intentional  to  avoid  the  fire  policy. 

Reviewing  the  concealment  clause  of  the  New  York  Standard 

Policy,  the  late  Justice  Bischoff  of  New  York  adopting  from  a 

text  writer,  (5  Lawson's  Rights,  Remedies  &  Practice,  Sec.  2,060, 

P.  3,520),  the  following  statement: 

Concealment  is  the  wilful  withholding  of  some  facts  material  to  the 
risk  which  the  insurer  had  a  right  to  know,  and  which  the  insured  was 
under  a  duty  to  disclose. 

held,  in  a  case  where  the  failure  to  disclose  a  chattel  mortgage  was 

urged  as  a  concealment  avoiding  the  policy,  that: 

Plaintiff,  and  its  officers  and  agents,  cannot  be  said  to  have  wilfully 
withheld  any  material  fact  from  defendant's  knowledge  unless  they  knew, 
or  had  reason  to  know,  that  the  information  was  required  by  it.  There 
is  nothing  before  us  from  which  we  may  ascertain  that  the  application 
for  insurance  required  that  the  liens  or  incumbrances  be  stated,  or  that 
inquiry  was  at  any  time,  before  the  policy  was  issued,  made  of  plaintiff, 
its  officers  or  agents,  respecting  these  matters,  and  in  the  absence  of 
every  intimation  that  such  was  desired,  plaintiflf  was  under  no  duty 
to  disclose  the  particulars  of  its  interest  in  the  property  insured. 

AM.  ART.  GOLD  S.  CO.  v.  GLENS  FALLS  INS.  CO., 
1  Misc.  114. 

although  the  court  did  find  that  the  chattel  mortgage  constituted  a 
breach  of  the  warranty  against  the  existence  of  a  chattel  mortgage 
which  would  avoid  the  insurance  upon  the  property  encumbered. 
Vermont,  borrowing  from  New  Hampshire,  (Clark  v.  Union 
Mutual  Ins.  Co.,  40  N.  H.  333),  defines  concealment  under  the 
standard  policy  provision  as : 

97 


The  Fire  Insurance  Contract 

a    designed    and    intentional    withholding    of   any    fact    material    to    the 
risk,  which  the  insured  ought  in  honesty  and  good  faith  to  communicate. 

MASCOTT  V.  FIRST  NATIONAL  F.  I.  CO., 
69  Vt.  116. 

The  general  attitude  of  the  courts  toward  concealment  in  fire 

Insurance  is  expressed  in  the  often  quoted  case  of  Gates  v.  Madison 

County  Mutual  Ins.  Co.,  5  N.  Y.  469,  where  Judge  Jewett,  writing 

for  our  Court  of  Appeals,  said : 

A  policy  of  insurance  is  a  contract,  and  is  to  be  governed  by  the 
same  principles  which  govern  other  contracts.  When  it  is  said  to  be  a 
contract  uberrimae  fidei,  this  only  means  that  the  good  faith,  which  is 
the  basis  of  all  contracts,  is  more  especially  required  in  that  species  of 
contract  in  which  one  of  the  parties  is  supposed  to  be  necessarily  less 
acquainted  with  the  details  of  the  subject  of  the  contract  than  the  other. 
But  either  party  may  be  innocently  silent  as  to  grounds  open  to  both, 
to  exercise  their  judgment  upon,  for  in  sych  a  case  the  maxim,  aliud 
est  celare,  aliud  tacere,  applies. 

In  marine  insurance,  the  insured  is  bound,  although  no  inquiry  be 
made,  to  disclose  every  fact  material  to  the  risk,  within  his  knowledge. 
And  although  the  same  general  principles  apply  to  the  contract  of  fire 
insurance,  yet  in  making  the  latter,  there  being  no  fraud  practiced,  if 
the  applicant  for  such  insurance  make  a  true  and  full  answer  to  the 
questions  put  to  him  by  the  insurer,  in  respect  to  the  subject  of  insur- 
ance, it  is  enough;  he  is  not  answerable  for  an  omission  to  mention  the 
existence  of  other  facts,  about  which  no  inquiry  is  made  of  him,  though 
they  may  turn  out  to  be  material  for  the  insurer  to  know  in  taking 
the  risk.  He  has  a  right  to  suppose  that  the  insurer  in  making  inquiries 
in  respect  to  particular  facts,  deems  all  others  to  be  immaterial  to  the 
risk  to  be  taken,  or  that  he  takes  upon  himself  the  knowledge,  or  vi^aives 
information,  of  them. 

And  so  if  an  insurer  enter  into  a  contract  of  insurance  against  fire, 
without  making  any  inquiry  of  the  applicant  in  respect  to  the  subject 
of  insurance,  he  has  no  ground  for  complaint,  if  the  risk  turn  out  to  be 
greater  than  he  anticipated,  unless,  indeed,  the  insured  is  chargeable 
with  some  misrepresentation  in  reference  to  the  nature  or  extent  of 
the  risk. 

Hence  it  has  become  the  general  practice  of  insurers  against  fire, 
to  guard  in  some  form  against  the  consequence  of  such  matters  as  they 
deem  material  to  the  risk,  or  which  may  affect  the  amount  of  premium 
to  be  paid;  sometimes  by  conditions  or  proposals  annexed  to  and  made 
a  part  of  the  policy,  and  sometimes  by  requiring  the  applicant  to  d'isclose 
certain  facts  in  a  written  application  for  insurance  making  it  a  part  of 
tke  contract.  Experience  has,  as  I  think,  shown  that  the  provisions  thus 
adopted  have  proved  generally  sufficiently  strict  and  technical  to  insure 
a  full  and  true  disclosure  of  all  such  facts  as  insurers  have  thought  it 
important  to  know;  and  where  the  insured  has  complied  with  such  pro- 
visions, I  see  no  ground  to  make  him  responsible,  as  for  a  concealment, 
by  omitting  to  communicate  to  the  insurer  other  facts  and  circumstances 
within  his  knowledge  of  ordinary  occurrence,  although  material  to  the 
risk,  unless  they  have  been  withheld  with  an  intention  to  defraud,  there 
being  no  condition  in  the  policy  requiring  it." 

An  important  qualification  is  added  to  the  general  rule  by  the 
judge  who  wrote  for  the  Ohio  Supreme  Court  this  statement: 
in  the  absence  of  special  provisions  in  the   policy  relating  to  the   dis- 
closure of  facts  material  to  the  risk,  all  that  is  required  of  the  insured  is, 
that  he  shall  not  misrepresent  or  designedly  conceal  any  such  facts,  and 

98 


Misrepresentation,  Fraud,  Etc. 

that  he  answer  fully  and  in  good  faith,  all  inquiries  addressed  to  him 
by  the  insurer  *  *  *  perhaps  with  the  qualification  *  ♦  ♦  that 
the  insured  does  not  withhold  information  of  such  unusual  and  extra- 
ordinary circumstances  of  peri!  to  the  property,  as  could  not,  w^ith 
reasonable  diligence,  be  discovered  by  the  insurer,  or  reasonably  antici- 
pated by  him,  as  a  foundation  for  specific  inquiries. 

PROTECTION  INS.  CO.  v.  HARMER, 
2  Ohio  St.,  452,  at  473. 

This  qualification,  important  to  underwriters  in  New  York  who 
are  constantly  binding  fire  risks  in  remote  sections  of  the  country, 
was  recognized  in  New  York  by  the  Appellate  Division  in  the  Fourth 
Department  in  the  case  of  Clarkson  v.  Western  Assurance  Co., 
33  Ap.  Div.  23,  involving  the  steamer  Northerner,  which  was  en- 
gaged in  traffic  on  the  Great  Lakes.  In  December  the  vessel  on 
voyage  from  Buffalo  to  Duluth  was  stranded  at  Keweenaw  Point 
on  Lake  Superior.  To  get  her  off  about  2,500  barrels  of  kerosene 
oil  were  jettisoned  and  a  large  number  of  barrels  of  lubricating 
oil  were  broken  and  poured  over  the  side  of  the  vessel,  so  that 
the  vessel  must  have  been  saturated  with  oil,  and  the  risk  from 
fire  materially  increased.  The  vessel  so  lightened,  but  leaking  badly, 
made  a  near-by  harbor.  The  captain  by  wire  advised  the  owners  at 
Rochester,  N.  Y.,  of  her  situation  and  that  she  would  lay  up  for  the 
winter,  suggesting  that  they  should  obtain  their  fire  insurance  for 
the  winter.  The  owners  by  wire  directed  their  broker  at  Buffalo  to 
obtain  the  insurance,  and  he  did  so  without  disclosing  to  the  under- 
writers the  facts  as  to  the  saturation  of  the  vessel  by  oil  and  in  fact 
without  himself  knowing  them.     The  court  held  that: 

The  subject  of  insurance  was  a  vessel  which  was  laid  up  in  a  harbor 
many  hundreds  of  miles  distant  from  the  place  where  the  insurance  was 
effected.  It  was  consequently  not  'within  the  limits  of  actual  inspection 
by  the  insurers  or  their  agents.'  In  accepting  an  application  for  insur- 
ance under  these  circumstances  the  underwriters  had  a  right  to  assume 
that  the  owners  or  their  agent  would  act  in  perfect  good  faith  and  dis- 
close any  and  all  facts  material  to  the  risk  of  which  they  had  any  knowl- 
edge; and  it  seems  to  us  that  they  were  under  precisely  the  same  obli- 
gation to  do  so  as  they  would  have  been  had  they  been  seeking  to  obtain 
an  insurance  of  their  vessel  against  the  perils  of  water.^  *  *  *^  Con- 
sequently, to  have  concealed  from  them  its  true  condition  was,  in  our 
opinion,  almost  if  not  quite  equivalent  to  an  actual  fraud. 

and  a  judgment  against  the  underwriters  was  reversed. 

In  deciding  what  is  a  ''conscious,"  "wilful,"  "designed"  or 
"intentional"  withholding,  the  courts,  as  is  usual  in  the  law  of  fire 
insurance,  tend  to  favor  the  insured;  so  it  has  been  held  that  a 
general  statement  of  the  facts,  if  enough  to  put  the  underwriter  on 
guard,  does  not  require  the  applicant  to  go  into  details.  On  Wednes- 
day evening,  Bebee,  a  Connecticut  Yankee,  discovered  and  extin- 
guished fire  in  a  barrel  of  shavings  in  his  vvoodhouse.     Thursday 

99 


The  Fire  Insurance  Contract 

afternoon  he  discovered  fire  in  the  attic  of  the  woodhouse  and  at  the 
same  time  in  a  separate  ^oom  in  the  attic  of  his  dwelling  house 
connecting.  By  the  time  he  had  extinguished  those  two  fires  another 
fire  was  discovered  in  a  front  chamber  of  the  dwelling,  and  he  extin- 
guished that  fire,  n^aking  four  fires  of  unknown  and  suspicious 
origin  within  twenty- four  hours.  Bright  and  early  Friday  morning, 
Bebee  went  to  the  fire  insurance  agent  to  get  insured.  Bebee  told 
the  agent  he  had  had  some  fires  and  had  put  them  out,  that  he  was 
afraid  of  fire  and  wanted  to  know  whether  certain  kinds  of  matches 
left  about  the  house  would  ignite  of  themselves.  He  did  not  specify 
that  he  had  had  four  fires  on  his  premises  within  the  forty-eight 
hours  preceding  the  application.  The  agent  asked  if  Bebee  knew  the 
origin  of  the  fires  and  whether  he  had.  any  enemy  whom  he  sus- 
pected. Receiving  negative  answers  the  agent  remarked  th^t  he 
himself  carried  insurance  because  he  was  afraid  of  fires  which  fre- 
quently occurred  without  anyone  knowing  how,  accepted  the  line 
and  hastened  to  collect  his  commission.  The  house  burned  on  the 
Tuesday  following.  The  Supreme  Court  of  Connecticut,  Bebee  v. 
Hartford  County  Mutual,  25  Conn.,  51,  held  that  the  frequent  oc- 
currence of  fires  shortly  before  the  insurance  was  effected  was  a 
material  circumstance,  the  concealment  of  which  would  have 
avoided  the  policy,  but  that  Bebee's  general  statement  was  enough 
to  put  the  underwriter  on  his  guard  and  was  sufficient,  and  the  in- 
sured was  not  required  to  go  into  details,  the  court  saying: 
the  insured  is  not  bound  to  force  his  knowledge  upon  the  insurer. 

If,  however,  the  underwriter  has  notice  that  the  insured  has 
omitted  to  give  some  information  which  it  deems  material,  as  the 
omission  to  answer  a  question  in  the  application  it  will  not  be  heard, 
after  the  policy  has  issued  and  a  loss  has  been  incurred,  to  complain 
of  the  concealment,  for  the  reason  that  the  issue  of  the  policy  before 
it  has  the  desired  information  is  a  waiver  thereof.  An  illustration 
is  found  in  New  York  in  the  case  of  Parker  v.  Otsego  Co.  F.  T.  Co., 
47  App.  Div.  204,  aff'd.  168  N.  Y.  655,  where  the  insurance  was 
issued  upon  a  written  application  containing  the  following: 

The  aforesaid  premises  are  not  encumbered  by  mortgage,  or  other- 
wise, to  exceed  the  sum  of  $ ;-. 

It  did  not  appear  whether  the  application  was  on  a  company  form 

or  assured's  form.    The  court  held  that  if  assured  had  written  the 

entire  application  it  was  a  statement  that  there  was  an  encumbrance 

of  uncertain,  unknown  or  unstated  amount ;  but  if  the  form  was 

prepared  by  the  underwriter  and  the  assured  left  the  amount  blank, 

then  the  statement  was  merely  incomplete,  and  obviously  so  to  the 

100 


Misrepresentation,  Fraud,  Etc. 

underwriter  and  that  there  was  no  concealment  surviving  the  issue 
of  the  policy. 

To  the  same  effect,  see  Carson  v.  jersey  City  Ins.  Co.,  43  N. 
J.  L.  300;  Hall  v.  People's  Mutual,  72  Mass.  185,  and  Armenia  Ins. 
Co.,  V.  Paul,  91  Pa.  St.  520.  . 

The  test  of  the  materiality  of  any  fact  is  not  whether  or  not 
the  fact  has  contributed  to  the  occurrence  of  a  loss.  In  point  of 
time,  the  application  of  the  test  must  be  as  of  the  inception  of  the 
contract,  not  after  the  loss. 

A  material  fact  is  defined  to  be : 
one  which  if  communicated  to  the  underwriter  would  induce  him  either 
to  decline   the   risk  altogether,   or  not   to  accept  it   unless   at   a  higher 
premium. 

BOGGS  V.  AMERICA  INS.  CO., 
30  Mo.  63. 
or  one: 

the  knowledge  or  ignorance  of  which  would"  materially  influence  the 
insurer  in  making  the  contract  at  all,  or  in  estimating  the  degree  and 
character  of  the  risk,  or  in  fixing  the  rate  of  insurance. 

MASCOTT  V.  FIRST  NAT'L  F.  INS.  CO. 
69  Vt.  116. 

holding  that  in  the  absence  of  inquiry  on  the  part  of  the  insurer, 
failure  on  the  part  of  the  insured  to  disclose  a  mortgage  of  $200. 
on  a  building  worth  $2,500.  was  not  a  material  concealment. 

Following  the  Gates  case,  supra,  the  courts  have  generally 
held  that  if  the  underwriter  fails  to  make  any  inquiry  at  the  time 
the  policy  is  issued,  it  must  be  deemed  content  to  assume  the  risks 
of  the  property  as  they  are;  but  if  the  underwriter  does  make  in- 
quiry, then  those  matters  not  inquired  about  are  deemed  immaterial. 
So  the  Court  of  Appeals  in  New  York  has  said: 

The  applicant  has  a  right  to  suppose  that  the  insurer,  in  making 
inquiries  as  to  particular  facts,  considers  all  others  to  be  immaterial,  or 
that  he  assumes  to  know  or  waives  information  in  regard  to  them. 

BROWNING  v.  HOME  INS.  CO. 
71  N.  Y.  509. 

In  Smith  v.  Home  Ins.  Co.,  47  Hun.  30,  it  appeared  by 
the  evidence  that  Smith  made  complaint  against  a  person  who  was 
thereafter  convicted  of  a  crime.  The  father  of  the  convict  then 
threatened  to  '^fix"  Smith.  Friends  advised  Smith  to  get  his  prop- 
erty insured.  He  did.  And  in  due  course  a  fire  occurred.  The 
trial  court  was  requested  and  declined  to  charge : 

that  if  the  plaintiff  believed,  when  he  applied  for  the  policy,  that  there 
was  danger  of  an  incendiary  burning  of  his  property,  and  did  not  dis- 
close that  fact  in  his  written  application,  he  could  not  recover. 

The  Appellate  Court  said : 

101 


iX 


The  Fire  Insurance  Contract 

It  does  not  appear  that  any  threat  to  burn  the  plaintiff's  property 
or  to  do  him  any  injury  was  made,  other  than  that  imported  by  the 
purpose  expressed  to  fix  him.  This  did  not  necessarily  increase  the 
hazard  of  the  insurance  of  the  plaintiflF's  buildings,  but  inasmuch  as  he 
deemed  it  prudent,  by  reason  of  such  threat  to  protect  himself  in  that 
manner  against  loss,  it  is  said  that  the  information  that  the  threat  to 
fix  him  was  made  must  be  deemed  material  to  the  risk.  Assuming  it 
was  so,  the  plaintiff  was  not  called  upon  by  any  inquiry  embraced  in  the 
application  to  make  the  disclosure  of  it.  And  the  application  in  blank 
was  provided  by  the  defendant's  agent  to  be  filled  by  answers  to  ques- 
tions it  contained,  to  furnish  the  basis  of  the  insurance.  He  was  not 
required  to  insert  it  in  the  application,  and,  therefore,  the  exception  to 
the  refusal  to  charge  as  requested  in  that  respect  was  not  well  taken. 

The  case  is  complicated  by  testimony  that  assured  related  the  cir- 
cumstances to  a  solicitor  who  was  claimed  to  be  in  the  employ  of 
the  underwriter's  agent,  but  the  court  said,  however,  that  it  did 
not  rest  its  decision  upon  that  ground,  but  upon  the  ground  that  it 
could  not,  as  matter  of  law,  properly  hold  that  there  was  a  designed 
concealment  inasmuch  as  the  application  blank  submitted  by  the 
underwriter  contained  no  inquiry  respecting  incendiarism. 

There  is  a  statement  in  a  Kentucky  case,  German  American 
Ins.  Co.  V.  Norris,  100  Ky.  29,  containing  the  provisions  of  the 
standard  policy,  that  an  applicant  for  fire  insurance  on  property 
is  not  bound  to  disclose  an  attempt  to  burn  the  property  sought 
to  be  insured  unless  asked  about  it.  In  this  case,  as  in  the  SmJlh 
case,  supra,  in  New  York,  there  was  some  evidence  that  the  under- 
writers knew  the  facts  when  accepting  the  insurance,  and  I  do  hot 
consider  them  authorities  entitled  to  great  weight  for  the  proposition 
that  one  may  procure  insurance  on  his  property  because  of  known 
threats  to  burn  it,  conceal  the  threats  from  the  underwriters  and 
after  the  anticipated  loss  collect  the  insurance. 

It  was  squarely  held  in  Louisiana  that  the  omission  to  notify 
the  underwriter  of  a  recent  attempt  to  burn  a  building  next  to  that 
on  which  the  insurance  was  sought — a  circumstance  which  prompted 
the  purchase  of  the  insurance — avoids  the  insurance. 

WALDEN  V.  LOUISIANA  INS.  CO. 

12   Louis.    134, 

32  Am.  Dec.  116. 

But  Arkansas  has  held,  and  we  are  not  disposed  to  quarrel  with 

the  decision,  that  if  the  suspected  incendiaries  are  dead,  a  negative 

answer  to  the  question,  "Has  any  threat  of  incendiarism  been  made, 

or  have  you  any  fear  of  incendiarism  ?"  will  not  avoid  the  insurance 

ARKANSAS  MUT.  FIRE  INS.  CO.  v.  WOOLVERTON 

82  Ark.  476. 

In  the  case  of  Orient  Ins.  Co.  v.  Peiser,  91  111.  App.  278,  there 
was  testimony  that  insured's  brokers  presented  an  application   at 

102 


r 


Misrepresentation,  Fraud,  Etc. 

five  o'clock,  P.  M.,  for  insurance,  which  was  accepted;  that  a  fire 
had  broken  out  in  the  neighborhood  of  the  insured  property  be- 
tween 4  and  4 :20  o'clock,  P.  M. ;  that  the  brokers  knew  of  the 
fire  at  4:45  o'clock  but  did  not  know  that  it  had  reached  their 
client's  property  and  that  they  did  not  communicate  their  knowledge 
of  the  circumstances  to  the  underwriters.  The  court  held  that  if 
there  was  a  fire  raging  in  the  neighborhood  of  the  building  contain- 
ing the  insured  property  at  the  time  the  application  was  made  and 
the  applicant  knew  of  it  when  he  made  the  application  and  sup- 
pressed that  fact,  the  contract  of  msurance  could  not  be  enforced 
because  of  fraud. 

It  was  decided  in  1914  in  Wood  v.  Spring  Garden  Ins.  Co., 
215  Fed.  355,  that  if  an  insurance  agent  issues  a  policy  on  his  own 
property  and  does  not  disclose  to  his  company  the  facts  as  to  his 
interest  and  ownership,  the  policy  is  void.  In  Mississippi  in  Wild- 
berger  v.  Hartford  Fire  Ins.  Co.,  72  Miss.  338,  the  rule  was  applied 
to  a  policy  upon  property  held  by  the  agent,  not  as  an  individual, 
but  as  receiver  appointed  by  the  courts. 

Ordinarily,  whether  or  not  any  fact  is  material  is  for  the  jury 
to  determine.  So,  in  Pelzer  v.  Sun  Fire  Office,  36  S.  C,  213,  under 
an  instruction  that  the  insured  in  applying  for  the  insurance  should 
not  withhgld  any  fact  which  they  knew,  or  had  reason  to  believe, 
would  be  likely  to  influence  the  underwriters  either  in  fixing  the 
rate  of  premium  or  in  rejecting  the  risk  altogether,  it  was  left  to 
the  jury  to  determine  whether  the  concealment  was  material  when 
insured  failed  to  disclose  to  the  underwriters  the  provisions  of  a 
lease  releasing  insured's  landlord,  a  railroad  company,  from  liability 
for  any  loss  by  reason  of  fire  communicated  from  its  locomotives, 
thereby  defeating  the  underwriters'  rights  of  subrogation.  The 
jury  decided  that  the  underwriters  would  not  have  rejected  the 
risk  or  raised  the  rate  had  they  known  of  the  release  and  their  find- 
ing was  sustained  on  appeal. 

In  a  late  case  in  Ohio,  Ensel  v.  Lumber  Ins.  Co.  102  N.  E. 
955,  decided  in  1913,  the  insurance  covering  insured's  interest  in 
lumber  taken  from  an  elevator  purchased  from  a  railroad  for  the 
purpose  of  demolition,  it  was  held  that  the  failure  of  the  insured  to 
direct  the  attention  of  the  underwriters  to  a  clause  in  their  contract 
with  the  railroad  releasing  it  from  liability  for  fire  caused  by  it  did 
not  even  raise  a  question  worthy  of  submission  to  the  jury,  and  the 

103 


The  Fire  Insurance  Contract 

trial  court  properly  refused  to  submit  it  to  the  jury  when  the  under- 
writer's agent  could  have  seen  the  contract  for  the  asking  but  did 
not  ask. 

In  passing,  it  may  be  observed  that  these  last  two  cases  should 
not  be  confused  with  those  cases  where  the  insurance  contract  con- 
tains an  express  provision  relieving  the  underwriters  from  liability 
in  case  of  any  agreement  by  the  insured  releasing  his  rights  of 
recovery  against  third  persons  or  corporations,  for  the  courts  have 
sustained  the  validity  of  those  provisions  and  released  the  under- 
writers. See  Fayerweather  v.  Phenix  Ins.  Co.,  118  N.  Y.  324; 
Kennedy  Bros.  v.  Iowa  State  Ins.  Co.,  119  Iowa  29,  and  Carstairs 
v.  Mechanics  &  T.  I.  Co.,  18  Fed.  473. 

The  word  representation  is  defined  generally  in  Webster's  Inter- 
national Dictionary  as  r 

A   statement   of  fact  incidental    or   collateral   to   a   contract,   made 
orally  or  in  writing  or  by  implication,  on  the  faith  of  which  the  contract_ 
is  entered  into. 

Representation  in  insurance  law  is  defined  by  the  New  Standard 

Dictionary  as: 

A  statement  of  facts  aftecting  the  risk  made  by  an  insured  person 
prior  to  the  execution  of  the  policy.  Such  representation,  though  extrinsic 
to  the  policy,  is  held  as  collateral  thereto. 

A  misrepresentation  is  by  those  dictionaries  said  to  be : 

A  wrong  or  false  representation;,  an  incorrect,  unfair,  or  false 
statement.  *■ 

An  untrue,  improper  or  unfaithful  representation. 

Bouvier's  Law  Dictionary,  Rawle's  Revision,  defines  representation 

in  insurance  as : 

The  stating  of  facts  by  either  of  the  parties  to  a  policy  of  insurance, 
to  the  other,  whether  in  writing  or  orally,  expressly  or  by  plain  implica- 
tion, preliminary  and   in  reference   to   making   the   insurance,   obviously 
tending  to  influence  the  other  as  to  entering  into  the  contract. 
The  same  authority  says: 

Misrepresentation  is  the  statement  made  by  a  party  that  a  thing 
is  in  fact  in  a  particular  way,  when  it  is  not  so. 

The  distinction  between  a  concealment  and  a  misrepresentation 
is  that  the  former  arises  out  of  a  silence  where  there  is  a  duty  to 
speak,  and  the  latter  is  an  incorrect  speech :  concealment,  at  least  in 
the  modern  law  of  fire  insurance,  must  be  conscious,  wilful,  de- 
signed, intentional ;  whereas,  misrepresentation  occurring  either  pur- 
posely or  through  negligence,  mistake,  inadvertence  or  oversight, 
will  avoid  the  insurance,  the  courts  holding  that  in  either  case  the 
injury  to  the  underwriter  is  the  same. 

The  distinction  between  a  representation  and  a  warranty  is  that 
a  warranty  is  a  part  of  the  contract  and  must  be  strictly  complied 

104 


Misrepresentation,  Fraud,  Etc. 

with;  whereas,  a  representation  is  but  a  statement  incidental  to  the 
contract,  precedes  it,  is  the  inducement  to  it  and  need  be  only  sub- 
stantially true.  However,  by  lines  45  and  46  of  the  standard  policy 
providing : 

If  an  application,  survey,  plan,  or  description  of  property  be  referred 
to  in  this  policy  it  shall  be  a  part  of  this  contract  and  a  warranty  by  the 
insured. 

the  contents  of  those  documents,  although  not  endorsed  upon,  or 
annexed  to,  the  policy,  are  made  warranties  and  with  respect  to  them 
our  Appellate  Division  has  said: 

We  think  it  well  settled  in  this  State  that  where,  by  the  terms  of 
a  contract  of  insurance,  the  application  is  made  a  part  of  the  policy, 
answers  made  to  specific  questions  in  the  application  are  deemed  warran- 
ties, and,  if  untrue,  prevent  a  recovery  on  the  policy. 

In  such  a  case  the  statements  contained  in  the  application  ure  made 
material  by  the  contract. 

KING  V.  TIOGA  CO.  ASSN., 
35  App.  Div.  58. 

holding  that  an  answer  "no,"  to  a  question  in  the  application  "Is  it 
encumbered"  and  shown  to  be  false,  avoided  the  insurance  as  to  the 
real  estate  encumbered,  although  a  recovery  was  allowed,  on  the 
theory  of  the  divisibility  of  the  contract,  on  personal  property  de- 
scribed in  a  separate  item  of  the  policy. 

Concealments  and  misrepresentations  are  usually  said  to  take 
place  at  or  before  the  issue  of  the  policy,  but  they  may  occur  at  or 
before  the  making  of  some  endorsement  on  the  policy,  at  least,  with 
respect  to  the  new  matter  introduced  into  the  contract  by  the  en- 
dorsement. It  is  probable  that  the  effect  upon  the  entire  contract 
of  concealments  or  misrepresentations  in  connection  with  the  pro- 
curing of  endorsements  will  vary  with  the  nature  of  the  endorse- 
ments and  the  relation  of  the  concealments  or  misrepresentations  to 
the  whole  insurance. 

It  is  doubtful  whether  one,  procuring  an  endorsement  which  only 
modifies  some  term  of  the  existing  contract  without  making  a  new 
contract  by  increasing  the  risk  or  introducing  a  new  party  as  insured, 
would  be  required  to  disclose  facts  arising  subsequent  to  the  issue 
of  the  original  policy  and  not  relating  especially  to  the  new  matter 
introduced  by  the  endorsement,  even  though  concealment  of  such 
facts  upon  procuring  new  insurance  would  be  fatal. 

Representations  may  be  affirmative  or  promissory;  affirmative 
if  relating  to  the  existence  of  a  particular  state  of  things  at  the  time 
the  contract  is  made  and  becomes  operative,  promissory  if  relating 
to  what  is  to  happen  during  the  life  of  the  contract.  Under  the  rule 
excluding  parole  evidence  to  vary  the  terms  of  a  written  instrument, 

105 


The  Fire  Insurance  Contract 

proof  may  not  be  made  of  an  oral  promissory  representation  as  it 

is  deemed  to  be  merged  in  the  written  contract,  but  May  in  his  work 

on  insurance,  Sec.  182,  fourth  edition,  says  that  it  may  be  shown  if 

made   in   bad   faith  with   the   intent   to   mislead   and   deceive  and 

amounting  to  fraud.     If  an  affirmative  representation  be  true  when 

made  and  the  contract  entered  into,  a  change  subsequent  to  the  issue 

of   the   contract   will   not   avoid   the   contract,   unless   the   change 

amounts  to  a  breach  of  some  warranty  contained  in  the  policy. 

In  May  on  Insurance,  Sec.  190,  p.  385,  4th  edn.,  it  is  said : 

A  representation  is  a  continuous  statement  from  the  time  it  is  made 
during  the  progress  of  the  negotiations,  and  down  to  the  time  of  the 
completion  of  the  contract;  so  that  though  in  point  of  fact  the  representa- 
tion be  true  when  actually  made,  yet  if  by  some  change  intervening 
between  that  time  and  the  time  of  completion  of  the  contract  it  then 
becomes  untrue,  it  will  avoid  the  contract,  if  the  changes  be  material 
and  to  the  prejudice  of  the  insurer,  or  be  such  as  might  probably  influ- 
ence their  opinion  as  to  the  advisability  of  accepting  the  risk.  The  law 
regards  it  as  made  at  the  time  the  contract  is  entered  into.  And  the 
same  rule  applies  in  case  of  concealment. 

Citing  this  statement,  it  was  held  in  Carleton  v.  Patron's 
Androscoggin  F.  I.  Co.,  109  Maine  79,  where  the  applicant  repre- 
sented that  other -insurance  would  expire  on  a  designated  date, 
which  was  before  the  acceptance  of  the  application,  and  thereafter 
and  before  the  acceptance  of  the  application  he  procured  other 
insurance  without  the  knowledge  of  the  underwriter,  the  repre- 
sentation was  not  true  at  the  time  of  the  acceptance  of  the  applica- 
tion, and  the  policy  was  invalid. 

But  a  contrary  view  is  taken  in  some  States,  as  in  Iowa,  Day 
v.  Hawkeye,  72  Iowa  597,  where  foreclosure  proceedings  were 
commenced  between  the  making  of  the  application  and  the  issue  of 
the  policy,  the  court  holding  that  the  representation  was  true  when 
made,  that  by  the  language  of  the  policy  the  warranty  contained 
therein  applied  not  to  the  pendency  but  to  the  commencement  of 
foreclosure  proceedings  after  issue  of  the  policy,  and  that  the  period 
between  the  making  of  the  representation  and  the  acceptance  of  the 
line  was  covered  neither  by  the  representation  in  the  application  nor 
the  warranty  in  the  policy. 

To  be  material,  the  misrepresentation  must  be  in  respect  to  an 
ascertainable  fact,  as  distinguished  from  a  mere  matter  of  opinion, 
judgment,  probability,  or  expectation;  if  it  is  vague  or  indefinite  in 
its  nature  and  terms,  or  is  merely  a  loose,  conjectural  or  exaggerated 
statement,  it  is  not  a  material  misrepresentation. 

So  in  Maine  it  is  held,  Dennison  v.  Thomaston  Mutual  Ins.  Co., 
20  Maine  125 : 

106 


Misrepresentation,  Fraud,  Etc. 

But  opinions,  if  honestly  entertained,  and  honestly  communicated, 
are   not  misrepresentations,  however   erroneous   they  may  prove   to  be 

in  a  case  where  the  insured,  in  response  to  a  written  interrogatory 

as  to  the  distance  from  other  buildings,  has  said  "each  side  of  the 

block  are  small  one-story  wood  sheds,  and  would  not  endanger  the 

building  if  they  should  burn,"  although  the  fire  actually  did  spread 

from  the  sheds  to  the  building  insured,  but  the  court  intimated  that 

its  ruling  would  be  otherwise  if  the  opinion  were  not  uttered  in  good 

faith. 

A  misrepresentation  of  value  may  be  merely  a  matter  of  opinion 
which  will  not  avoid  the  insurance,  but  a  misrepresentation  of  cost 
or  amount  paid  is  a  misrepresentation  of  fact  which  will  avoid  the 
policy  as  in  Dunham  v.  Citizens  Ins.  Co.,  34  Wash.  205,  where 
assured  made  an  oral  statement  in  response  to  inquiry  by  the  agent 
that  he  had  paid  $1,500  on  the  contract  price  of  a  building  under 
construction,  whereas,  in  fact  he  had  paid  only  $700,  and  the  in- 
surance was  held  to  be  void. 

Or  as  in  Craddoch  v.  Connecticut  Fire  Ins.  Co.,  160  Ky.,  519, 
where  the  insured,  in  an  application  for  insurance  on  machinery 
stated  that  it  cost  $1,200  and  had  only  been  in  use  two  years, 
whereas  it  had  cost  only  $250  and  had  been  in  use  more  than  seven 
and  the  misrepresentation  was  held  material  and  sufficient  to  defeat 
a  recovery  on  the  policy  after  a  fire.  .  . 

In  contrast  with  the  rule  respecting  concealments,  particularly 
as  illustrated  in  the  Bebee  case,  supra,  it  was  held  that  the  insured 
was  chargeable  with  misrepresentation  sufficient  to  avoid  the  insur- 
ance, when,  in  response  to  the  underwriter's  direct  interrogatories 
respecting  danger  from  incendiarism,  the  insured,  a  manufacturer, 
talked  generally  with  the  agent  about  the  constant  danger  of  fire 
from  discharged  employees,  but  did  not  mention  a  small  fire  of 
recent  occurrence  which,  he  believed,  had  been  set  on  his  premises 
by  a  discharged  workman.  And  it  made  no  difference,  the  court 
held,  that  the  jury  believed  assured's  statement  that  when  he  applied 
for  the  insurance  he  believed  the  danger  from  the  previous  incen- 
diary past. 

NORTH  AMERICAN  FIRE  INS.  CO.  v.  THROOP, 
22  Mich.  146, 
the  court  saying : 

it  cannot  be  denied  that  an  attempt  to  destroy  by  fire  the  property  upon 
which  insurance  is  sought,  is  usually  regarded  as  a  circumstance  of  very 
high  importance,  and  as  one  that  presumptively  is  always  material  to 
the  risk.  *  *  *  Jv[q  q^^  q^^  questipn  its  being  both  proper  and  pru- 
dent for  the  insurer  in  his  application  for  policies  to  treat  this  circum- 
stance as  material,  and  to  require  specific  and  truthful  answers  concern- 

107 


The  Fire  Insurance  Contract 

ing  it;  and  when  he  has  done  so,  and  made  their  truthfulness  a  condition 
of  the  contract,  we  do  not  think  it  competent  to  submit  to  a  jury  the 
question  of  materiality,  and  allow  them  to  find,  in  opposition  to  the 
contract  of  the  parties  and  to  general  experience,  that  it  was  unimport- 
ant. We  think  a  fact  thus  specifically  inquired  about,  and  generally  of 
such  vital  importance,  to  be  considered  material  as  a  matter  of  law.  *  *  ♦ 
The  plaintiff's  general  talk  about  a  fear  of  the  building  being  burned 
was  precisely  of  that  character  to  be  well  calculated  to  lead  the  agent 
away  from  any  supposition  that  this  particular  building  had  been,  or  was 
likely  to  be  singled  out  from  others  in  the  same  city  for  destruction; 
and  his  answer  to  the  interrogatory  in  the  application,  if  not  untruthful, 
was  at  least  wanting  in  candor  and  frankness,  and  had  z  tendency  to 
mislead.  When  a  person  is  particularly  interrogated  regarding  a  subject 
peculiarly  within  his  own  knowledge,  and  the  other  party  is  expected  to 
contract  with  him  in  reliance  upon  his  answer,  and  the  answer  is  made 
misleading  if  not  untruthful,  it  seems  to  us  a  perversion  alike  of  law  and 
justice  to  say  that  he  shall  have  the  advantage  of  his  uncandid  answers 
if  he  can  convince  a  jury,  that  the  other  party  was  wanting  in  prudence 
in  relying  upon  them,  because  of  having  notice  extrinsic  of  these  answers, 
which  was  sufficient,  if  followed  up  by  inquiries  in  other  quarters,  to  have 
led  him  to  a  knowledge  of  the  exact  facts. 

A  material  misrepresentation  by  the  agent  for  effecting  the 
insurance  will  defeat  it,  though  not  known  to  the  assured,  and 
though  made  without  any  fraudulent  intent  on  the  part  of  the  agent, 
to  the  same  extent  as  though  made  by  the  insured  himself. 

ARMOUR  V.  TRANSATLANTIC  F.  I.  CO., 

90  N.  Y.  450. 

CARPENTER  v.  AM.  INS.  CO., 

1  Story's  C.  C.  57. 

In  the  Armour  case,  insured's  agent,  on  applying  for  insurance, 
stated  that  there  was  $200,000  of  insurance  on  the  property,  whereas, 
there  was  in  fact  only  $30,000.  Apparently  the  policy  did  not  con- 
tain a  co-insurance  clause  and  the  underwriter's  risk  on  the  policy 
was  greatly  enchanced  because  the  total  contributing  insurance  was 
so  small  in  amount.  Our  Court  of  Appeals  held  that  while  the  ma- 
teriality of  any  representation  is  usually  for  the  jury  to  determine, 
the  risk  was  so  much  greater  than  it  would  have  been  had  the  repre- 
sentation as  to  other  insurance  been  true  that  a  verdict  that  the 
representation  was  immaterial  would  have  been  set  aside. 

In  Wells  V.  Glens  Falls  Ins.  Co.,  117  App.  Div.  346,  it  appeared 
that  the  husband,  who  managed  the  place  for  the  wife  in  whom 
title  was  vested,  sometime  prior  to  application  for  the  insurance, 
told  her  of  incendiary  fires  and  named  the  incendiary.  He  pre- 
sented to  her  an  application  for  insurance  containing  the  ques- 
tion "Have  you  any  reason  to  fear  incendiarism?"  and  a  negative 
answer  thereto,  which  she  signed.    The  Appellate  Division  held  that : 

Whether  the  plaintiff  had  reason  to  fear  incendiarism  was  a  material 
inquiry.  If  she  had  reason  for  such  fear  she  had  falsely  answered  an 
important  question,  had  given  the  defendant  inaccurate  information,  and 
her  policy  was  unenforcible. 

10§ 


Misrepresentation,  Fraud,  Etc. 

If  the  application  be  filled  out,  either  incorrectly  or  insuffi- 
':iently,  for  the  insured  by  the  underwriter's  agent  with  full  knowl- 
edge of  the  facts,  or  if  the  applicant's  answers  to  questions  be  set 
down  incorrectly  or  insufficiently,  and  the  application  be  then 
signed  by  applicant  without  noticing  the  errors,  parole  testimony  will 
be  admitted  to  prove  the  true  statements. 

PHENIX  INS.  CO.  V.  STOCKS, 
149  111.  319. 

It  has  been  held  that  the  policy  is  not  avoided  by  a  misrepre- 
sentation as  to  the  location  of  property  if  the  underwriter  knows 
the  actual  facts,  the  courts  ruling  that  the  issuing  of  a  void  policy 
and  retaining  of  a  premium  therefore  amounts  to  fraud  on  the  part 
of  the  underwriter.  In  LeGendre  v.  Scottish  U.  &  N.  I.  Co.,  95 
App.  Div.  562,  the  application  stated  that  the  premises  were  on 
the  south  side  of  the  road,  whereas  they  were  on  the  north  side. 
Our  Appellate  Division  in  the  first  Department  said: 

It  does  not  appear  that  the  defendant  made  any  investigation  *  ♦  * 
and  if  it  had  investigated  it  would  have  discovered  the  true  location  of 
the  plaintiff's  residence.  Had  it  been  done  within  a  reasonable  time 
and  there  had  been  any  basis  for  claiming  it  had  been  misled  to  its  pre- 
judice, it  might  have  rescinded  the  contract  and  returned  the  premium; 
but  having  retained  the  premium  until  after  the  fire,  it  should  not  be 
heard  to  say  that  no  property  was  insured. 

Following  this  case  the  Appellate  Division,  in  the  Second  Depart- 
ment, held,  in  Curnen  v.  Law,  Union  and  Rock  Ins.  Co.,  159  App. 
Div.  493,  that  a  misdescription  of  the  location  of  a  dwelling  in  a 
fire  insurance  policy  upon  household  goods,  by  designating  it  as 
at  the  northwest  corner  of  an  intersection  of  two  streets,  instead 
of  as  at  the  northeast  corner  of  the  intersection  of  the  same  streets, 
does  not  render  the  policy  void,  where  there  was  no  other  build- 
ing at  the  street  intersection,  although  the  company,  in  reliance 
thereon,  took  another .  risk  upon  the  dwelling,  the  two  combined 
risks  exceeding  the  limit  allowed  to  local  agents  on  such  lines,  as 
the  true  location  could  have  been  discovered  upon  investigation,  and 
the  excess  could  have  been  reinsured. 

The  Court,  Justice  Harrington  Putnam  writing,  referred  to  the 
fact  that  fire  insurance  offices  have  local  maps  which  show  location 
of  property  and  approved  the  decision  of  the  Appellate  Term  in  the 
Second  Department  in  DeNoyelles  v.  Del.  Ins.  Co.,  78  Misc.  649, 
where  it  was  expressly  held  that  the  company  was  charged  with 
knowledge  of  facts  which  its  local  agents  had  in  the  maps  and  cards 
in  their  offices. 

109 


The  Fire  Insurance  Contract 

An  example  of  material  misrepresentation  of  the  nature  of  the 
risk  is  found  in  the  case  of  Evans  v.  Columbia  F.  Ins.  Co.,  40  Misc. 
316,  where  the  late  Justice  Gaynor  held  it  a  good  defence  to  an 
action  on  a  fire  insurance  policy  purporting  to  insure  all  of  plaintiff's 
cotton  presses  throughout  the  United  States,  that  the  plaintiff  rep- 
resented to  the  underwriter  that  it  had  only  150  such  presses, 
whereas  in  fact  it  had  700  and  that  only  a  few  of  them  were  in 
couples,  whereas  substantially  all  were  in  couples;  the  court  be- 
lieving that  the  number  of  presses  and  their  proximity  to  each  other 
affected  the  risk  and  were  material. 

Fraud  is  a  more  inclusive  term  than  the  other  terms  under  con- 
sideration in  this  paper.  It  may  arise  out  of  a  concealment,  or  a 
misrepresentation,  or  false  swearing,  it  may  include  all  of  thfim,  or 
it  may  exist  in  some  other  form.  It  may  exist  at  any  time,  -either 
before  the  issue  of  the  poHcy,  during  the  term  thereof,  or  after  a 
loss.  Fraud,  whenever  it  is  established,  avoids  the  contract  ab  initio. 
It  has  been  held  that  the  underwriter  may  contest  the  valuation 
stated  in  a  valued  policy,  if  it  is  the  result  of  fraud. 

It  is  defined  i)y  Webster's  International  Directory  as: 

An  intentional  perversion  of  truth  for  the  purpose  of  inducing 
another  in  reliance  upon  it  to  part  with  some  valuable  thing  belonging  to 
him,  or  to  surrender  a  legal  right;  a  false  representation  of  a  matter  of 
fact  (whether  by  words  or  conduct,  by  false  or  misleading  allegations, 
or  by  concealment  of  that  which  should  have  been  disclosed)  which 
deceives  and  is  intended  to  deceive  another  so  that  he  shall  act  upon  it 
to  his  legal  injury. 

The  means  by  which  deceit  is  practiced;  an  artifice  by  which  the 
right  or  interest  of  another  is  injured;  an  injurious  stratagem;  a  decep- 
tive device;  a  trick." 

The  New  Standard  definitio|;i  of  fraud  in  law  is : 
Any  artifice  or  deception  practiced  to  cheat,  deceive,  or  circumvent 
another  to  his  injury. 

As  the  purpose  of  a  fraud  is  to  enable  an  insured  to  collect 
from  his  underwriter  a  sum  not  due  at  all,  or  one  larger  than  is  actu- 
ally due,  on  the  policy,  it  is  usually,  but  not  necessarily,  coupled  with 
false  swearing  either  in  the  proof  of  loss  or  the  examination  under 
oath,  or  both,  as  to  assured's  knowledge  of  the  origin  of  the  fire,  or 
as  to  the  quantity  of  personal  property  in  his  premises  at  the  time 
of  fire,  exaggeration  of  value  of  the  destroyed  property,  depreciation 
of  the  value  of  the  salvage  or  removal  and  concealment  thereof,  his 
interest  in  the  subject  of  insurance  or  the  encumbrances  thereon,  or 
alterations  in  his  books  or  otherwise. 

It  is  often  said,  particularly  in  insurance  litigations,  that  ^'the 
law  abhors  a  forfeiture.'^    It  is  also  said  that  the  penalty  (forfeiture 

110 


Misrepresentation,  Fraud,  Etc. 

of  the  insurance)  for  false  swearing  bears  no  relation  either  to  the 
benefit  the  insured  secures  or  the  injury  which  he  imposes  on  the 
underwriter.  So  it  is  said  that  the  penalty  is  not  to  fall  unless  the 
false  swearing  is  knowingly  and  wilfully  done ;  but  the  rule  in  the 
Federal  Courts  is,  that  if  there  be  false  swearing  knowingly  and  wil- 
fully done  with  respect  to  material  facts,  an  intention  to  deceiv" 
the  underwriter  will  be  presumed  therefrom. 

In  Claflin  v.  Commonwealth  Ins.  Co.,  110  U.  S.  81,  assured 
in  his  examination  under  oath  swore  falsely  as  to  value  and  as  to 
his  ownership  of  the  goods.  He  then  claimed  that  his  false  swear- 
ing was  not  for  the  purpose  of  deceiving  the  underwriters,  but  to 
substantiate  statements  to  the  same  efifect  previously  made  to  R.  G. 
Dun  &  Co.  for  the  purpose  of  obtaining  commercial  credit.  The 
United  States  Supreme  Court  said: 

The  object  of  the  provision  in  the  policies  of  insurance,  requiring 
the  assured  to  submit  himself  to  an  examination  under  oath,  to  be  re- 
duced to  writing,  was  to  enable  the  company  to  possess  itself  of  all 
knowledge,  and  of  all  information  as  to  other  sources  and  means  of 
knowledge,  in  regard  to  the  facts,  material  to  the  rights,  to  enable  them 
to  decide  upon  their  obligations,  and  to  protect  them  against  false  claims. 
And  every  interrogatory  that  was  relevant  and  pertinent  in  such  an 
examination  was  material,  in  the  sense  that  a  true  answer  to  it  was  of 
the  substance  of  the  obligation  of  the  assured.  A  false  answer  as  to  any 
matter  of  fact  material  to  the  inquiry,  knowingly  and  wilfully  made, 
with  intent  to  deceive  the  insurer,  would  be  fraudulent.  If  it  accom- 
plished its  result,  it  would  be  a  fraud  effected;  if  it  failed,  it  would  be  a 
fraud  attempted.  And  if  the  matter  were  material  and  the  statement 
false,  to  the  knowledge  of  the  party  making  it,  and  wilfully  made,  the 
intention  to  deceive  the  insurer  would  be  necessarily  impHed,  for  the 
law  presumes  every  man  to  intend  the  natural  consequences  of  his  acts. 
No  one  can  be  permitted  to  say,  in  respect  to  his  own  statements  upon 
a  material  matter,  that  he  did  not  expect  to  be  believed;  and  if  they  are 
knowingly  false,  and  wilfully  made,  the  fact  that  they  are  material  is 
proof  of  an  attempted  fraud,  because  their  materiality,  in  the  eye  of  the 
law,  consists  in  their  tendency  to  influence  the  conduct  of  the  party  who 
has  an  interest  in  them,  and  to  whom  they  are  addressed.  *  *  *  The 
fact  whether  Murphy  had  an  insurable  interest  in  the  merchandise  cov- 
ered by  the  policy  was  directly  in  issue  between  the  parties.  By  the 
terms  of  the  contract  he  was  bound  to  answer  truly  every  question  put  to 
him  that  was  relevant  to  that  inquiry.  His  answer  to  every  question  per- 
tinent to  that  point  was  material,  and  made  so  by  the  contract,  and 
because  it  was  material  as  evidence;  so  that  every  false  statement  on 
that  subject,  knowingly  made,  was  intended  to  deceive  and  was  fraudu- 
lent. 

And  it  does  not  detract  from  this  conclusion  to  suppose  that  the 
purpose  of  Murphy  in  making  these  false  statements  was  not  to  deceive 
and  defraud  the  companies,  as  is  stated  in  the  bill  of  excepions  and  cer- 
tificate, but  for  the  purpose  of  preventing  an  exposure  of  the  false  state- 
ment previously  made  to  the  commercial  agency  in  order  to  enchance 
his  credit.  The  meaning  of  that  we  take  to  be  simply  this:  that  his 
motive  for  repeating  the  false  statements  to  the  insurance  companies 
was  to  protect  his  own  reputation  for  veracity,  and  that  he  would  not 
have  made  them  but  for  that  cause.     But  what  is  that  but  that  he  was 

111 


The  Fire  Insurance  Contract 

induced  to  make  statements,  known  to  be  false,  intended  to  deceive  the 
insurance  companies,  lest  they  might  discover,  and  others  through  them, 
the  falsity  of  his  previous  statements;  in  other  words,  that  he  attempted, 
by  means  of  a  fraud  upon  the  companies,  to  protect  his  reputation  and 
credit?  In  any  view,  there  was  a  fraud  attempted  upon  the  insurers; 
and  it  is  not  lessened  because  the  motive  that  induced  it  was  something 
in  addition  to  the  possible  injury  to  them  that  it  might  work.  The  sup- 
position proceeds  upon  the  very  ground  of  the  false  statement  of  a  ma- 
terial matter,  knowing  and  wilfully  made,  with  the  intent  to  deceive  the 
defendants  in  error;  and  it  is  no  palliation  of  the  fraud  that  Murphy  did 
not  mean  thereby  to  prejudice  them,  byt  merely  to  promote  his  own  per- 
sonal interest  in  a  matter  not  involved  in  the  contract  with  them.  By 
that  contract  the  companies  were  entitled  to  know  from  him  all  the  cir- 
cumstances of  his  purchase  of  the  property  insured,  including  the  amount 
of  the  price  paid  and  in  what  manner  payment  was  made;  and  false 
statements,  wilfully  made  under  oath,  intended  to  conceal  the  truth 
on  these  points,  constituted  an  attempted  fraud  by  false  swearing  which 
was  a  breach  of  the  conditions  of  the  policy,  and  constituted  a  bar  to 
the  recovery  of  the  insurance. 

Many  of  the  State  Courts  follow  the  Federal  Courts  that  a 
presumption  of  intent  to  deceive  arises  from  false  swearing  know- 
ingly and  intentionally  done.    So  in  Maine,  it  is  said : 

False  swearing  is  fraud.  False  swearing  consists  in  knowingly  and 
intentionally  stating  upon  oath  what  is  not  true.  A  false  statement 
intentionally  and  knowingly,  or  fraudulently  made,  certainly  constitutes 
fraud,  and  the  stateme-nt  of  a  fact  as  true  which  a  party  does  not  know 
to  be  true,  and  which  he  has  no  reasonable  ground  for  believing  to  be 
true,  is  fraudulent.     *     ♦     * 

Where  a  clause  like  the  one  mentioned  is  contained  in  the  policy, 
and  the  insured  knowingly  and  purposely  makes  a  false  statement  on 
oath,  concerning  the  subject  matter,  it  vitiates  the  policy  and  bars  his 
right  of  recovery,  whether  his  purpose  was  to  deceive  the  company  or 
not,  ioT  it  is  'so  nominated  in  the  bond.' 

Tinscott  V.  Orient  Ins.  Co ,  88  Maine  497. 

And  in  Oregon  in  Willis  v.  Horticultural  F.  R.  of  O.,   137  Pac. 

761,  in  a  case  where  the  insured  had  included  in  his  proof  of  loss 

as  totally  destroyed  articles  which  he  himself  had  saved  from  the 

fire,  the  court  said : 

The  terms  'fraud'  and  'false  swearing,'  being  used  together,  must 
have  the  same  application,  and  the  false  swearing  must  have  been  know- 
ingly and  wilfully  false;  its  effect  being  to  deceive  or  mislead. 

but  that 

false  swearing  knowingly  and  intentionally  done  is  evidence  of  the  fraud 

and  of  the  intention  to  injure, 

the  underwriter  and  that  because  thereof  the  assured 

should  lose  his  standing  in  a  court  of  justice  as  to  any  claim  under  that 

policy. 

Some  States  have  adopted  a  rule  expressed  by  the  Wisconsin 
court  thus : 

It  is  not  enough  that  it  occurs  through  mistake,  carelessness,  or  inad- 
vertence, or  even  in  unreasonable  reliance  on  information  derived  from 
others. 

112 


Misrepresentation,  Fraud,  Etc. 
beyer  v.  st.  paul  f.  &  m.  ins.  co., 

112  Wis.  138. 

So  in  Ins.  Co.  v.  Scales,  101  Tenn.  628,  title  to  insured  property 
was  in  two  sisters,  who  took  no  active  part  in  the  business,  knew 
personally  little  of  it,  but  left  the  management  to  their  husbands. 
Proofs  were  prepared  ♦)y  the  husbands  and  sworn  to  by  both  hus- 
bands and  both  wives,  the  latter  making  no  investigation  and  accept- 
ing in  the  entirety  the  statement  of  the  husbands.  The  court  refused 
to  hold  that  the  women  by  adopting  the  false  statements  of  their 
agents,  the  husbands,  without  investigating  the  facts,  became  them- 
selves guilty  of  fraud. 

The  more  satisfactory  rule,  however,  was  laid  down  in  Mullin 
V.  Vermont  Mutual  F.  I.  Co.,  58  Vt.  113,  where  the  court,  recogniz- 
ing that  as  to  household  effects  a  wife  is  usually  much  better  in- 
formed than  the  husband,  said: 

But  if  the  plaintiff  was  compelled  to  get  the  aid  of  his  wife  he  as- 
sumes all  responsibility  for  her  errors  as  he  would  for  his  own  *  ♦  * 
if  the  plaintiff  adopted  any  false  statement  of  the  wife  respecting  a  loss, 
or  the  value  of  the  goods  lost  without  investigating  the  facts  he  thereby 
became  guilty  of  a  fraud  himself;  and  if  he  made  representations  to  know 
the  facts,  when  he  had  no  knowledge,  and  such  statements  turned  out 
to  be  false,  it  was  a  fraud  within  the  meaning  of  the  policy.  He  cannot 
even  be  honest  by  turning  the  matter  over  to  his  wife,  and  omit  to 
inspect  her  inventory  to  see  if  it  be  correct.  If  he  had  looked  it  over, 
and  wished  to  be  honest,  he  would  have  discovered  many  false  state- 
ments which  were  calculated,  and  probably  were  intended,  to  work  a 
fraud  upon  the  defendant.  He  could  have  arrested  this  fraud,  if  he  had 
done  his  duty.  On  the  contrary,  he  recklessly  endorsed  it  without 
examination,  and  by  so  doing  made  it  his  own  fraud  within  the  meaning 
of  the  policy. 

In  Mick  V.  Royal  Exchange,  87  N.  J.  L.  607,  New  Jersey  held 
that  recovery  by  an  honest  assured  on  his  policy  would  be  defeated 
where  he  delegated  to  an  agent  the  task  of  adjusting  and  settling 
a  fire  loss  and  the  agent  fraudulently,  but  without  assured's  knowl- 
edge, put  in  false  bills  of  purchases,  but  on  the  second  trial  of  the 
same  case  held,  87  N.  J.  L.  628,  that,  if  the  agent  innocently  trans- 
mitted to  the  insurer  false  bills  procured  by  assured's  son  who  was 
not  his  father's  agent,  the  assured  could  recover  his  loss. 

Decisions  to  the  effect  that  false  swearing  by  an  agent  will  not 
avoid  the  insurance,  unless  the  assured  is  responsible  for  it  or  ac- 
quiesced therein,  are  predicated  on  the  theory  that  authority  from 
the  insured  to  commit  such  a  wrong  should  not  be  inferred. 

Fraud  and  false  swearing  imply  something  more  than  some 
mistake  of  fact  or  honest  misstatements  on  the  part  of  the  insured, 
or  a  mere  mistaken  expression  of  opinion. 

113 


The  Fire  Insurance  Contract 

A  mere  misstatement  of  the  loss,  based  upon  an  erroneous  estimate 
of  values,  which  is  but  the  expression  of  an  opinion,  does  not  operate  to 
avoid  the  policy;  the  misstatement  must  be  false  and  fraudulent. 

CHEEVER  V.  SCOTTISH  UNION  AND  N.  I.  CO., 
86  App.  Div.  328. 

As  respects  household  furniture,  the  position  of  the  courts  is 

expressed  by  the  Wisconsin  Supreme  Court*as  follows : 

It  is  by  no  means  certain  that  one  can  go  into  the  market  and  find 
second-hand  articles  to  supply  those  which  have  been  destroyed,  and  a 
housekeeper  is  not  indemnified  for  the  loss  of  an  efficient  and  useful 
article  unless  she  can  replace  it.  We  do  not  say  that  this  is  the  rule  of 
recovery  against  an  insurance  company,  but  that  such  considerations 
bear  upon  the  integrity  of  such  a  person  in  estimating  the  value  of  an 
article. 

BEYER  v.  ST.  PAUL  F.  &  M.  INS.  CO., 
112  Wis.  138. 

But  the  over  valuation  may  be  so  gross  as  in  itself  to  indicate  fraud. 

So  in  New  York  it  has  been  held  to  be  evidence  of  false  swearing 

sufficient  to  defeat  the  insurance  where  the  assured  swore  that  the 

damage  was  $23,000  and  the  jury  found  it  to  be  not  more  than 

$5,000,  Sternfeld  v.  Park  Fire  Ins.  Co.,  50  Hun.  262,  and  where  the 

assured  swore  in  his  proof  of  loss  that  the  damage  was  $6,700  and 

the  court  found  it  to  be  only  $1,800.     Anibal  v.  Ins.  Co.  of  N.  A., 

84  App.  Div.  634. 

An  award  of  appraisers  will  be  set  aside  for  fraud,  and  it  was 
recently  held  in  New  York  in  an  action  on  the  policy  that  the  under- 
writer should  be  permitted  to  show  that  an  appraisal  was  reached 
upon  a  false  basis  because  of  a  misrepresentation  by  the  insured  of 
the  amount  of  the  lowest  bid  received  for  repairing  the  damage. 
Steinberg  v.  Boston  Ins.  Co.,  144  App.  Div.  110. 

It  has  been  urged  that  where  assured's  actual  loss,  throwing  out 
his  pretended  losses,  exceeded  the  whole  amount  of  the  policy,  and 
that  consequently  the  underwriter  was  not  and  could  not  be  harmed 
by  the  false  statement  of  additional  losses,  the  assured  should  receive 
his  actual  loss,  but  the  Supreme  Judicial  Court  of  Maine  answers : 

When,  therefore,  he  meets  this  demand  (for  a  sworn  proof  of  loss) 
with  knowingly  false  statements  of  losses  he  did  not  sustain,  in  addition 
to  those  he  did  sustain,  he  ought  to  lose  all  standing  in  a  court  of 
justice  as  to  any  claim  under  that  policy. 

The  court  will  not  undertake  for  him  the  offensive  task  of  sep- 
arating his  true  from  his  false  assertions.  Fraud  in  any  part  of  his  for- 
mal statement  of  loss,  taints  the  whole.  Thus  corrupted,  it  should  be 
wholly  rejected,  and  the  suitor  left  to  repent  that  he  destroyed  his 
actual  claim  by  the  poison  of  his  false  claim. 

DOEEOFF  V.  PHOENIX  INvS.  CO.,  82  Maine  266. 

A  contrary  view  was  expressed  in  Mississippi  in  Home  Ins. 

114 


Misrepresentation,  Fraud,  Etc. 

Co.  V.  Leventhal,  36  Southern  1042,  where  the  difference,  however, 
was  between  the  claimed  value  of  $3,646.75  and  actual  cost  of 
$3,400. 

Wisconsin  has  ruled  that : 
the  law  does  not  undertake  to  furnish   remedies   for  wrongs  which   are 
so  impalpable  or  imaginary  as  not  to  cause  damage.     The  law  does  not 
regard   or  treat   as  a  fraud   a  deception   so  intangible  as   not   to   cause 
damage.    To  amount  to  a  legal  fraud,  it  must  both  deceive  and  damage. 

COMMERCIAL  BANK  v.  FIREMEN'S  INS.  CO..  87  Wis.  297. 

The  provisions  of  the  policy  under  consideration,  as  well  as  the 
provisions  of  the  succeeding  paragraph  of  the  policy,  begin  with 
the  words  "This  entire  policy  shall  be  void."  Before  the  standard 
policy  was  written,  the  courts  decided  frequently  that  the  contract 
was  severable  and  that  a  breach  of  warranty  as  to  one  item  did  not 
avoid  the  policy  as  to  all  the  items.  Mr.  Kennedy,  Chairman  of  the 
Committee  which  drafted  the  standard  policy,  in  his  address  before 
this  Society,  stated  that  it  was  the  intent  of  the  committee  in 
writing  the  words  "This  entire  policy  shall  be  void"  to  put  into 
the  contract  a  provision  that  a  breach  as  to  one  of  the  items  in  the 
policy  amounted  to  a  forfeiture  of  the  insurance  on  that  one  item 
and  on  all  the  other  items.  However,  in  the  case  of  Donley  v. 
Glens  Falls  Ins.  Co.,  184  N.  Y.  107,  the  Court  of  Appeals  adhered 
to  the  old  line  of  decisions,  as  respects  a  breach  of  warranty, 
saying : 

Whatever  our  views  might  be  if  the  question  were  new,  we  regard 
it  as  settled  that  where,  by  the  same  policy,  different  classes  of  prop- 
erty, each  separately  valued,  are  insured  for  distinct  amounts,  even  if 
the  premium  for  the  aggregate  amount  is  paid  in  gross,  the  contract  is 
severable  and  a  breach  of  warranty  as  to  one  subject  of  insurance  only 
does  not  affect  the  policy  as  to  the  othcts,  unless  it  clearly  appears  that 
such  was  the  intention. 

But  where  the  assured  has  been  found  guilty  of  fraud  in  con- 
nection with  the  contract,  the  courts  have  refused  to  apply  the  doc- 
trine of  divisibility  of  the  contract.    As  a  text  writer  has  put  it : 

Fraud  as  to  one  item  forfeits  the  entire  contract.  There  is  no 
equity  to  induce  the  court  to  construe  the  contract  as  severable  in  such 
a  case;  and  this  was  also  the  result  at  common  law,  without  special 
provision   in  the   policy. 

RICHARDS  ON  INS.   (3rd   Edn.)  316. 

A  case  frequently  cited  in  this  connection  is  McGowan  v.  Peo- 
ples Mutual  F.  I.  Co.,  54  Vt.  211,  where  the  court  said: 

The  general  rule,  'void  in  part,  void  in  toto,'  should  apply  to  all 
cases  where  the  contract  is  affected  by  some  all-pervading  vice,  such  as 
fraud,  or  some  unlawful  act,  condemned  by  public  policy  or  the  com- 
mon law. 

In  Moore  v.  Virginia  F.  &  M.  Ins.  Co.,  69  Va.  508,  it  appeared 
that  insured,  under  a  policy  insuring  separately  a  mill,  machinery 

115 


The  Fire  Insurance  Contract 

and  stock,  in  his  claim  and  proof  of  loss  swore  falsely  as  to  the 
value  of  the  stock,  but  not  as  to  the  buildings  and  machinery,  and 
the  court  applying  the  maxim,  falsum  in  uno,  falsum  in  omnibus, 
denied  him  any  recovery  whatever. 

In  the  case  of  Home  Ins.  Co.  v.  Connally,  104  Tenn.  93,  the 
policy,  containing  the  standard  policy  clause  under  consideration, 
insured  separately  dwelling  house  and  contents.  Insured  swore 
falsely  as  to  value  of  contents.  The  court  argued  that  the  doctrine 
of  divisibility  was  an  equitable  doctrine  accepted  by  the  courts  "as 
one  more  consistent  with  the  intention  of  the  parties,  or  less  likely 
to  produce  inequitable  results  to  the  insured,  by  affording  the  courts 
an  opportunity  to  avoid  forfeitures  for  innocent  mistakes  often 
made  by  the  insured,"  but  to  permit  one  guilty  "of  fraud  and  false 
swearing"  to  recover  would  be  in  disregard  of  that  fundamental 
maxim  of  equity  that  "he  that  doth  inequity  shall  not  have  equity." 

While  New  York  has  not  squarely  ruled  on  this  point,  there  are 
intimations  in  Schuster  v.  Dutchess  County  Ins.  Co.,  102  N.  Y.  260, 
and  in  the  Donley  csise,  supra,  that  it  would  follow. 

Oklahoma  in  a  case  recognizing  the  divisibility  of  the  policy 
made  this  limitation: 

When  the  contract  is  not  affected  by  any  question  of  fraud,  unlaw- 
ful act  condemned  by  public  policy,  or  increase  of  the  risk  on  account 
of  the  breach. 

MILLER  V.  DEL.  I.  CO.,  14  Okla.  81. 

Minnesota  has  stated  that  it  will  not  recognize  the  divisibility 
of  the  contract  when  it  is  tainted  with  ''illegality,  fraud  or  increase 
of  risk,"  Parsons  v.  Lane,  97  Minn.  98,  and  also  "that  wilful,  false 
swearing  as  to  one  article  covered  by  the  insurance  policy  would 
avoid  the  whole  policy,"  Hamberg  v.  St.  Paul  F.  &  M.  Ins.  Co., 
68  Minn.  335. 

Maine  most  satisfactorily  disposes  of  the  question  thus: 

It  is  further  suggested  by  the  plaintiff,  that  the  buijldings  having 
been  separately  valued  in  the  policy,  the  insurance  on  them  is  not  af- 
fected by  any  false  swearing  as  to  the  personal  property.  The  policy 
of  insurance,  however,  is  an  entire,  single  contract,  to  stand  or  fall  as 
a  whole,  so  far  as  fraud,  or  false  swearing,  is  concerned. 

DOLLOFF  V.  PHOENIX  INS.  CO.,  82  Maine  266. 
In  conclusion,  it  is  respectfully  submitted  that  fraud  on  the 
part  of  the  assured,  whether  before  or  after  a  loss,  or  false  swear- 
ing, should  avoid  the  insurance  as  to  every  item  of  the  contract, 
whether  or  not  the  risk  be  separable. 

116 


VII 
INCREASE  IN  HAZARD 

Hart  WELL  Cabell 
Lazvyer 

As  the  result  of  a  recent  law  suit,  with  which  some  readers  may 
be  familiar,  I  have  reached  the  conclusion  that  if  there  was  one 
lawyer  in  New  York  who  knew  nothing  about  the  word  "hazard," 
as  used  in  insurance  policies,  that  lawyer  was  myself. 

In  the  case  in  question  I  took  the  stand  that  if  an  owner  of 
a  building  should  employ  another  person  to  set  it  on  fire,  and  should 
put  him  on  a  train,  headed  in  the  right  direction,  with  a  round  trip 
ticket,  expense  money,  a  plan  of  the  property  and  a  box  of  matches, 
that  building  was  in  greater  danger  from  fire  than  it  had  been  be- 
fore; in  other  words,  that  the  "hazard  had  been  increased."  I 
seriously  believed  I  was  right.  The  reader  may  imagine  my  feelings 
when  I  was  told  that  the  hiring  of  incendiaries,  the  purchase  of  their 
railroad  tickets,  the  drawing  of  plans  and  supplying  them  with 
matches  were  mere  psychological  phenomena,  reprehensible  in  them- 
selves perhaps,  but  not  to  be  taken  seriously.  Especially  would  this 
seem  to  be  the  case  where  the  only  motive  back  of  them  was  to  com- 
pel a  few  predatory  corporations,  foreign  and  otherwise,  to  give  up 
some  thousands  of  dollars  of  their  surplus  gains. 

The  learned  judges  did  not  go  quite  so  far  as  to  say  that  a 
building  was  entirely  safe  under  these  circumstances,  but  the  effect 
of  the  decision  was  to  seriously  shake  my  confidence  in  myself  as 
an  expounder  of  the  meaning  of  insurance  terms. 

With  the  warning  that,  in  the  circumstances,  my  opinion  on 
insurance  matters  is  to  be  taken  with  a  grain  of  salt,  I  take  pleasure 
in  laying  before  you  what  I  conceive  to  be  the  principles  which 
should  govern  the  interpretation  of  the  policy  provision  against 
"increase  of  hazard." 

In  determining  the  rules  which  should  guide  us,  I  shall  not 
attempt  to  square  my  deductions  with  all  the  decisions.  While  as 
to  certain  aspects  of  the  question  the  cases  are  fairly  in  accord, 
they  are  upon  other  points  hopelessly  irreconcilable,  and  we  are  left 
to  choose  between  two  or  more  widely  divergent  views. 

The  New  York  Standard  policy  provision  reads : 

117 
5 


The  Fire  Insurance  Contract 

This  entire  policy,  unless  otherwise  provided  by  agreement  en- 
dorsed hereon  or  added  hereto,  shall  be  void  *  ♦  ♦  if  the  hazard 
be  increased  by  any  means  within  the  control  or  knowledge  of  the 
insured. 

At  the  outset,  it  is  to  be  remarked  that  the  languag^e  used  creates 
what  is  technically  known  as  a  condition  subsequent.  The  practical 
importance  of  this  is  that  while  in  cases  of  conditions  precedent, 
such  as  furnishing  proofs  of  loss,  and  submitting  to  appraisal,  and 
examinations  under  oath,  the  burden  is  upon  the  insured  to  show 
that  he  has  complied  with  them,  in  order  to  establish  his  right  of 
action  under  the  policy ;  the  opposite  rule  pertains  as  to  conditions 
subsequent.  There,  the  company  has  the  burden  of  alleging  and 
proving,  as  a  substantive  defense,  the  breach  of  the  condition  upon 
which  it  relies  as  a  defense  to  an  action  upon  the  policy. 

Warranties  and  conditions  addressed  to  hazards  are  of  the 
greatest  importance  from  the  standpoint  of  the  underwriter. 

The  idea  of  ''Constancy  of  Hazard"  may  be  said  to  lie  at  the 
basis  of  contracts  of  fire  insurance.  The  rate  of  premium  to  be 
paid  is  usually  fixed  at  the  beginning  of  the  term,  and  is  determined 
by  the  degree  of  hazard  as  then  known  and  disclosed  to  the  in- 
surer. If,  after  "the  policy  goes  into  effect,  this  hazard  or  chance 
of  fire  increases,  the  insured  has  in  most  instances  either  saddled 
the  company  with  a  risk  it  would  not  knowingly  assume,  or  else  he 
is  getting  something  for  which  he  has  not  paid.  In  either  case, 
when  the  change  in  circumstances  comes  to  pass,  either  by  his  own 
act  or  within  his  knowledge,  good  faith  which  lies  at  the  basis  of 
all  insurance  requires  that  he  make  disclosure  and  give  the  insurer 
the  opportunity  to  either  increase  the  premium  or  cancel  the  policy. 
His  silence  under  the  circumstances  would  in  many  cases  amount 
to  a  fraud,  either  actual  or  constructive. 

Fire  underwriters,  from  the  earliest  times,  have  sought  to  pro- 
tect themselves  from  a  change  in  hazard  during  the  life  of  the 
f>olicy  by  various  warranties  and  conditions  inserted  in  their  con- 
tracts. A  form  in  use  in  England  in  the  early  part  of  the  19th  Cen- 
tury read: 

If  a  building  shall  at  any  time  be  in  the  possession  of  or  let  to 
any  person  who  shall  use  or  exercise  therein,  any  hazardous  trade,  ©. 
shall  be  made  use  of  in  the  storage  of  any  hazardous  goods,  *  *  ♦ 
unless  due  notice  of  such  circumstances  be  given  to  the  corporation 
and  mention  thereof  is  made  in  the  policy  itself,  or  be  allowed  by  en- 
dorsement thereon,  and  the  rate  for  such  extraordinary  hazard  duly 
paid,  the  policy  shall  likewise  be  null  and  void  in  respect  of  such  build- 
ing and  the  goods  therein. 

Another  early  example  is  to  be  found  in  a  policy  issued  by  the 

Protector  Fire  Insurance  Co.  (about  1850)  : 

118 


Increase  in  Hazard 

If  after  the  insurance  shall  have  been  effected,  the  risk  shall  be 
increased  by  the  erection  or  alteration  of  any  stove;  the  carrying  on  of 
any  hazardous  trade,  operation  or  process;  the  deposit  of  any  hazardous 
goods  or  hazardous  communication;  the  insured  will  mot,  except  under 
the  consent  of  the  directors  and  on  the  terms  they  may  impose,  be 
entitled  to  any  benefit  under  his  policy. 

The  Massachusetts  Standard  form  of  today  reads: 

This  policy  shall  be  void,  if  without  some  assent  (that  of  the  com- 
pany printed  or  in  writing)  the  situation  or  circumstances  affecting  the 
risk  shall  by  or  with  the  knowledge,  advice  agency  or  consent  of  the 
insured,  be  so  altered  as  to  cause  an  increase  of  such  risk. 

In  the  New  York  Standard  form,  Fraud  is  the  subject  of  an 
entire  paragraph  (lines  7  to  10  inclusive).  There  follows  the  para- 
graph (lines  11  to  30),  in  which  are  grouped  various  contingencies, 
among  them  that  which  we  are  considering,  the  happening  of  any 
one  of  which  will  avoid  the  policy.  Broadly  speaking,  this  entire 
paragraph  treats  of  hazards  which  the  insurer  is  unwilling  to  under- 
write, at  least  at  the  rate  of  premium  recited  in  the  policy.  While 
the  provision  against  assignment  of  the  policy  before  loss  may  be 
said  in  one  view  to  be  merely  a  recognition  of  the  purely  personal 
character  of  the  contract,  yet  even  that  element  has  its  bearing  upon 
the  moral  hazard.  The  purpose  of  the  other  clauses  is  clear.  Other 
insurance,  chattel  mortgages,  and  the  commencement  of  foreclosure 
proceedings,  are  made  grounds  for  forfeiture  clearly  because  they 
tend  to  increase  the  moral  hazard.  The  requirement  that  the  in- 
terest of  the  assured  shall  be  sole  and  unconditional  ownership  in 
fee  simple,  is  also  directed  to  the  moral  hazard,  and  the  prohibition 
of  any  change  in  such  interest  is  intended  to  stabilize  the  moral 
hazard  during  the  life  of  the  policy. 

The  clauses  prohibiting  the  operation  of  factories  at  night,  the 
extended  employment  of  mechanics  on  the  premises,  the  storage  of 
explosives,  and  the  vacancy  clause,  are  all  clearly  meant  to  guard 
against  any  increase  of  the  physical  hazards  of  the  risk. 

As  compared  with  the  Standard  form,  the  clauses  dealing  with 
hazards  in  the  very  early  policy  forms  were  comparatively  simple. 
In  many  instances  no  specific  hazards  were  mentioned,  the  clause 
being  general  in  its  terms.  In  others,  there  were  specific  prohibi- 
tions, such  as  the  prohibitions  against  the  erection  or  alteration  of 
stoves,  the  carrying  on  of  hazardous  trades  and  the  deposit  of  haz- 
ardous goods  found  in  the  Protector  Policy  already  referred  to. 

Not  the  least  interesting  phase  of  the  study  of  insurance  law, 
is  a  historical  examination  of  the  development  of  the  old  and  com- 
paratively simple  policy  provisions  into  the  form  as  we  find  it  in 
modem  policies. 

119 


The  Fire  Insurance  Contract 

In  a  recent  decision  (Supreme  Judicial  Court  of  Maine  in 
Knowlton  v.  Insurance  Co.,  35  Ins.  L.  J.  81),  the  highest  court  of 
one  of  our  states,  in  complimentary  language,  ascribes  the  clauses 
specifying  the  hazards  which  will  avoid  the  policy,  to  the  wisdom 
and  foresight  of  the  State  Legislature.  Recognizing  the  impos- 
sibility of  anticipating  or  specifying  the  infinite  variety  of  changes 
in  the  situation  and  circumstances  of  a  risk  that  might  cause  an 
increase  of  hazard,  the  law  makers  are  declared  to  have  been  able, 
in  the  light  of  experience,  to  select  a  number  of  specific  instances 
and  to  provide  for  them. 

The  principal  objection  to  this  theory  is  that  it  isn't  true.  The 
gradual  additions  to  the  specific  enumeration  of  hazards  came,  not 
from  the  legislative  font  of  wisdom,  but  from  the  inherent  objec- 
tion on  the  part  of  underwriters  to  being  ''done,"  if  I  may  be  par- 
doned the  use  of  the  term. 

Under  the  general  clause  providing  that  "any  increase  of  haz- 
ard should  avoid  the  policy,"  each  case  had  to  go  to  the  jury.  Even 
where  the  facts  were  undisputed,  yet  the  jury  was  permitted  to  pass 
upon  the  question  of  "increase  of  hazard,"  under  the  rule  that  the 
conclusion  to  be  drawn  from  the  facts  is  as  much  within  the  prov- 
ince of  the  jury  as  the  ascertainment  of  the  facts  themselves. 

Needless  to  remark,  the  juries  who  from  time  immemorial 
have  shown  a  generous  and  charitable  disposition,  and  a  natural 
desire  to  aid  the  unfortunate,  where  it  could  be  done  without  cost 
to  themselves,  very  generously  refused  to  recognize  as  increases  of 
hazard,  things  which  the  underwriters,  in  the  light  of  experience 
and  by  the  lightening  of  their  own  pocketbooks,  could  regard  in  no 
other  way. 

Therefore  it  was  that  the  companies,  for  self  protection,  from 
time  to  time  selected  those  specific  instances  which  occurred  the 
most  frequently,  and  by  making  each  the  subject  of  a  separate 
clause,  took  away  from  the  jury  the  power  to  decide  whether  they 
were  or  were  not  increases  of  hazard,  under  the  circumstances  of 
each  case. 

In  several  jurisdictions,  even  the  specific  enumeration  in  the 
policy,  of  the  hazards  which  should  avoid  it,  was  held  not  be  enough 
to  stay  the  hand  of  juries  in  their  distribution  of  the  assets  of  in- 
surance companies  upon  eleemosynary  lines.  Admitting  the  fact 
of  vacancy,  or  night  operation  or  the  storage  of  explosives,  these 
courts  held  that  the  jury  was  still  to  determine  whether  the  haz- 
ard was  thereby  increased.     In  the  absence  of  some  statute  which 

120 


Increase  in  Hazard 

would  override  the  contract,  these  decisions  were  clearly  wrong. 
It  is  undoubtedly  the  law  that  where  the  insurer  has  provided  that 
the  happening  of  a  certain  event,  or  the  coming  into  existence  of  a 
certain  fact  shall  avoid  the  policy,  such  a  stipulation  in  the  absence 
of  statute  is  binding  upon  the  parties ;  and  where  the  event  happens 
and  the  fact  is  undisputed,  there  is  nothing  left  for  the  jury  to  de- 
termine, and  the  court  declares  the  contract  at  an  end  as  a  matter 
of  law. 

The  general  clause  we  are  considering  has  been  retained  in 
connection  with  the  special  clauses,  for  the  obvious  purpose  of  pro- 
tecting the  companies  against  instances  of  increase  of  hazard  which 
either  can  not  be  foreseen,  or  which  occur  so  seldom  as  not  to 
justify  the  addition  of  further  provisions  to  an  instrument  already 
too  long. 

The  insertion  of  special  clauses  in  addition  to  the  general 
clause  has  one  effect  which  it  is  important  to  bear  in  mind :  Where 
a  certain  contingency  is  provided  for  by  a  special  condition,  this 
contingency  is  taken  out  of  the  general  provision. 

A  rather  interesting  example  of  the  application  of  this  rule  of 
construction  is  found  in  Herrman  v.  Merchants  Ins.  Co.,  (81  N.  Y. 
184).  The  policy  contained  a  condition  avoiding  the  Insurance  in 
case  the  building  became  "vacant  and  unoccupied."  The  court  de- 
fined the  words  as  having  each  a  separate  meaning;  the  house  be- 
ing unoccupied  when  no  one  lived  in  it,  but  not  being  then  neces- 
sarily vacant ;  while  a  house  filled  with  furniture  throughout,  al- 
though unoccupied,  would  not  be  vacant,  because  the  primary  mean- 
ing of  the  word  ''vacant"  is  "empty."  Therefore,  the  court  refused 
to  permit  the  company  to  show  that  non-occupancy  increased  the 
hazard,  even  though  the  premises  were  not  vacant,  on  the  ground 
that  the  company  elected  to  consider  non-occupancy  as  an  increase 
of  hazard  only  in  connection  with  the  vacancy  of  the  premises,  and 
that,  therefore,  the  general  condition  contained  in  the  policy  against 
"increase  of  hazard"  would  not  apply. 

The  same  principle  is  applied  in  cases  where  repairs  are  being 
made  on  the  premises.  The  shavings  and  other  refuse  left  by  me- 
chanics undoubtedly  increase  the  hazard.  So  also  the  burning  ofif 
of  old  paint  by  the  use  of  a  gasoline  torch.  But  the  language  of  the 
policy  permitting,  by  inference,  the  employment  of  mechanics  in 
the  building,  altering  and  repairing  the  same,   for  periods  of  not 

121 


The  Fire  Insurance  Contract 

more  than  fifteen  days,  is  held  to  prevent  a  forfeiture  where  the 
alterations  and  repairs  are  within  the  permission,  even  though  they 
admittedly  increase  the  hazard. 

One  sharp  distinction  is  to  be  observed  between  defenses  predi- 
cated upon  the  general  provision  against  increase  of  hazards,  and 
the  specific  clauses  covering  the  explosives,  vacancy,  etc.  While, 
as  we  have  seen,  cases  arising  under  specific  clauses,  where  there 
is  no  dispute  as  to  the  facts,  present  a  mere  question  of  law  for  the 
court,  defenses  based  upon  the  alleged  breach  of  the  general  provi- 
sion present  a  question  of  fact  always.  It  can  never  be  said  as  a 
matter  of  law  that  any  particular  change  in  the  condition  of  the 
property  insured  or  any  act  or  omission  on  the  part  of  the  owner 
or  his  agent  increases  the  hazard.  What  constitutes  an  increase 
of  hazard  is  always  essentially  a  question  of  fact.  (Firemen's  Ins. 
Co.  v.  Appleton  Paper  Co. ;  101  111.  9 ;  Halpin  v.  Ins.  Co.  of  North 
America,  10  N.  Y.  St.  Rep.  345). 

The  clause  against  increase  of  hazard,  while  apparently  simple 
upon  a  casual  examination,  is  by  no  means  free  from  difficulty  when 
we  come  to  apply  its  language  to  concrete  cases.  It  says  too  much. 
It  cannot  be  applied  literally  without  depriving  the  assured  of  the 
very  protection  for  which,  under  the  general  principles  of  insur- 
ance, he  has  contracted. 

Take  for  example  the  phrase  "within  the  knowledge  or  control 
of  the  assured."  This  language  can  not  be  enforced.  If  it  were, 
the  breaking  out  of  a  fire  in  neighboring  premises  at  any  time  dur- 
ing the  life  of  the  contract  would,  if  known  to  the  insured,  although 
beyond  his  control,  automatically  terminate  the  contract.  Yet  the 
loss  of  property  from  the  spread  of  such  a  conflagration  is  one  of 
the  contingencies  against  which  the  policy  is  intended  to  protect 
the  owner.  So  if  after  the  issue  of  the  policy  the  insured  should 
learn  of  a  conspiracy  to  burn  his  property,  and  if  before  he  could 
take  steps  for  his  protection  the  property  should  be  destroyed,  he 
would  be  without  relief  against  the  company.  Any  number  of  similar 
hypothetical  cases  suggest  themselves;  where  the  hazard  has  been 
increased;  where  such  increase  is  either  within  the  knowledge  or 
control  of  the  insured ;  and  yet  no  defense  based  upon  the  provision 
we  are  discussing  would  prevail. 

Considered  in  its  entirety,  however,  and  when  construed  from 
the  standpoint  of  common  sense,  the  effect  of  the  general  provision 
is  far  reaching.  As  pointed  out  by  the  Massachusetts  court,  in 
Houghton  V.  Manufacturers  Mutual  Fire  Ins.  Co.  (80  Mete.  114), 

122 


Increase  in  Hazard 

such  a  provision  binds  the  insured,  not  only  not  to  make  any  altera- 
tions or  changes  in  the  structure  or  use  of  the  property,  but  also 
prohibits  the  introduction  of  any  practice,  custom  or  mode  of  con- 
ducting business  which  would  materially  increase  the  risk,  and 
prohibits  the  discontinuance  of  any  precaution  represented  in  the 
application  to  be  adopted  and  practiced  with  a  view  to  diminishing 
the  risk.  It  is  practically  a  stipulation  that  the  mode  of  conducting 
the  business  in  effect  at  the  time  of  the  issue  of  the  policy  shall  be 
substantially  observed,  and  the  precautions  against  fire  then  being 
taken  shall  be  substantially  continued  to  be  taken  during  the  life  of 
the  policy. 

A  discussion  of  the  clause  to  be  of  practical  value  must  je 
based  upon  some  definite  plan.  I  have  concluded  that  the  best  way 
is  to  group  the  cases  and  contrast  the  decisions  as  to  each  aspect  of 
our  subject,  and  where  the  decisions  are  not  in  accord,  to  try  to 
draw  from  the  best  considered  cases  some  rule  which  it  will  be 
fairly  safe  for  underwriters  and  their  adjusters  to  follow  and  which 
will  at  least  have  the  support  of  reason  and  common  sense. 

The  first  thing  to  determine  is  what  is  meant  by  the  words 

"increase  of  hazard."     As  a  learned  text  writer  on  the  subject  of 

insurance  says : 

It  must  not  be  forgotten  that  hazard  is  of  necessity  a  variable 
quantity.  It  changes  constantly  from  day  to  day,  and  sometimes  im- 
perceptibly, from  the  operation  of  the  laws  of  nature  and  from  various 
circumstances  beyond  the  control  of  the  insured. 

Strictly  speaking  every  loss  under  the  policy  is  preceded  if  only 

momentarily  by  an  increase  of  hazard,  otherwise  there  would  have 

been  no  loss. 

Therefore  the  policy  must  mean,  not  every  increase  of  hazard, 
but  those  falling  into  one  or  more  classes,  more  or  less  related,  and 
excluding  cases  which  although  included  by  the  literal  meaning  of 
the  phrase  **if  the  hazard  be  increased,"  are  nevertheless  to  be  con- 
sidered as  covered  by  the  policy.  To  make  myself  clear,  take  for 
example  the  casual  acts  of  negligence  of  the  owner  or  his  servants, 
such  as  the  use  of  coal  oil  to  light  fires,  or  the  leaving  of  oil  rags, 
exposed  matches,  or  rubbish,  on  the  premises.  These  acts  or  omis- 
sions undoubtedly  increase  the  hazard  and  may  be  both  within  the 
knowledge  and  under  the  control  of  the  insured,  and  yet  are  held 
to  be  included  in  the  risk  undertaken  by  the  underwriter,  and  not 
such  increases  as  will  avoid  the  polic>. 

We  may  as  a  starting  point  ask:  aoes  the  language  in  the 
policy  refer  to  temporary  increases  of  hazard,  such  as  the  storage 

123 


The  Fire  Insurance  Contract 

of  dynamite  over  night,  or  must  there  be  some  enhancement  of  the 
risk  of  a  more  or  less  stable  and  permanent  character? 

Looking  at  the  question  from  still  another  standpoint,  we  may 
consider  the  increase  of  hazard  with  respect  to  the  location  of  the 
danger  with  reference  to  the  premises  of  the  insured.  My  atten- 
tion has  been  especially  called  by  your  Secretary,  to  cases  where, 
in  our  modern  loft  buildings,  the  increase  of  hazard  is  claimed  to 
arise  from  dangers  located  not  in  another  building,  but  in  the  same 
building  which  contains  the  subject  of  msurance,  but  in  premises 
entirely  separate  from  the  insured  premises  and  occupied  by  a 
different  tenant. 

The  clause  may  further  be  considered  in  so  far  as  it  relates  to 
moral  hazards  other  than  those  especially  provided  for  in  the  pdicy. 

Finally  we  should  consider  the  meaning  of  the  phrase  "within 
the  knowledge  or  control  of  the  insured,"  as  relating  to  **im|:)uted" 
knowledge  and  control  by  agents, 

(a) 

Nowhere  in  the  policy  is  there  any  distinction  drawn  between 
the  permanent  and  temporary  chc'-acter  of  increase  of  hazard  which 
will  defeat  recovery.  Logically,  a  leliberate  or  permitted  increase 
of  hazard,  when  material,  imposes  a.  burden  upon  the  insurer  for 
which  he  has  not  been  paid,  whether  the  increase  be  permanent  or 
temporary.  The  question  is  one  of  degree  and  not  of  kind.  In  no 
branch  of  the  law  does  the  old  saw  ''Hard  cases  make  bad  law"  cut 
deeper  than  in  Insurance  Law.  Courts  constantly  evade  logical  con- 
clusions and  ignore  the  evident  intention  of  underwriters  in  drafting 
their  contracts,  in  their  effort  to  avoid  forfeiture  in  "hard  cases." 

Very  early  in  the  history  of  Fire  Insurance,  courts  declined  to 
predicate  a  forfeiture  upon  merely  temporary  conditions. 

In  Dobson  v.  Sotheby  (Moo.  &  M.  90,  sometimes  referred  to 
as  The  Tar  Barrel  Case,  and  decided  many  years  ago,  the  building 
had  been  insured  at  a  very  low  rate  of  premium,  only  applicable  on 
buildings  where  no  fire  was  kept  and  no  hazardous  goods  were 
stored.  A  barrel  of  tar  was  brought  into  the  building  to  be  used 
in  connection  with  repairs  which  were  being  made.  The  tar  caught 
on  fire  and  the  building  was  destroyed.  Lord  Tenterden  held  that 
the  prohibition  against  fire  and  the  storage  of  hazardous  goods 
meant  fire  habitually  used  and  hazardous  goods  habitually  deposited, 
and  the  mere  incident  of  the  tar  barrel  being  there  for  the  purpose 
of  repairing  the  building,  was  not  sufficient  to  avoid  the  policy. 

124 


Increase  in  Hazard 

In  Shaw  v.  Robberds  (6  A.  &  E.  75),  decided  early  in  the  19th 
century,  the  subject  of  insurance  was  a  kiln  which  had  been  erected 
for  drying  wheat.  A  vessel  loaded  with  bark  sank  in  neighboring 
waters^  and  the  owner  of  the  kiln  out  of  kindness  permitted  its  use 
in  drying  out  the  bark  after  it  had  been  taken  from  the  sunken 
vessel.  The  policy  provided  that  if  any  alteration  were  made  either 
in  the  building  or  the  business  carried  on  therein,  notice  should  be 
given  to  the  insurers,  who  would  endorse  permission  on  the  policy 
and  receive  additional  premium;  otherwise  the  policy  should  be 
void.  The  jury  found  as  a  fact  that  the  drying  of  bark  was  a  more 
dangerous  business  than  drying  wheat,  thereby  it  would  seem  estab- 
lishing a  clear  case  of  increase  of  hazard.  The  court  held  however 
that  an  isolated  and  temporary  instance  of  increase  was  not  in 
contemplation  of  the  underwriters  and  did  not  avoid  the  policy. 

In  Adair  v.  Ins.  Co.  (107  Ga.  297),  the  policy  covered  a  dwell- 
ing house  and  contents.  The  husband  and  agent  of  the  insured 
brought  a  threshing  machine  upon  the  premises  temporarily,  for  the 
purpose  of  threshing  some  wheat.  The  work  only  required  about 
two  hours,  but  in  that  time  a  spark  was  blown  by  an  unexpected 
gust  of  wind,  in  the  direction  of  the  house,  which  caught  fire  and 
was  destroyed.  In  the  lower  court  plaintiff  was  non-suited,  but  the 
supreme  court  of  Georgia  reversed  the  case  holding  that  the  ques- 
tion whether  a  breach  of  warranty  had  been  committed  by  such  a 
temporary  and  incidental  use  of  the  engine,  was  for  the  jury. 

The  case  is  wrong  in  principle.  The  action  involved  the  con- 
struction of  a  written  instrument.  Under  our  laws,  that  is  always 
for  the  court,  not  for  the  jury.  In  the  two  English  cases  I  have 
cited  the  juries  found  the  facts  and  the  courts  construed  the  lan- 
guage of  the  policy  not  to  contemplate  or  include  such  facts. 
Whether  right  or  wrong  in  their  conclusion,  the  judges  at  least 
proceeded  upon  the  right  theory.  But  the  Georgia  Court  practically 
left  it  to  the  jury  to  determine  whether  the  increase  of  hazard  re- 
sulting from  certain  admitted  facts  was  or  was  not  within  the  pro* 
hibition  of  the  warranty  or  condition  of  the  policy :  In  other  words, 
the  jury  and  not  the  court  was  to  construe  the  policy  and  ascertain 
the  meaning  of  the  language  used  by  the  underwriters. 

In  Kenefick  v.  Ins.  Society  (36  Ins.  L.  J.  817),  the  Missouri 
Court  refused  to  treat  a  temporary  increase  of  hazard  as  not  being 
within  the  policy  condition  against  increase  of  hazard.  Dynamite 
w  as  stored  in  the  building  temporarily  but  had  been  removed  by  the 

125 


The  Fire  Insurance  Contract 

firemen  during  the  fire  and  did  not  contribute  to  the  loss.    In  hold- 
ings that  the  policy  was  forfeited  the  Court  said : 

If  the  appellant  had  known  that  the  dynamite  and  other  explosives 
were  put,  kept,  or  allowed  in  the  buildinj^  it  would  have  cancelled  the 
policy  «8  qulcklv  as  possible  *  *  *.  That  the  storage  of  the  explo- 
sives in  the  building  by  plaintiffs  increased  the  risk  and  was  a  clear 
violation  of  the  express  provision  of  the  contract  of  insurance,  admits 
no  doubt.  By  this  act  the  policy  was  forfeited  and  the  plaintiffs  should 
have  been  nonsuited  unless  there  was  a  waiver  of  the  forfeiture. 

Coming  to  the  decisions  of  our  own  Courts : 

In  Townsend  v.  Northwestern  Ins.  Co.  (18  N.  Y.  168),  the 
policy  provided  that  if  after  the  insurance  was  effected  the  risk 
should  be  increased  by  any  means  whatever  within  the  control  of 
the  assured,  the  insurance  should  be  void.  This  language  was  held 
not  to  prevent  ordinary  repairs,  and  although  a  force  pump  was 
put  out  of  commission  for  a  short  time  while  repairs  were  being 
made,  and  the  risk  thereby  increased,  yet  such  increase  of  hazard 
was  declared  not  to  be  within  the  prohibition  of  the  policy,  pro- 
vided the  repairs  were  made  with  reasonable  diligence. 

In  Williams  v.- Peoples  Fire  Ins.  Co.  (57  N.  Y.  274,  the  policy 
Condition  was  that  if  the  hazard  be  increased  by  any  means  what- 
ever, within  the  control  of  the  insured,  the  policy  should  be  void. 
It  appeared  from  the  proof  that  the  insured,  for  several  months  be- 
fore the  fire,  kept  upon  the  premises  a  jug  of  crude  petroleum  for 
medicinal  purposes.  It  was  shown  that  the  petroleum  was  not  the 
cause  of  the  fire  but  evidence  was  given  tending  to  show  that  its 
presence  was  dangerous  and  increased  the  hazard.  The  court  below 
refused  to  charge  that,  as  a  matter  of  law,  if  the  presence  of  the 
petroleum  increased  the  risk  the  plaintiff  could  not  recover.  The 
Court  of  Appeals  reversed  the  judgment  for  the  assured,  but  held 
that  it  was  a  question  of  fact  for  the  jury  to  determine  whether  the 
risk  was  actually  or  materially  increased,  and  if  it  was,  it  avoided 
the  policy.  The  language  of  Earle  J.  in  the  opinion  read  by  him 
directly  bears  upon  the  point  we  are  discussing: 

If  the  presence  of  the  petroleum  in  the  room  where  the  insured 
property  was,  had  been  only  casual  or  ternporary,  for  some  use  connected 
with  the  store  or  the  merchandise  therein,  or  the  occupants  thereof,  it 
would  probably  not  have  increased  the  risk  within  the  meaning  of  the 
policy.     But  here  it  was  kept  permanently  for  five  or  six  months. 

Although  there  are  several  cases  in  other  states  which  seem  to 
recognize  a  temporary  increase  in  the  physical  hazard  as  ground  for 
forfeiture,  the  weight  of  authority  is  the  other  way.  The  general 
rule  seems  to  be  that  there  must  be  something  in  the  nature  of  a 

126 


Increase  in  Hazard 

peraa|njn^ijji|^ either  in  th.e  premises  themselves  or  in  the  man- 
neroOheir'use,  to  justify  a  court  in  declaring  the  policy  void  for 
increase  of  physical  hazard. 

(&) 

Taking  up  the  question  of  location,  and  again  referrring  to  the 
language  of  the  policy,  there  is  nothing  to  indicate  that  there  was 
any  intention  on  the  part  of  the  underwriters  to  limit  either  the 
area  within  which  the  increase  might  arise,  or  the  source  from  which 
it  might  originate.  In  order  to  invalidate  the  policy  they  mu^  either 
T)eTcnown  to  or  under  the  control  of  the  assured.  Outside  this 
limitation  the  only  question  was  evidently  intended  to  be,  whether 
there  had  arisen  some  danger  material  and  actual,  and  not  con- 
templated by  the  parties  when  the  rate  was  fixed  and  the  contract 
entered  into. 

We  may  divide  the  authorities,  for  convenience,  into  those 
which  deal  with  new  dangers  in  and  upon  the  premises  insured; 
new  dangers  arising  in  premises  owned  and  controlled  by  the  in- 
surer and  lying  near  to  or  adjacent  to  the  insured  premises;  those 
which  occur  in  the  same  building,  that  is  under  the  same  roof,  but 
in  different  premises  occupied  by  persons  other  than  the  insured; 
and  lastly  those  occurring  in  adjacent  property,  outside  the  building 
which  is  or  contains  the  subject  of  insurance,  and  owned  or  used 
independently  and  by  other  persons. 

Where  the  facts  disclose  a  material  increase  of  hazard  original- 1 
ing  in  the  premises  insured  and  of  the  kind  contemplated  by  the 
underwriters,  in  inserting  the  provision  against  increase,  courts 
have  almost  unanimously  decreed  a  forfeiture.  In  answering  a  hair 
splitting  contention  on  the  part  of  plaintiff's  counsel  in  such  a  case. 
Judge  Ruger  of  the  Court  of  Appeals  said  in  Mack  v.  Rochester 
German  Ins.  Co.  (106  N.  Y.  560)  : 

It  tends  to  bring  the  law  itself  into  disrepute,  when,  by  astute  and 
subtle  distinctions,  a  clean  case  is  attempted  to  be  taken  without  the 
operation  of  a  clear,  reasonable  and  material  obligation  of  the  contract. 

There  has  been  little  hesitation  on  the  part  of  the  courts  in 
giving  the  underwriters  the  full  benefit  of  their  contract,  where  the 
assured  himself  has  brought  about  an  increase  of  hazard  by  erecting 
buildings  and  by  other  acts  upon  premises  owned  or  controlled  b> 
him  and  lying  adjacent  to  the  insured  premises. 

In  an  early  New  York  case,  Murdock  v.  Chenango  County 
Mutual  Ins.  Co.  (2  N.  Y.  210),  the  policy  provided  that  if  the  risk 
be  increased  by  any  means  within  the  control  of  the  insured  the 

127 


The  Fire  Insurance  Contract 

policy  should  be  void.  The  insured  erected  other  buildings  on  the 
premises  so  as  to  increase  the  hazard  and  it  was  held  he  could  not 
recover.    Several  other  New  York  cases  are  to  the  same  effect. 

In  the  Horan  case,  (89  Pa.  St.  438),  the  insured  had  increased 
the  hazard  of  the  building  insured  by  erecting  a  dwelling  house 
adjoining.  He  claimed  however  that  by  removing  a  carpenter  shop 
which  had  theretofore  adjoined  the  insured  premises,  he  had  evened 
things  up  and  was  entitled  to  recover,  and  the  lower  court  took  that 
view.  On  appeal  it  was  held  he  could  not  set  off  one  risk  against 
another,  and  that  since  he  had  increased  the  hazard  he  could  not 
recover.  To  the  same  effect  is  Albion  Lead  Wks.  v.  Williamsburg 
City  F.  Ins.  Co.  (2  Fed.  479). 

It  is  when  we  come  to  consider  cases  where  the  new  danger 
arises  from  the  acts  of  other  and  independent  owners  or  tenants 
that  we  find  the  courts  inclined  to  narrow  their  construction  of  the 
policy. 

The  Texas  Court  of  Appeals  held  that  a  stipulation  against  an 
increase  of  hazard  should  not  be  construed  so  as  to  cover  risks 
created  on  adjacent  property  of  independent  proprietors  who  use 
their  property  in  a  legitimate  manner.  (Sun  Ins.  Co.  v.  Texascana 
Co.) 

In  a  Colorado  case,  State  Ins.  Co.  v.  Taylor,  (14  Colo.  449), 
the  court  held  that  a  clause  providing  that  the  policy  should  be 
void  if  the  hazard  be  increased  without  the  written  consent  of  the 
company,  was  to  be  interpreted  as  applying  only  to  the  premises 
insured  and  adjacent  property  subject  to  the  control  of  the  insured, 
and  must  not  be  extended  to  cover  the  acts  of  contiguous  owners. 
The  Court  said: 

There  is  nothing  in  the  language  used  which  would  extend  it  to 
the  property  not  under  his  control  and  the  acts  of  others,  and  hold  him 
responsible  for  the  acts  of  his  neighbors  or  of  contiguous  owners,  and 
requires  him  to  keep  informed  as  to  the  manner  in  which  other  persons 
in  the  neighborhood  used  their  property  or  to  communicate  the  facts  to 
the  insurer. 

The  New  Hampshire  Standard  policy  declares  that  the  policy 
shall  be  void  if  without  the  assent  of  the  insurer  "the  situation  or 
circumstances  affecting  the  risk,  shall,  by  or  with  the  knowledge 
of  the  insured,  be  so  altered  as  to  cause  an  increase  of  such  risk." 

The  Supreme  Court  of  that  State  held  in  Janvrin  v.  Rocking- 
ham F.  Mut.  Ins.  (70  N.  H.  35),  that  this  language  was  broad 
enough  to  cover  all  such  acts  of  neighbors  done  on  their  premises 
as  would  increase  the  hazard  of  the  insured  property,  where  known 
to  the  insured,  even  though  such  acts  were  not  within  his  control. 

128 


Increase  in  Hazard 

Eager  v.  Fireman's  Fund  Ins.  Co.,  decided  by  the  General  Term 
of  the  Supreme  Court  in  the  Fourth  Department  (71  Hun.  352), 
and  affirmed  by  the  Court  of  Appeals,  upon  the  opinion  below  (148 
N.  Y.  726),  may  be  considered  as  controlling  in  this  State.  There 
the  insured  at  the  time  the  policy  was  issued  occupied  part  of  a  four 
story  brick  building  as  a  hardware  store.  Other  parts  of  the  prem- 
ises were  used  for  manufacturing  a  wood  filler  known  as  protine 
made  from  wood  alcohol ;  the  building  also  contained  stored  furni- 
ture, and  a  portion  of  it  was  vacant.  After  the  policy  was  issued 
parts  of  the  building  were  rented  and  used  as  a  shoe  factory  and  a 
box  factory,  and  a  forfeiture  was  claimed  for  increase  of  hazard. 
The  referee  decided  there  was  no  increase,  and  in  this  he  was  sus- 
tained by  the  upper  Court.  The  trouble  was  that  most  of  the  evi- 
dence offered  by  the  Company  was  directed  to  showing  that  the  new 
use  was  more  hazardous  than  the  hardware  business.  No  effort  was 
made  to  show  that  it  was  more  hazardous  than  the  manufacture  of 
wood  filler  from  alcohol  or  the  storage  of  furniture,  both  of  which 
were  known  hazards  at  the  time  the  policy  was  issued.  The  lan- 
guage of  the  court  however  leaves  little  doubt  that  if  there  had  been 
a  real  and  substantial  increase  of  hazard  shown  to  exist  of  which 
the  insured  had  knowledge,  the  fact  that  such  hazard  originated  and 
existed  in  parts  of  the  building  not  under  the  coxitrol  of  the  assured 
would  not  have  prevented  a  forfeiture.  The  court  looked  more  at 
the  character  than  at  the  quantity  of  hazard  however.  In  other 
words,  the  question  seemed  to  be :  "Has  there  been  a  new  use  ma- 
terially more  dangerous  than  any  use  to  which  the  building  was  be- 
ing put  at  the  time  the  policy  was  issued  ?"  not,  "Has  there  been  an 
added  danger  in  the  shape  of  a  new  business,  not  more  dangerous 
than  the  existing  uses  but  which  increases  the  hazetrd  on  the  theory 
that  there  are  two  or  more  possible  causes  of  fire  now  where  be- 
fore there  was  only  one?" 

(O 

Moral  Hazards. 

I  believe  I  am  not  far  wrong  when  I  assert  that  to  an  insr^tance 
upon  moral  hazards  as  grounds  for  forfeiture,  is  largely  due  the 
hostile  attitude  which  both  courts  and  juries  are  too  apt  to  assume 
towards  insurance  companies. 

Underwriters  justify  their  stand  by  pointing  to  the  nature  of 
the  contract,  and  the  fact  that  they  are  to  all  intents  and  purposes 
at  the  mercy  of  the  assured,  and  dependent  upon  his  good  faith  and 
honesty.     He  remains  in  possession  of  his  property.     His  financial 

129 


The  Fire  Insurance  Contract 

condition ;  the  actual  value  of  the  property  to  him ;  the  existence  of 
secret  motives  either  in  himself  or  others  to  destroy  his  property; 
all  these  and  many  other  things  are  or  may  be  known  to  him,  and 
cannot,  in  the  nature  of  things,  become  knov^n  to  the  company  ex- 
cept by  chance.  Therefore,  says  the  underwriter,  'Ve  are  justified 
in  defending  ourselves  both  against  the  temptation  of  the  assured 
to  burn  his  own  property  in  order  to  realize  its  market  value,  and 
the  equally  serious  temptation  to  protect  himself  at  our  expense 
from  loss  at  the  hands  of  enemies,  the  existence  of  whom  is  known 
to  him  and  unknown  to  us." 

The  argument  is  sound  enough,  but  the  difficulty  is,  it  pre-sup- 
poses  that  the  assured  will  yield  to  temptation  on  the  one  hand  and 
will  deliberately  deceive  the  company  for  his  own  protection  on 
the  other.  This  presupposition  ignores  one  principle  of  the  com- 
mon law  which  we  have  all  lived  with,  and  met  at  every  turn  of  our 
lives,  until  it  is  instinctively  a  part  of  our  scheme  of  life  in  our  asso- 
ciation with  others.  That  principle  is  that  every  one  .is  presumed 
to  be  innocent  of  wrong  doing  until  his  guilt  is  established  by  com- 
petent evidence.  Under  our  laws,  however  guilty  in  fact  a  man 
may  be  of  the  offense  with  which  he  is  charged,  before  he  can  be 
required  to  pay  the  penalty  he  must  be  proved  to  be  guilty.  He 
is  not  even  called  upon  to  defend  himself  until  a  prima  facie  case 
is  made  out  against  him  in  a  court  of  competent  jurisdiction.  Then 
the  law  gives  him  every  chance  to  prove  his  innocence,  and  the 
benefit  of  every  reasonable  doubt. 

Yet  the  underwriter  by  the  terms  of  his  contract  in  effect  says 
to  the  insured :  "Where  you  own  a  building,  the  ground  belonging 
to  another,  or  where  your  chattel  property  is  heavily  mortgaged  and 
you  are  ha»-  -  up  or  threatened  with  foreclosure,  or  where  you  are 
overinsured,  we  conclusively  presume  that  you  will  set  fire  to  your 
own  property,  regardless  of  whether  you  are  in  fact  honest  or  dis- 
honest." Id  other  words,  "We  will  presume  your  guilt  without 
proof  anrf  will  forfeit  your  policy  as  a  consequence." 

That  the  one  position  is  directly  opposed  in  spirit  to  the  other, 
needs  no  argument,  and  I  believe  this  inversion  of  the  principle  of 
common  law  is  largely  responsible  for  the  hostile  spirit  with  which 
both  courts  and  juries  have  treated  underwriters. 

It  is  a  serious  question  in  my  mind  whether  you  would  not  gain 
in  the  end,  by  stripping  your  contract  of  many  of  the  forfeiture 
clauses,  and  relying  upon  the  general  principle  that  fraud,  however 
subtle  and  novel,  will,  if  proved  by  a  fair  preponderance  of  evi- 

130 


Increase  in  Hazard 

dence,  be  a  complete  bar  to  a  recovery.  You  would,  I  believe,  find 
the  courts  and  even  juries  willing  to  protect  your  rights,  and  their 
changed  attitude  would  be  more  efficient  in  guarding  those  rights 
than  the  plan  you  have  pursued  of  inserting  forfeiture  clauses  in 
the  policies. 

This  comment  is  perhaps  not  strictly  within  the  subject-matter 
,<jf  this  paper.  The  clauses  indicating  the  several  moral  hazards 
which  will  void  the  policy,  unless  consented  to  by  the  company,  are 
the  law  of  the  state  of  New  York  by  its  adoption  of  the  standard 
form,  and  since  the  clause  against  increase  of  hazard  is  broad 
enough  in  language  to  include  both  physical  and  moral  hazards;  it 
is  necessary  for  us  to  determine  the  limits  which  have  been  placed 
upon  its  language  with  respect  to  moral  hazards  by  judicial  con- 
struction. 

A  line  of  very  interesting  cases  bearing  upon  the  subject  will  be 
found  in  the  Texas  Reports. 

Scottish  Union  &  Nat'l  Ins.  Co.  v.  Weeks  Drug  Co.,  came  be- 
fore the  Court  of  Civil  Appeals  for  the  Fourth  District  (118  S.  W. 
Rep.  1087).  The  property  covered  by  the  insurance  was  a  drug 
store  and  its  destruction  was  admittedly  the  work  of  an  unknown 
incendiary.  The  undisputed  evidence  showed  that  a  few  days  be- 
fore the  fire  an  unsuccessful  attempt  was  made  by  an  unknown  in- 
cendiary to  set  fire  to  the  building  in  which  the  insured  property 
was  situated.  This  attempt  was  made  known  to  the  president  of 
the  drug  company  on  the  night  it  occurred,  and  within  a  few  minutes 
after  it  was  discovered.  Yet  the  drug  company  did  not  inform  the 
insurance  company  of  the  attempt  to  destroy  its  property  and  did 
nothing  to  prevent  a  repetition.  The  policy  contained  the  identical 
provision  against  increase  of  hazard  that  is  found  in  the  New  York 
Standard  form. 

In  commenting  upon  the  failure  of  the  drug  company  or  its 
president  to  notify  the  insurance  company  of  the  incendiary  at- 
tempt, and  in  the  face  of  the  admission  made  by  Weeks,  the  presi- 
dent of  the  company,  on  the  stand,  that  he  believed  if  he  had  been 
five  minutes  later  in  discovering  the  situation  the  house  would  have 
burned  up  and  he  believed  somebody  was  trying  thereby  to  burn  the 
building,  and  that  he  did  not  notify  the  insurance  company  nor  its 
agent,  the  court  said: 

We  would  not  undertake  to  hold  that  this  was  a  breach  of  said 
provision  (against  increase  of  hazard),  as  a  matter  of  law.  A  con- 
tinuing danger  if  known  M'ould  properly  have  come  within  the  provision 

131 


The  Fire  Insurance  Contract 

but  whethci  i?r  not  a  single  effort  to  burn  the  house  would  cause  one 
to  consider  it  likely  to  be  repeated  until  successful  would  involve  a  pre- 
sumption of  fact  which  should  always  be  left  to  the  jury. 

The  same  facts  came  before  the  Court  of  Civil  Appeals  of  the 
First  Supr^.me  Judicial  District  of  Texas,  in  Williamsburg  City  Fire 
Ins.  Co.  V.  Weeks  Drug  Co.  (132  S.  W.  Rep.  121),  and  the  court 
there  reached  the  opposite  conclusion.    They  say: 

The  policy  of  insurance  contains  the  following  provision  "This  en- 
tire policy  shall  be  void  if  the  hazard  be  increased  by  any  means  within 
the  control  or  knowledge  of  the  insured."  This  court  is  of  opinion  that 
under  this  provision  of  the  policy  and  the  undisputed  evidence  in  the 
case  which  establishes  the  facts  before  stated,  the  policy  sued  on  was 
void  at  the  time  the  loss  occurred  and  the  appellee  cannot  recover 
theteon. 

The  court  then  commented  on  the  fact  that  the  court  of  the 
Civil  Appeals  for  the  Fourth  District  in  the  Scottish  Union  &  Na- 
tional Ins.  Co.  case  had  come  to  a  directly  contrary  conclusion  and 
certified  the  Williamsburg  City  case  to  the  Supreme  Court  of  Texas 
for  final  determination. 

That  court  reversed  the  Williamsburg  City  case  and  upheld  the 
doctrine  df  the  Scottish  Union  case.  They  construed  the  policy  pro- 
vision against  hazards  as  applying  only  to  the  insured  premises  or 
to  property  under  the  control  of  the  insured.  They  held  that  there 
is  nothing  in  the  language  used  wliiclTvvould  extend  it  to  the  prop- 
erty not  under  his  control,  and  to  acts  of  others,  and  that  he  is  not 
required  to  keep  informed  as  to  the  manner  in  which  other  per- 
sons in  the  neighborhood  use  their  property,  or  to  communicate  the 
facts  to  the  insurer.  They  further  held  that  the  wilful  burning  of 
property  by  a  third  person  is  one  of  the  risks  againsT which  it  is 
the  purpose  of  the  insurance  to  protect  the  insured;  that  it  is  to  be 
classed  with  risks  arising  from  mere  negligence  which  are  included 
among  the  risks  insured  against,  and  that  it  should  not  be  implied 
that  the  provision  against  increase  of  hazard  was  intended  to  ex- 
clude such  risks  from  the  coverage  of  the  policy. 

In  Hartford  Fire  Ins.  v.  Dorroh,  (133  S.  W.  Rep.  465),  the 
Court  of  Civil  Appeals  of  Texas,  again  had  a  very  similar  question 
before  them.  It  was  proved  that  Dorroh  a  few  days  prior  to  the 
fire  had  received  an  anonymous  letter  to  the  efifect  that  some  mer- 
chant below  him  was  moving  his  goods  out  at  night,  and  he  had 
better  look  out.  He  said  nothing  about  this  letter  to  the  company 
and  very  shortly  after  that  the  building  was  destroyed  by  fire.  The 
court  held  in  the  first  place  that  the  mere  receipt  of  such  a  letter 
was  not  in  itself  sufificient  evidence  of  an  increase  of  hazard ;  that 

132 


Increase  in  Hazard 

the  burden  would  be  on  the  company  to  show  that  the  facts  stated 
in  the  letter  were  true,  but  it  went  further  and  following  the  rea- 
soning of  the  prior  cases  said : 

Let  it  be  assumed  that  such  facts  indicated  that  an  incendiary  fire 
was  likely  to  follow  which  would  endanger,  if  not  destroy,  Dorroh's 
property.  Can  it  be  said  that  this  would  establish  the  right  to  claim 
the  forfeiture  insisted  upon  in  the  case:  We  are  disposed  to  think  it 
cannot,  for  the  reason  that  it  would  not  establish  the  existence  of  an 
increased  hazard:  within  the  meaning  of  this  policy.  Here  the  insurer 
undertakes  to  indemnify  the  insured  against  the  possibility  of  a  loss  by 
fire  for  an  agreed  consideration  paid  in  advance.  The  hazard  here  re- 
ferred to  evidently  means  the  possibility  of  a  loss  by  fire  created  by  the 
sum  of  all  dangers  resulting  from  the  recognized  exposure.  It  is  a  mat- 
ter of  common  knowledge  that  accepted  insurance  risks  are  graded,  and 
premium  rates  adjusted,  according  to  the  physical  conditions  and  sur- 
roundings of  the  property  insured.  It  is  also  well  known  that  many 
fires  are  of  incendiary  origin,  and  that  in  the  transaction  of  their  busi- 
ness insurance  companies  must  take  into  consideration  the  dangers 
arising  from  that  source  in  estimating  the  extent  of  the  hazard  they  as- 
sume in  all  ordinary  risks.  This  is  what  they  call  the  "moral  hazard." 
We  think  it  will  hardly  be  denied  that  in  the  same  community  and 
among  the  same  class  of  people,  at  least,  this  element  may  be  regarded 
as  a  constant  factor,  entering  alike  into  all  insurance  contracts  and  risks 
taken.  Hence  it  follows  that  a  loss  resulting  from  incendiarism  for 
which  the  insured  cannot  be  held  responsible  is  one  of  the  dangers 
against  which  he  secures  protection  by  the  general  terms  of  the  policy. 
It  is  one  of  the  dangers  which  the  company  assumes  when  it  makes  the 
contract  of  insurance,  and  not  one  which  it  may  claim  arises  subse- 
quently and  adds  to  the  original  hazard.  The  increased  probability  of  a 
loss  by  incendiarism  could  no  more  be  considered  an  "increased  hazard" 
which  would  avoid  the  policy  than  could  the  increased  probability  of  a 
fire  from  any  of  the  physical  exposures  existing  at  the  time  the  policy 
was  written. 

While  the  danger  from  incendiarism  may  with  propriety  be 
considered  as  a  substantial  and  constant  factor  in  the  insurance 
business  as  conducted  in  Texas  communities,  the  New  York  courts 
have  not  yet  committed  themselves  to  that  view  with  respect  to  the 
morality  of  our  own  citizens. 

In  the  Donley  case  (184  N.  Y.  107),  the  plaintiff  in  his  applica- 
tion for  the  policy  asserted  that  he  had  no  reason  to  fear  incen- 
diarism. The  Court  of  Appeals  granted  defendant  a  new  trial  be- 
cause the  trial  court  had  refused  to  allow  proof  of  declarations  of 
the  assured  to  the  effect  that  numerous  previous  fires  on  his  wife's 
property  had  been  caused  by  his  enemies  for  the  purpose  of  in- 
juring him.    Judge  Vann  said  in  the  opinion : 

The  moral  hazard,  to  which  insurers  properly  give  much  heed,  was 
materially  increased  by  the  danger  that  his  enemies  would  destroy  his 
property  as  they  had  previously  destroyed  that  of  his  wife  and  for  the 
same  reason. 

It  is  true  that  this  case  turned,  not  upon  the  hazard  clause,  but 

upon  the  question  and  answer  in  the  application  considered  as  a 

warranty. 

133 


The  Fire  Insurance  Contract 

It  is  of  interest  because  it  recognizes  danger  from  incendiarism 
as  a  moral  hazard,  and  the  logical  conclusion  would  seem  to  be  that 
if  an  increase  of  this  danger  occurred  after  the  policy  was  issued 
and  became  known  to  the  insured,  such  an  increase  was  within  the 
contemplation  of  the  clause  we  are  considering. 

In  the  Ampersand  cases  however,  the  Court  of  Appeals  showed 
a  strong  inclination  to  confine  increases  of  hazard  which  would 
avoid  the  policy,  to  acts  done  to  the  property  causing  an  increase 
of  physical  hazard  which  the  assured  knew  of  or  could  have  pre- 
vented- 

The  language  of  Judge  Gray  was : 

Ordinarily,  we  understand,  and  so  the  decisions  run,  that  the  haz- 
ard of  insurance  is  increased  when  the  risk  is  changed  by  some  new  use 
of,  or  some  other  burden  placed  upon,  the  property;  that  is  to  say,  wfien 
the  physical  status,  or  condition,  of  the  subject  of  insurance  is  rendered, 
by  some  act  of  the  insured,  other  than  what  it  was  when  the  insurance 
was  applied  for  and  the  application  acted  upon. 

Of  course  if  this  is  to  be  taken  as  the  last  word  upon  the  sub- 
ject, it  would  be  useless  to  contend  in  New  York  that  even  such  in- 
cendiary threats  of  third  parties  as  occurred  in  the  Donley  case,  con 
stitute  increases  of  hazard,  within  the  meaning  of  the  policy.  As 
moral  hazards  and  not  physical  hazards  they  would,  by  the  inter- 
pretation given  by  Judge  Gray,  not  be  covered  by  the  policy  clause 
against  increase. 

In  its  future  consideration  of  the  subject  it  is  doubtful,  however, 
if  the  Court  of  Appeals  will  continue  to  apply  to  its  fullest  extent, 
the  sweeping  language  of  the  Ampersand  decision.  There  is  noth- 
ing in  the  policy  itself  to  indicate  that  the  underwriters  intended  the 
cla4ise  to  apply  with  any  greater  force  to  physical  than  to  moral 
hazards.  It  is,  as  we  have  seen,  a  general  "Catch-all,"  occurring  in 
connection  with  specific  increases  of  hazard  which  shall  avoid  the 
policy,  some  of  which  are  moral  and  others  physical,  and  was  in- 
tended obviously  to  cover  all  hazards  of  either  kind,  which  might 
thereafter  occur  other  than  those  in  contemplation  of  the  parties 
at  the  time  the  contract  was  made  and  the  premium  fixed. 

As  Mr.  James  C.  Carter  used  to  say  ^'Nothing  is  decided  until 
it  is  decided  right."  We  may  live  in  hopes  that  some  day  the  Court 
of  Appeals  of  New  York  will  look  upon  the  opinion  of  the  majority 
of  that  court  in  the  Ampersand  case  as  an  unfortunate  misconcep- 
tion of  the  contract,  due  \o  the  failure  of  counsel  for  the  insurance 
companies  to  clearly  present  the  question  involved. 

♦  134 


Increase  in  Hazard 

Our  discussion  to  this  point  has  been  confined  to  things  and 
events  viewed  as  increases  of  hazard  within  the  knowledge  of  or 
control  of  the  assured  personally. 

The  question  is  still  to  be  answered  how  far  the  knowledge  of 
his  agents  and  the  acts  of  such  agents  and  of  tenants  and  other  per- 
sons sustaining  legal  relations  with  the  assured,  will  be  taken  to 
work  a  forfeiture  under  the  policy. 

This  paper  has  already  reached  such  length  that  a  consideration 
of  the  cases  themselves,  some  of  which  are  of  considerable  interest, 
must  be  passed  over.  It  may  be  stated  generally  that  by  a  pre- 
ponderance of  judicial  opinion,  including  that  of  the  Supreme  Court 
of  the  United  States,  and  of  the  Court  of  Appeals  of  New  York, 
the  assured  is  responsible  for  the  acts  of  his  duly  authorized  agents, 
and  the  knowledge  of  the  agent  acquired  while  acting  within  the 
scope  of  his  authorized  employment  is  to  be  imputed  to  the  prio- 
cipal.  (L.  &  L.  &  G.  Ins.  Co.  v.  Gunther,  116  U.  S.  113  Cole  v. 
Germania  Fire  Ins.  Co.,  99  N.  Y.  36).  When  it  comes  to  acts  of 
the  tenant,  the  question  turns  upon  the  language  of  the  clause.  If 
the  acts  are  such  as  would  be  recognized  as  increases  of  hazard 
within  the  meaning  of  the  policy,  if  done  by  the  assured  himself, 
and  if  such  acts  are  known  to  the  assured,  the  policy  will  be  avoided. 
And  again,  if  acts  of  that  description  are  done  by  the  tenant,  and 
if  the  assured  landlord  has  by  the  terms  of  his  lease  retained  author- 
ity over  his  premises  by  which  he  could  have  prevented  it,  the 
courts  would  in  all  probability  hold  the  policy  forfeited.  If,  on  the 
contrary,  the  acts  of  the  tenant  constituting  the  increase  were  un- 
known to  the  assured  and  could  not  have  been  prevented  by  him 
if  known,  the  resulting  increase  would  not  come  within  the  policy 
condition. 

In  closing,  there  is  one  thing  to  be  remembered  in  connection 
with  our  subject.  Increases  of  hazard,  to  be  available  as  defenses, 
must  be  real  and  substantial,  not  imaginary  and  insignificant.  The 
facts  when  ascertained  should  be  looked  at,  not  as  support  for  a 
possible  defense,  but  with  a  view  of  determining  whether  they  fairly 
and  clearly  show  that  an  unfair  advantage  has  been  taken  of  the 
company.  Every  time  an  insurance  company  insists  upon  a  hair- 
splitting defense,  it  adds  to  the  hostile  feeling  against  underwriters 
to  which  I  have  referred.  In  a  Kentucky  case  counsel  for  the  com- 
pany solemnly  argued  that  the  property  had  been  insured  as  a  dwell- 
ing house ;  that  a  dwelling  house  was  defined  in  his  dictionary  as  a 
place  where  people  slept;  that  the  house  which  had  been  burned 

135 


The  Fire  Insurance  Contract 

contained  a  kitchen;  that  people  did  not  usually  sleep  in  kitchens, 
but  fires  were  constantly  kindled  there :  Hence,  the  hazard  had  been 
increased,  and  the  plaintiff  should  be  nonsuited.  In  the  same  state 
another  lawyer  insisted  that  the  failure  to  keep  books  of  account 
such  as  are  provided  for  in  the  iron  safe  clause,  increased  the  moral 
hazard  of  the  risk  and  there  should  be  no  recovery. 

Needless  to  say  neither  defense  prevailed,  but  such  misguided 
efforts  as  these  merely  add  to  our  difficulties  when  we  stand  before 
courts  and  juries  to  insist  upon  defenses  having  real  merit. 

One  more  illustration  of  what  I  mean  when  I  urge  you  to  dis- 
regard immaterial  facts  even  though  they  may  seem  to  justify  a 
technical  forfeiture. 

Not  long  ago  I  was  arguing  an  appeal  based  upon  the  chattel 
mortgage  clause.  A  large  part,  but  not  all  of  the  property  insured 
was  covered  by  a  chattel  mortgage,  and  I  claimed  the  insurance  was 
forfeited  as  to  the  entire  property.  The  presiding  judge  put  this 
question  to  me:  "Suppose  a  man  owns  $10,000  of  chattel  property 
all  unencumbered,  with  the  exception  of  a  $250  piano,  which  he 
has  bought  on  the  installment  plan,  and  on  which  he  has  given  a 
chattel  mortgage  to  secure  the  deferred  payments ;  would  the  ex- 
istence of  that  mortgage,  not  consented  to  by  the  company,  forfeit 
the  entire  insurance?"  The  case  was  of  course  an  extreme  one, 
but  I  have  no  doubt  every  man  in  this  room  has  considered  cases  in 
which  chattel  mortgages,  the  existence  of  which  could  not  by  the 
wildest  flight  of  the  imagination  be  held  to  increase  the  moral  haz- 
ard, could  nevertheless  be  urged  as  ground  for  forfeiture  under  the 
unqualified  language  of  the  policy.  The  answer  is :  ''The  law  does 
not  concern  itself  with  trifles"  (De  minimis  non  curat  lex). 

The  settled  policy  of  the  law  is  to  ignore  things  of  no  relative 
importance,  where  they  are  relied  upon  to  defeat  or  control  impor- 
tant legal  rights.  Some  months  ago  I  found  a  case  on  a  life  in- 
surance policy  which  furnishes  an  admirable  illustration  of  what 
I  mean.  The  defense  was  that  the  insured,  who  had  been  killed  in 
an  accident,  if  I  remember  correctly,  had  stated  in  his  application 
that  he  had  not  within  a  certain  time  been  attended  by  physicians, 
whereas  the  proof  showed  that  within  that  time,  and  several  years 
before  he  had  applied  for  the  policy,  he  had  received  several  visits 
from  a  doctor  who  treated  him  for  a  bad  cold.  The  court  brushed 
aside  the  defense,  quoted  the  maxim  I  have  just  referred  to,  and  de- 
clared that  courts  would  never  consider  such  trifling  and  immaterial 
things  where  they  were  sought  to  be  interposed  to  defeat  recoveries 
under  insurance  policies. 

136 


VIII 
OWNERSHIP 

Edgar  J.  Nathan 
Of  Cardoso  and  Nathan,  Lawyers 

A  statement  of  the  law  respecting  the  ownership  clause  of  the 
standard  policy  is  not  without  difficulty,  and  one  may  only  venture 
to  interpret  the  New  York  decisions  which  are  reported  in  the  avail- 
able authorities. 

In  discussing  ownership  of,  or  interest  in  the  subject  of  insur- 
ance, the  writer  disclaims  originality  or  authorship,  and  merely  at- 
tempts to  follow  judicial  discussions  on  the  subject  from  compara- 
tively recent  times,  and  to  submit  a  general  statement  of  the  law  in 
the  State  of  New  York,  without  citing  more  than  a  few  leading 
authorities  in  support  of  the  conclusions ;  to  do  more  would  result 
in  producing  a  digest,  so  numerous  are  the  decisions. 

It  will  not  be  helpful  to  emphasize  the  uncertainties  and  oddities 
of  the  law ;  those  who  are  actively  engaged  in  the  business  of  under- 
writing are  qualified  to  decide  quickly  and  accurately  most  of  the 
problems  presented  from  day  to  day,  and  they  may  safely  tread  the 
beaten  path  until  some  judicial  revolutionist  has  exercised  ingenuity 
in  a  case  of  seeming  hardship,  and  has  evolved  another  ground  upon 
which  to  escape  the  stern  logic  of  principle  whether  by  waiver, 
estoppel  or  other  equally  unsatisfactory  ground. 

With  independent  jurisdiction  in  each  state  and  also  in  the 
federal  districts,  decisions  upon  the  construction  of  the  contract  and 
upon  the  liability  of  the  insurer  are  not  infrequently  conflicting  and 
discordant.  It  is  therefore  with  diffidence  that  one  may  give  an  ex- 
pression of  the  law  upon  any  particular  question  of  insurance  which 
will  be  of  general  application;  and  it  is  with  equal  diffidence  that  a 
statement  of  New  York  law  can  be  made  on  several  debatable  ques- 
tions which  have  not  yet  been  settled  by  the  court  of  last  resort. 

The  great  conflagration  of  London  in  1666  stimulated  the  com- 
munity to  secure  protection  against  fire,  and  a  few  years  later  the 
first  important  concern  to  grant  insurance  against  loss  by  fire  is 
said  to  have  been  established  in  that  city  to  cover  buildings  only; 
and  shortly  thereafter  insurance  was  extended  to  cover  loss  on  per- 
sonal property.    From  that  time  the  business  has  increased  steadily 

137 


The  Fire  Insurance  Contract 

and  in  large  measure,  so  that  it  has  become  one  of  the  most  im- 
portant branches  of  commercial  endeavor.  The  advantages  and  the 
failings  have  been  recognized  and  have  been  constantly  under  dis- 
cussion. The  insurer  has  met  many  waves  of  prejudice  and  attacks 
from  courts  and  legislatures,  but  these  have  been  succesfully  over- 
come and  it  may  be  said  that  today  the  business  is  on  a  broader  and 
higher  plane  than  at  any  previous  time,  and  it  certainly  is  estab- 
lished more  firmly  in  the  favor  of  the  business  world. 

In  a  spirit  of  keen  and  wasteful  competition,  the  insurer  did 
not  always  regard  the  precise  form  of  indemnity  and  his  natural 
effort  to  increase  profits  permitted  laxity  in  the  form  of  policy,  and 
often  led  to  a  reckless  disregard  of  the  true  principle  of  insurance ; 
accordingly  the  courts  have  been  continuously  called  upon  to  decide 
perplexing  questions  of  construction,  with  the  result  that  uncer- 
tainty and  conflict  have  arisen,  and  generally  to  the  disadvantage 
of  the  insurer.  So  that  the  time  seems  to  have  arrived  to  consider 
means  of  preventing  unnecessary  insurance  litigation.  From  the 
beginning  the  form  of  contract  was  of  the  highest  importance;  it 
was  necessary  for  the  merchant  promptly  to  receive  his  just  claim; 
it  was  not  less  necessary  that  dishonest  claims  should  be  condemned 
and  fraud  exposed;  the  moral  hazard  attending  a  risk  has  always 
been  a  controlling  factor  in  any  form  of  contract,  and  the  person- 
ality of  an  owner  who  applies  for  a  policy  and  his  interest  in  the 
subject  of  insurance  are  the  first  considerations. 

The  primary  purpose  of  fire  in'^nranrp  jg  inflg«a.nitv.  A  sim- 
ple agreement  to  insure  a  party  would  cover  the  risk  in  an  ordinary 
case,  but  difficulty  arises  when  special  forms  are  required  to  cover 
a  particular  risk.  To  guard  against  imposition  on  the  part  of  the 
insured,  and  also  to  meet  the  requirements  of  business,  the  form  of 
agreement  necessarily  became  rather  technical.  The  law  which  has 
grown  up  from  the  customs  of  merchants,  furnishes  a  natural  and 
appropriate  rule  of  liability,  just  as  a  contract  may  be  enforced  with 
least  friction  which  has  originated  with  the  merchants  who  demand 
its  protection  and  who  will  answer  for  a  violation  of  its  condi- 
tions. That  law  only  is  satisfactory  which  responds  to  commercial 
needs,  and  similarly  an  insurance  contract  must  accord  with  sound 
business  and  fairly  protect  both  parties.  The  concept  of  the  law 
by  the  merchant  cannot  be  disregarded,  nor  can  his  popular  con- 
struction of  a  contract  be  successfully  answered  by  the  rigid  appli- 
cation of  a  clause  which  operates  unjustly. 

138  ^' 


Ownership 

In  every  case  the  insured  should  be  interested  both  in  the  pre- 
vention and  the  extinction  of  fires,  and  under  no  circumstances 
should  there  be  a  possibility  of  double  payment.  Such  a  result  is 
avoided  by  covering  the  special  interest  of  the  insured,  but  the  free- 
dom with  v^^hich  insurers  issue  forms  covering  several  interests  in 
the  same  property  may  result  in  excessive  if  not  double  payment 
for  a  single  loss. 

In  recent  years  the  insurers  in  this  country  have  made  com- 
mendable efforts  to  meet  the  reasonable  demands  of  the  insured  and 
at  the  same  time  to  insist  upon  a  standard  of  mutual  fairness;  and 
there  has  long  been  a  constant  agitation  to  secure  a  uniform  policy 
for  use  in  all  the  states;  such  a  form  was  earnestly  advocated  by 
the  National  Board  of  Fire  Underwriters  at  meetings  in  1867  and 
1868,  and  the  obvious  objections  to  a  peculiar  form  for  use  in  any 
one  state  were  pointed  out. 

From  that  time  to  the  present  day  the  form  of  insurance  con- 
tract has  been  before  courts  and  legislatures  and  has  been  the  sub- 
ject of  debate  by  many  associations.  In  the  early  fire  insurance 
policies  the  insurer  merely  agreed  to  make  good  unto  the  insured 
loss  or  damage  by  fire  not  exceeding  the  amount  specified  nor  the 
interest  of  the  insured  in  the  subject  matter;  and  it  was  generally 
provided  that  if  the  interest  was  other  than  unconditional  and  sole 
ownership,  it  must  be  so  expressed,  and  also  that  the  policy  should 
be  void  in  case  of  sale  or  transfer.  The  present  policy  is  not  sub- 
stantially different  in  stating  that  the  Company  does  insure  the  in- 
dividual against  all  direct  loss  or  damage  by  fire. 

It  may  not  be  generally  known  that  Connecticut,  which  has 
long  held  a  commanding  position  as  an  insurance  centre,  adopted 
the  first  legislative  enactment  for  a  standard  form.  In  1867  the 
Legislature  of  that  state  adopted  an  act  for  uniform  conditions  as 
to  the  risk  (Chap.  121,' Laws  1867)  ;  but  this  policy  was  unsatisfac- 
tory in  many  of  its  provisions  and  it  aroused  such  strong  and  well 
grounded  criticism  that  the  act  was  repealed  in  the  following  year 
(Chap.  7,  Laws  1868  and  see  Chap.  4,  Laws  1868). 

Massachusetts  promptly  took  up  the  question  and  in  1873  passed 
an  act  to  establish  a  standard  form  for  insurance  policy,  which  was 
set  out  in  the  statute ;  that  state  thus  adopted  the  first  standard  form 
which,  with  various  changes  and  additions,  has  continued  in  use 
(Chap.  331  Laws  1873). 

New  York  followed  in  1886  by  enacting  a  statute  requiring  in- 
surers to  use  a  standard  policy  (Chap.  488  Laws  1886)   and  pur- 

139 


The  Fire  Insurance  Contract 

suant  thereto  the  Superintendent  of  Insurance  approved  the  form 
which  has  since  been  used  in  this  and  other  states  with  great  satis- 
faction to  all  concerned,  and  which  has  fairly  served  its  purpose  of 
solving  many  doubts  and  preventing  many  controversies. 

We  shall  always  pay  tribute  to  the  framers  of  the  wise  and 
comprehensive  contract  which  was  produced  in  this  State  as  a  re- 
sult of  the  work  undertaken  by  a  Committee  of  the  New  York  Board 
of  Fire  Underwriters  in  collaboration  with  the  National  Board, 
aided  by  distinguished  counsel.  This  policy  is  plain  in  its  language 
and  sufficiently  flexible  to  be  adapted  to  nearly  every  ordinary  case ; 
the  facility  with  which  its  clauses  operate  is  indeed  remarkable;  it 
permits  the  insurer  to  issue  a  binding  contract  practically  without 
investigation,  and  thus  affords  a  safe  and  economical  method  of 
granting  insurance  almost  on  demand. 

'  By  careless  practice  all  the  safeguards  of  the  standard  policy, 
evolved  after  great  care  and  thought,  may  be  rendered  nugatory  by 
a  form  which  an  inexpert  and  zealous  clerk  accepts  in  the  haste  of 
daily  duties ;  and  much  of  the  litigation  has  arisen  from  such  an  un- 
intentional departure  from  the  standard  policy.  The  standard  form 
recognizes  the  primary  principles  of  insurance,  and  a  brief  reference 
t©  the  application  of  the  clause  under  consideration  to  different 
classes  of  risk  will  present  the  rationale  of  many  of  the  decisions. 

True  ,fixe  insurance  d<i»es  not  insure  property.  It  insures  the 
interest  of  a  party  in  property..  The  necessity  for  an  insurable  in- 
terest is  based  upon  the  cardinal  principle  that  a  contract  of  in- 
surance is  essentially  one  of  indemnity  and  not  one  for  profit.  There 
can  be  no  claim  for  indemnity  where  there  is  no  loss,  and  no  loss 
where  there  is  no  interest.  Insurance  contracts  without  an  interest 
on  the  part  of  the  insured  were  permitted  at  common  law,  but  it 
soon  appeared  that  they  afforded  temptation  for  wrong-doing  and 
remedial  legislation  was  effected  in  the  famous  statute  against  wager 
policies  adopted  in  England  in  1774  (Stat.  14  George  III.)  Sim- 
ilar legislation  against  wagers  is  contained  in  the  law  of  this  State 
(Penal  Code,  Sec.  973)  and  the  statute  expressly  provides  that  it 
shall  not  extend  to  -'insurance  made  in  good  faith  for  the  security 
or  indemnity  of  the  party  assured." 

With  no  interest,  the  policy  is  now  deemed  a  wager,  which  has 
been  defined  as  the  hope  of  gain,  but  not  indemnity  against  loss ;  or 
as  a  seeking  of  gain  through  chance,  as  opposed  to  a  contract  to 
avoid  loss  by  reason  of  chance.  It  has  been  aptly  said  that  "the 
gambler  courts  fortune ;  the  insured  seeks  to  avoid  misfortune." 

140 


Ownership 

The  test  in  determining  whether  an  insurable  interest  exist 
is  to  inquire  whetjier  the  insured  is  so  situated  with  respect  to  th 
subject  matter  of  insurance  that  its  destruction  might  be  reasonabl 
expected  to  impair  the  value  of  his  interest ;  it  need  not  be  a  prop 
erty  interest,  for  an  interest  to  be  insurable  does  not  depend  neces- 
sarily upon  ownership;  it  may  be  a  qualified  or  limited  ownership 
disconnected  from  any  title,  lien  or  possession.     It  is  sufficient  that 
the  insured  shall  have  a  direct  pecuniary  interest  in  the  preservation 
of  the  property,  so  that  he  will  suffer  loss  by  its  destruction,  or  will 
be  deprived  of  its  possession  or  of  profit  therefrom;  or  of  its  se- 
curity or  other  benefits  dependent  on  the  continued  existence  of 
such  property. 

While  all  writers  concede  that  there  must  exist  an  insurable 
interest  it  is  not  easy  to  give  an  exact  definition  of  this  term,  al- 
though it  was  thus  attempted  in  the  Civil  Code  of  California  (Sec. 
2536  Code  in  force  1906)  :  "Every  interest  in  property  or  any  re-  / 
lation  thereto  or  liability  in  respect  thereof,  of  such  a  nature  that  a 
contemplated  peril  might  directly  damnify  the  insured,  is  an  insur- 
able interest."  This  statement,  however,  includes  several  words  of 
uncertain  meaning  and  therefore  it  will  not  be  of  great  aid  in  diffi- 
cult and  doubtful  cases.  What  constitutes  an  insurable  interest  in 
a  general  sense,  is  well  understood,  but  its  exact  meaning  in  border 
cases  has  been  discussed  and  expounded  by  judges  and  writers  from 
early  times.  (Lucena  v.  Crauford,  1802,  3  B.  &  P.  75).  In  brief, 
there  must  bea  real  interest,  the  value  of  which  will  be  impaired 
by  its  destruction;  and  that  interest  must  have  a  legal  or  equitable 
basis,  as  distinguished  from  a  mere  hope  or  expectation.  It  is  not 
necessary  that  the  interest  is  such  that  the  event  insured  against 
would  necessarily  subject  the  insured  to  loss;  it  is  sufficient  that  it 
might  do  so,  and  that  pecuniary  injury  would  be  the  natural  con- 
clusion (Cone  V.  Niagara  Fire  Ins.  Co.  60  N.  Y.  619). 

The  authorities  indicate  the  tendency  of  courts  to  relax  the 
stringency  of  the  earlier  cases,  and  to  apply  a  more  liberal  rule  in 
the  determination  of  an  insurable  interest.  An  administrator  of  an 
insolvent  estate,  who  acquires  no  title  to  or  interest  in  real  estate, 
h^s^an  insurable  interest  in  buildings  belonging  to  the  estate,  by 
reason  of  the  possibility  of  enforcing  claims  of  creditors  against  the 
real  property  (Herkimer  v.  Rice,  27  N.  Y.  163)  ;  and  a  creditor  of 
an  estate  of  a  decedent  whose  personalty  was  insufficient  to  pay 
debts  was  held  to  have  an  insurable  interest  in  buildings  from  the 
destruction  of  which  loss  would  ensue  to  the  creditor  (Rohrbach  v. 

141 


The  Fire  Insurance  Contract 

Germania  Fire  Ins.  Co.  62  N.  Y.  47).  Ordinarily  a  judgment 
creditor  by  reason  of  his  lien  on  the  judgment  debtor's  property, 
has  no  insurable  interest  therein  (Spare  v.  Home  Mut.  Ins.  Co.  15 
Fed.  707),  as  a  judgment,  differing  from  a  mortgage,  effects  a  gen- 
eral and  not  a  specific  lien  on  property.  But  when  a  mortgagor 
sells  the  land  and  building  thereon,  he  still  retains  an  interest  in 
the  preservation  of  the  building  in  order  that  his  debt  may  be  paid, 
and  therefore  he  has  an  insurable  interest  and  may  hold  insurance 
on  the  building  (Waring  v.  Loder,  53  N.  Y.  581). 

_The  amountjjf  interest  or  its  character  is  not  material  in  de- 
terminipfr  the  qt,|Pf|tion  nf  insiirnblp  intf^rest  ( Insuranc^jCo^-V^.tin- 
^onJDUUL-S.  25).  Thus  a  stockholder  in  a  corporation  has  no 
legal  title  to  the  corporate  assets,  but  he  has  rights  of  a  pecuniary 
nature  which  may  be  prejudiced  by  the  destruction  of  the  corporate 
property;  in  a  case  where  that  academic  question  was  decided  the 
measure  of  damages  was  said  to  be  the  actual  loss,  to  be  ascertained 
by  proof,  but  the  court  was  not  called  upon  to  determine  the  extent 
of  recovery  (Riggs  v.  Commercial  Mutual  Ins.  Co.  125  N.  Y.  7). 
And  a  person  interested  in  royalties  payable  for  the  privilege  of 
using  his^patents  where  the  amount  of  royalties  was  to  be  dimin- 
ished in  the  event  of  the  destruction  of  the  insured  property  by  fire, 
has  an  insurable  interest  in  the  property  ( National  Filtering  Oil  Co.  i 
V.  Citizens  Ins.  Co.  106  N.  Y.  535)  ;  and  so  has  the  owner  of  unused  | 
revenue  stamps,  which  were  redeemable  from  the  government,  if.' 
lost  (U.  S.  V.  American  Tobacco  Co.  166  U.  S.  468). 

The  general  rule  is  that  the  insured  must  have  an  insurable  I 
interest  in  the  property  both  at  the  time  the  policy  is  issued  and! 
at  the  time  of  loss.     The  necessities  of  business,  however,  have  ^ 
brought  about  a  more  reasonable  doctrine,  and  a  policy  upon  prop- 
erty in  which  the  insured  has  no  interest  at  the  time  of  issuance  is 
not  a  wager,  if  he  acquires  an  interest  during  the  life  of  the  policy 
and  retains  it  at  the  time  of  loss.    So  that  a  policy  covering  fluctuat- 
ing stock  or  goods  acquired  from  time  to  time  during  the  term  of  the 
policy  is  valid  (Hooper  v.  Hudson  River  Fire  Ins.  Co.  17  N.  Y. 
424;  Wolfe  v.  Security  Fire  Ins.  Co.  39  N.  Y.  49). 

A  policy  covering  shifting  stock  has  been  upheld  upon  the 
theory  of  the  suspension  of  the  contract  of  insurance.  It  seems 
more  logical  to  say  that  an  agreement  is  implied  for  the  substitu- 
tion of  similar  property,  especially  in  view  of  the  alienation  clause. 
It  is,  of  course,  the  intent  of  the  parties  that  property  may  be  sold 
and  replaced  and  that  the  subject  of  insurance  may  consist  of  any 

142 


Ownership 

similar  property  answering  the  description  at  the  time  of  the  tire. 
If  such  is  the  intention  there  is  no  legal  objection;  and  any  other 
construction  of  a  policy  covering  stock  in  trade  continually  chang- 
ing would  render  it  w^orthless  as  an  indemnity  (Hoffman  v.  Aetna 
Fire  Ins.  Co.  Z2  N.  Y.  405). 

The  insured  need  not  disclose  the  nature  of  his  ownership  ori 
interest,  but  in  accepting  the  policy  he  now  warrants  that  his  in-| 
terest  in  the  property  covered  by  the  policy  is  that  of  sole  and  un- 
conditional owner  (Lasher  v.  St.  Joseph  F.  &  M.  Ins.  Co.  86  N. 
Y.  423).  The  well  settled  distinction  between  representations  and 
warranties  was  appreciated  by  the  framers  of  the  standard  policy, 
and  the  insured  accepts  an  owner's  policy  at  his  peril.  No  inquiry 
is  necessary  and  the  insurer  may  assume  that  the  insured  is  the 
sole  and  unconditional  ow'ner  unless  otherwise  stated  in  the  policy. 
The  clause  is  a  condition  precedent  at  the  inception  of  the  contract, 
and  if  not  performed  renders  the  policy  void. 

The  warranty  as  to  the  character  of  ownership  is  affirmative,  i 
relating  to  the  state  of  facts  existing  at  the  commencement  of  the  I 
risk ;  the  warranty  as  to  change  of  interest  is  promissory  and  appli-  \ 
cable  to  conditions  arising  during  the  term  of  insurance.   These  con- 
ditions were  wisely  made  warranties  to  overcome  the  tendency  of 
courts  to  relieve  the  insured  from  forfeitures.     A  false  statement 
or  representation  and  its  materiality  are  generally  questions  of  fact ; 
while  a  warranty,  whether  material  or  not,  is  expressly  agreed  to 
be  true.     A  representation  may  be  equitably  or  substantially  an- 
swered; but  a  warranty  must  be  strictly  complied  with  (Donley  v. 
Glens  Falls  Ins.  Co.  184  N.  Y.  107). 

This  condition  as  to  ownership  makes  it  possible  to  accept  risks 
promptly,  with  the  knowledge  on  the  part  of  the  insurer  that  a  loss 
will  fall  exclusively  upon  the  applicant,  and  that  the  insurer  wall 
be  apprised  of  any  fact  which  qualifies  or  limits  this  interest  (Weed 
V.  L.  &  L.  Fire  Ins.  Co.  116  N.  Y.  106;  Hunt  v.  Springfield  F.  & 
M.  Ins.  Co.  196  U.  S.  47). 

The  provision  is  not  to  be  construed  in  a  technical  sense.  It 
requires  that  the  insured  shall  be  the  actual  and  substantial  owner 
whether  the  title  is  legal  or  equitable.  To  be  unconditional  and  sole 
the  interest  must  be  entirely  vested  in  the  insured,  not  conditional 
or  coriHngentniui'furJife  orTcar^or  Itl  common  willi  ullTers;  but 
the  interest  must  be  such  that  the  entire  loss  m  thF^event  of  de^ 
struction  falls  upon  the  insured.    It  has  been  tersely  said  that  own- 


The  Fire  Insurance  Contract 

ership  is  solejvhen  no  one  but  the  insured  ha.^  ^ny  inTerest  in  the 
property,  and  it  is  unconditional  when  the  quality  of  the  estate  is 
not  limited  in  any  w^y. 

Thus,  in  the  absence  of  any  disclosure,  the  insurer  can  rely 
upon  the  agreement  of  an  applicant  as  to  ownership;  an  owner  is 
naturally  most  alert  to  avoid  a  loss,  and  the  physical  and  moral  haz- 
ard may  be  fairly  estimated  from  his  character  and  methods  of 
business.  Here  enters  the  important  personal  element,  always  rec- 
ognized, and  plainly  adopted  in  the  standard  clause.  If  the  risk  is 
accepted,  then  during  the  life  of  the  policy  the  Company  knows  that 
the  insured  is  covered  as  an  owner  only ;  the  policy  makes  provision 
equally  plain  that  it  shall  become  void  if  such  owner  subsequently 
permits  any  change  whereby  his  interest  becomes  less  than  that  of 
sole  ownership,  or  if  he  attempts  to  give  a  stranger  the  benefit  of 
the  contract. 

A  common  method  of  relieving  the  insured  from  the  warranty 
as  to  ownership  is  by  adding  the  words  "as  intere^may  appear/* 
This  means  what  is  clearly  implied,  and  whatever  interest  the  in- 
sured may  personally  own  in  the  subject  matter  of  the  insurance 
is  covered  and  he  can  recover  a  loss  to  his  particular  interest,  al- 
though it  is  less  than  unconditional  and  sole  ownership;  the  clause 
in  the  policy  is  superseded  by  this  broader  phrase  (Dakin  v.  Liver- 
pool, L.  &  G.  Ins.  Co.  77  N.  Y.  600).  This  provision  is  often  use- 
ful in  preventing  a  breach  which  otherwise  would  occur  by  reason 
of  facts  known  to  all  parties,  and  it  does  not  introduce  the  dangers 
attendant  upon  the  use  of  the  so-called  commission  clause,  to  which 
brief  reference  will  be  made  later. 

The  insured  having  warranted  that  he  is  the  unconditional  and 
sole  owner  of  the  property  also  agrees  that  any  change  in  interest, 
title  or  possession  in  the  subject  of  insurance  shall  render  the  policy 
void;  plain  as  this  language  seems,  it  is  frequently  perplexing  to 
determine  what  is  such  a  change. 

The  language  in  which  the  alienation  clause  was  previously  in- 
corporated in  policies  was  rarely  uniform,  and  this  gave  rise  to 
various  decisions  depending  upon  the  particular  phraseology  adopted 
(Abstract  of  forms  and  decisions,  May  on  Insurance,  4lh  Ed.  page 
575).  In  reviewing  the  authorities  passing  on  this  clause,  it  is 
therefore  necessary  to  consider  the  exact  words  used  in  each  case. 

The  reason  of  the  rule  that  the  alienation  of  property  works  a 
forfeiture,  is  based  on  the  want  of  an  insurable  interest  at  the  time 

144 


Ownership 

of  loss.  An  absolute  sale  of  the  subject  of  insurance  illustrates  the 
simplest  and  most  obvious  instance  of  alienation. 

In  construing  clauses  in  the  earlier  policies  which  prohibit  a 
sale  in  general  terms,  it  was  held  that  to  work  a  forfeiture  there 
must  be  a  transfer  of  the  entire  interest  of  the  insured,  and  that  if 
the  insured  retained  any  insurable  interest,  he  will  be  protected  by 
the  policy  (Hitchcock  v.  N.  W.  Ins.  Co.  26  N.  Y.  68).  The  con- 
dition in  the  present  policy  against  a  change  would  be  violated  by  a 
transfer  of  a  partial  interest  (Savage  v.  Howard  Ins.  Co.  52  N.  Y. 
502;  Cooley  on  Insurance,  page  1732). 

An  assignment  by  the  insured  for  the  benefit  of  his  creditors 
effects  such  a  change  in  ownership  of  the  subject  of  insurance  as 
will  render  the  policy  void  (Northam  v.  Dutchess  Co.  Mut.  Ins.  Co. 
166  N.  Y.  319;  reversing  s.  c.  51  App.  Div.  618)  ;  but  whether  the 
mere  appointment  of  a^ receiver  in  bankruptcy,  following  an  adjudi- 
cation against  the  insured,  effects  a  change  in  title,  interest  or  pos- 
session, does  not  seem  to  have  been  settled.  In  such  case  the  in- 
sured remains  the  owner  of  the  property,  and  it  has  been  said  that 
the  appointment  of  a  receiver  tended  to  add  to,  rather  than  diminish 
the  care  and  oversight  of  the  insured  property;  it  has  been  held  in 
an  action  to  dissolve  a  partnership  that  the  appointment  of  one  of 
the  co-partners  as  a  receiver,  works  no  change,  for  the  exclusive 
control  is  merely  given  to  one  of  the  firm.  The  trend  of  the  decision 
indicates  that  until  the  appointment  of  a  trustee  in  bankruptcy  no 
change  occurs  (Fuller  v.  Jameson,  98  App.  Div.  53;  s.  c.  affirmed 
184  N.  Y.  605;  Perry  v.  LoriUard  Fire  Ins.  Co.  61  N.  Y.  214; 
Keeney  v.  Home  Ins.  Co.  71  N.  Y.  396). 

An  assignment  of  the  policy  by  the  insured  as  a  pledge  for 
a  debt  is  not  a  breach  of  the  condition  against  an  assignment  of 
the  policy  before  a  loss,  for  the  reason  that  no  interest  in  the  in- 
sured property  was  transferred,  and  the  assignment  which  the  policy 
prohibits  is  held  to  be  in  connection  with  the  events  which  affect 
ownership;  without  such  an  interest  the  assignment  would  be  in- 
operative, and  the  policy  would  not  be  void,  but  of  no  value  (Griffey 
v.  N.  Y.  Central  Ins.  Co.  100  N.  Y.  417).  And  so  a  deed  absolute 
in  form,  but  in  fact  given  simply  as  security  for  debt,  is  a  mortgage 
only,  under  which  title  does  not  pass  in  law,  and  therefore  the  policy 
is  not  invalidated  (Barry  v.  Hamburg-Bremen  Fire  Ins.  Co.  110 
N.  Y.  1). 

A  sale  upon  execution  of  real  estate  before  the  expiration  of 
the  period  allowed  for  redemption  does  not  work  a  change  of  title 

145 


The  Fire  Insurance  Contract 

or  interest  (Wood  v.  American  Fire  Ins.  Co.  149  N.  Y.  382).  It 
would  seem  that  the  issuing  of  an  execution  and  a  levy  thereunder 
on  personal  property  of  the  insured  would  operate  as  a  change  of 
possession,  but  the  law  is  to  the  contrary;  to  reach  this  conclusion, 
the  clause  that  a  policy  shall  not  be  invalidated  by  a  ''change  of 
occupants  without  increase  of  hazard"  was  invoked  by  the  court. 
That  clause  seems  applicable  to  real  property  only,  but  it  has  been 
held  to  relate  to  a  policy  on  personal  property  as  well.  Thus  the 
store  in  which  goods  are  kept  is  said  to  be  the  important  element  in 
the  risk,  and  that  insurance  on  personal  property  in  that  place  is 
not  affected  by  a  change  of  occupancy  unless  by  such  change  the 
risk  has  become  more  hazardous.  When  a  sheriff  levied  on  goods 
in  a  store  a  change  of  possession  certainly  appears  to  have  taken 
place,  but  our  highest  court,  by  a  vote  of  four  to  three,  worked  out 
a  contrary  result,  holding  that  the  taking  possession  by  the  sheriff 
did  not  alone  avoid  the  policy;  in  saying  that  the  provision  should 
not  receive  a  harsh  or  narrow  construction  the  court  apparently  con- 
sidered the  interests  of  one  of  the  parties  only,  for  the  decision  was 
rendered  in  spite  of  the  really  illuminating  fact  as  to  moral  hazard, 
that  a  fire  destroyed  the  goods  the  day  after  the  levy  (Walradt  v. 
Phoenix  Ins.  Co.  136  N.  Y.  375). 

An  addition  to  a  building  had  been  condemned  as  a  public 
nuisance;  its  removal  had  been  ordered  and  the  owner  agreed  to 
take  it  down  several  months  before  a  fire  occurred;  the  insurer 
claimed  that  legal  process  or  voluntary  act  of  the  insured  had  effect- 
ed such  changes  in  the  interest,  title  or  possession  of  the  structure 
as  to  vitiate  the  insurance,  but  this  contention  was  overruled,  and 
the  insured  recovered  the  value  of  the  structure  although  the  fire 
may  have  resulted  in  a  practical  benefit  (Irwin  v.  Westchester  Fire 
Ins.  Co.  199  N.  Y.  550,  affirming  s.  c.  58  Misc.  441). 

The  interest  of  the  insured  is  held  to  be  changed  if  a  firm 
takes  in  a  new  partner  (Germania  Fire  Ins.  Co.  v.  Home  Ins.  Co. 
144  N.  Y.  195)  ;  but  there  is  no  change  if  one  partner  retires  from 
the  firm,  as  a  policy  is  not  affected  by  a  transfer  between  the  parties 
insured.  In  such  case  there  is  no  decrease  in  the  value  of  the  in- 
terest of  the  insured,  and  no  new  personal  element  is  introduced; 
the  insured  continues  to  have  no  less  interest  to  watch  and  guard 
the  property,  and  thus  the  spirit  and  intention  of  the  clause  to  pre- 
vent a  greater  moral  hazard  are  preserved  (Hoffman  v.  Aetna  Fire 
Ins.  Co.  32  N.  Y.  405;  Rosenstein  v.  Traders  Ins.  Co.  79  App. 
Div.  481). 

146 


Ownership 

A  sale  in  foreclosure  does  not  violate  the  alienation  clause  for 
the  reason  thai  there  is  no  change  of  title  until  the  dehvery  of  a 
deed  (Haight  v.  Continental  Ins.  Co.  92  N.  Y.  51).  Nor  is  an 
executory  contract  for  the  sale  of  property,  without  change  of  pos- 
session, a  breach  of  the  policy  condition,  which  is  intended  to  apply 
only  to  such  a  transfer  which  divests  the  insured  of  title  to,  or 
control  over  the  property  (Browning  v.  Home  Ins.  Co.  71  N.  Y. 
508;  Wood  v.  American  Fire  Ins.  Co.  149  N.  Y.  382;  Tiemann  v. 
Citizens  Ins.  Co.  76  App.  Div.  5 ;  O'Neil  v.  Franklin  Fire  Ins.  Co. 
159  App.  Div.  313).  And  where  a  building  is  destroyed  by  fire  be- 
tween the  making  of  the  ordinary  contract  of  sale  of  real  property, 
and  the  delivery  of  the  deed,  the  loss  usually  falls  upon  the  vendor 
(Goldman  v.  Rosenberg,  116  N.  Y.  78;  Listman  v.  Hickey,  65  Hun. 
8 ;  affirniedjBN.  Y.  630) . 


Buiwhere  the  vendee  is  let  into  possession  under  such  a  con- 
tract, there  is  a  breach  of  the  condition.  The  test  is  said  to  be 
whether  the  vendor  has  parted  with  the  absolute  control  and  domin- 
ion over  the  subject  of  insurance,  and  where  a  formal  delivery  of 
the  deed  was  delayed  for  convenience  only,  such  a  vendee  becomes 
an  equitable  owner  and  liable  for  any  loss  (Sewell  v.  Underbill, 
197  N.  Y.  168;  affirming  s.  c.  127  App.  Div.  92)  ;  and  the  vendor 
in  such  case  cannot  enforce  his  insurance  because  there  has  been  a 
change  of  title  or  possession  (Sewell  v.  Home  Ins.  Co.  131  App. 
Div.  131).  A  change  in  interest  may  occur  without  change  of  title, 
for  the  word  interest  is  broader  than  title,  and  embraces  both  legal 
and  equitable  rights  (Brighton  Beach  Racing  Assn.  v.  Home  In- 
surance Co.  113  App.  Div.  728;  affirmed  without  opinion,  189  N. 
Y.'526). 

A  colorable  transfer  to  defeat  the  claims  of  creditors  is  effective 
at  least  for  some  purposes,  and  therefore  such  a  transfer  would  in- 
validate the  policy;  but  a  transfer  without  consideration  and  with 
no  act  of  the  parties  thereunder,  and  without  an  intention  to  have  it 
effective  is  analogous  to  an  unexecuted  gift  and  therefore  is  without 
legal  effect,  and  the  policy  is  not  avoided  (Rosen stein  v.  Traders 
Ins.  Co.  79  App.  Div.  481;  s.  c.  102  App.  Div.  147;  s.  c.  112  App. 
Div.  902;  affirmed  188  N.  Y.  639;  Foward  v.  Continental  Ins.  Co. 
142  N.  Y.  382).  The  cases  in  which  this  question  was  presented 
do  not  discuss  the  legal  principles  but  rather  their  application  to 
facts  which  were  presented  in  a  varying  light  in  accordance  with  the 
flexible  conscience  of  an  interested  party. 

147 


The  Fire  Insurance  Contract 

A  passing  of  property  by  death  or  by  the  wJll  of  the  insured  was 
I  formerly  held  to  be  such  a  change  of  interest  as  avoided  the  policy, 
so  that  the  clause  in  the  present  policy  properly  provides  that  the 
policy  shall  not  be  affected  by  such  a  change  (Sherwood  v.  Agricul- 
tural Ins.  Co.  1Z  N.  Y.  447;  Matter  of  Hine  v.  Woolworth,  93  N.  Y. 
75). 

A  review  of  these  principles  shows  that  the  standard  policy 
was  drawn  with  full  and  precise  regard  to  their  application  when  a 
loss  occurs;  all  the  safeguards,  however,  thus  provided,  may  be 
superseded  by  a  few  words  in  a  special  form  attached.  While,  in 
general,  a  policy  is  personal,  enuring  only  in  favor  of  the  particular 
individual  named,  still,  through  hijm  many  interests  may  be  covered 
under  forms  which  have  become  popular  in  changing  the  application 
of  a  simple  contract  to  make  good  or  indemnify. 
y^,  It  is  well  understood  that  the  warranty  of  ownership  is  waived 
^"' by  covering  the  interest  of  the  insured  as  it  may  appear;  and  also 
that  interests  other  than  those  of  the  insured  may  be  covered  by 
attaching  the  commission  clause  covering  the  insured  on  goods  his 
own  or  held  in  trust  or  otherwise.  It  is,  however,  exceedingly  diffi- 
cult to  determine  the  extent  to  which  some  of  these  general  forms 
may  extend  the  liability  of  the  insurer,  and  it  is  important  that  the 
legal  effect  of  them  be  clearly  understood;  one  cannot  safely  act 
upon  general  principles  without  a  full  understanding  of  the  opera- 
tion of  the  common  clauses  which  are  not  a  part  of  the  standard 
form.  A  discussion  of  the  commission  clause  involves  many  per- 
plexing questions,  and  a  presentation  of  that  subject  is  to  be  made 
to  this  Society  by  one  who  is  peculiarly  well  qualified  for  the  task. 
A  brief  reference  to  this  undefined  interest  of  unknown  parties  will 
emphasize  the  importance  of  securing  a  determination  on  debatable 
forms  so  that  the  rights  of  both  parties  may  be  known  in  advance 
of  the  assumption  of  risks. 

With  an  insured  of  known  character  and  principles,  the  inter- 
ests of  strangers  in  property  in  his  possession  or  under  his  control 
may  be  covered  without  undue  moral  hazard;  any  claim  must  be 
presented  by  and  adjusted  with  that  individual,  and  the  Company, 
through  him,  is  safeguarded  against  fraud  or  imposition  either  be- 
fore or  after  a  loss.  It  is  common  for  merchants  to  leave  goods 
with  a  manufacturer,  or  bailee,  but  generally  at  owner's  risk  of  fire ; 
but  if  a  bailee  undertakes  to  insure  the  property  of  the  bailors  there 
is  no  longer  any  question  of  his  right  to  collect  in  their  behalf 
(StiUwell  V.  Staples,  19  N.  Y.  401;  Lee  v.  Adsit,  Z7  N.  Y.  7^- 

148 


Ownership 

Waring  v.  Indemnity  Fire  Ins.  Co.  45  N.  Y.  606 ;  Symmers  v.  Carroll 
207  N.  Y.  632;  Home  Ins.  Co.  v.  Baltimore  Warehouse  Co.  93  U.  S. 
527;  Cal.  Ins.  Co.  v.  Union  Compress  Co.  133  U.  S.  387). 

It  is  not  essential  that  the  person  to  be  insured  should  be 
named  in  the  policy  and  if  a  company  is  willing  to  write  a  policy 
without  designating  the  parties  insured,  it  acquiesces  in  accepting 
a  risk  on  interests  of  unknown. owners,  and  must  accept  all  the  con- 
sequences. But  an  unfortunate  and  seemingly  illogical  decision 
was  made  in  construing  a  policy  covering  property  of  a  firm  under 
the  usual  commission  clause.  The  insured  rejected  a  quantity  of 
beans  which  by  agreement  they  held  for  the  owner  pending  a  re-sale. 
After  a  fire  payment  was  made  to  the  insured  in  accordance  with  an 
agreement  adjusting  the  loss,  but  the  insured  made  no  claim  for  the 
loss  on  the  beans  not  owned  by  them.  Thereupon  this  apparent 
stranger  to  the  contract  brought  a  direct  action  against  the  insurer, 
disregarding  its  previous  settlement  and  the  cancellation  of  policies 
on  payment,  and  a  recovery  was  permitted.  This  seems  to  be  the 
only  authoritative  decision  in  this  State  where  the  court  upheld  the 
right  of  a  stranger  to  such  form  of  contract,  to  maintain  an  inde- 
pendent action.  The  opinion  does  not  discuss  fully  the  principles 
of  law,  but  if  that  decision  is  sound,  it  is  as  dangerous  to  issue  a 
policy  with  the  commision  clause  as  to  insure  "for  account  of  whom 
it  may  concern."  (Utica  Canning  Co.  v.  Home  Ins.  Co.  132  App. 
Div.  420;  Czerweny  v.  Nat.  Fire  Ins.  Co.  139  N.  Y.  Suppl.  345,  App. 
Term  Jan.  1913). 

It  is  not  believed  that  the  Court  of  Appeals  will  uphold  the 
doctrine  of  this  decision,  but  it  will  have  great  weight  in  the  lower 
courts  so  long  as  it  remains  unreserved;  that  case  well  illustrates 
the  serious  consequences  of  inconclusive  litigation  involving  a  ques- 
tion of  general  import,  and  renders  uncertain  and  harmful  a  com- 
mon and  useful  form.  (But  see,  Burke  v.  Continental  Ins.  Co.  184 
N.  Y.  77).  When  insuring  the  interest  of  strangers  to  the  contract 
we  must  understand  the  broadest  and  most  inadvisable  form,  cover- 
ing for  account  of  whom  it  may  concern.  This  is  freely  used  in 
marine  insurance,  but  it  has  no  place  in  fire  insurance  contracts. 
An  inappropriate  use  of  this  form  may  practically  destroy  the  pro- 
tection of  well  settled  legal  principles  and  may  open  up  a  limitless 
field  of  litigation,  in  unexpected  jurisdictions,  and  by  unknown 
claimants. 

A  consideration  of  the  subject  of  this  paper  may  be  helpful  in 
reviewing  the  many  and  varying  claims  which  arise  in  practice,  but 

14f 
6 


The  Fire  Insurance  Contract 

without  a  complete  understanding  of  the  modifications  which  follow 
from  the  varying  forms  so  freely  adopted,  one  may  soon  become 
bewildered  by  legal  problems  which  still  await  fmal  adjudication. 

The  greatest  laxity  and  consequent  danger  to  the  insurer  may 
be  found  in  the  indiscriminate  use  of  forms  devised  by  zealous 
brokers  to  cover  a  risk  not  within  the  contemplation  of  the  company. 
The  form  becomes  an  essential  part  of  the  contract,  and  the  com- 
pany should  not  invite  a  controversy  by  accepting  language  of  doubt- 
ful meaning  (see  ''Forms"  from  Standpoint  of  the  Company,  by 
VV.  N.  Bament,  and  from  Standpoint  of  the  Broker,  by  Julian  Lucas, 
Jr.;  papers  of  The  Insurance  Society  of  New  York,  1912).  The 
special  clause  attached  governs  the  contract,  and  when  inconsistent 
with  the  general  conditions  of  the  policy  that  which  is  more  favor- 
able to  the  insured  will  apply  (Michael  v.  Prussian  Nat.  Ins.  Co. 
171  N.  Y.  25,  33). 

The  broker  owes  a  legal  duty  to  his  principal  and  he  must  have 
the  requisite  knowledge  and  skill  to  effect  the  indenmity  required 
in  each  case  (Burges  v.  Jackson,  162  N.  Y.  632,  affirming  s.  c.  18 
App.  Div.  296;  Fries-Breslin  Co.  v.  Bergen,  176  Fed.  Rep.  76)  ;  but 
he  owes  no  legal  duty  to  the  insurer  other  than  to  use  good  faith; 
here,  as  in  other  relations,  the  broker  sometimes  occupies  an  equiv- 
ocal position  between  a  desire  to  retain  the  good  will  of  the  insurer 
and  his  obligation  to  guard  the  interests  of  his  principal. 

So  far  as  possible  insurer  should  adhere  to  general  principles 
and  avoid  the  use  of  ambiguous  or  unnecessary  words,  and  every 
effort  should  be  exercised  to  eliminate  imcertainty.  When,  how- 
ever, the  meaning  is  doubtful,  it  is  wise  to  procure  judicial  inter- 
pretation so  that  language  of  common  use  may  be  adopted  without 
misunderstanding.  The  rule  of  expediency  carries  far  in  all  affairs., 
and  experienced  adjusters  have  decried  the  trouble  and  anxiety 
occasioned  by  doubtful  phraseology,  while  timorous  about  seeking 
a  decision  which  will  forever  settle  the  doubt,  but  which  will  also 
eliminate  a  forceful  and  persuasive  argument  to  present  to  a  stub- 
born or  unreasonable  claimant. 

The  courts  are  not  fossilized ;  they  reflect  the  spirit  of  the  times 
and  endeavor  to  mould  relief  to  new  conditions.  Legislatures  are 
apt  to  adopt  current  opinions,  without  adequate  reflection,  just  as 
the  populace  would  hastily  recall  a  judge,  not  because  of  an  im- 
proper pronouncement  but  because  of  an  unpopular  decision. 
Chance  is  of  necessity  an  incident  to  the  business,  but  it  should  not 
be  permitted  to  overshadow  conservatism  and  adherence  to  primary 

150 


Ownership 

purposes  and  principles.  The  original  purpose  is  often  obscured  or 
lost  in  an  effort  to  subserve  convenience  and  to  facilitate  the  issu- 
ance of  contracts  which  may  be  of  greater  import  than  either  party 
appreciates.  While  litigation  is  to  be  deprecated,  except  when  in-; 
evitable,  it  furnishes  a  far  better  remedy  than  a  compromise  with- 
principle ;  a  question  settled  for  all  time  is  of  lasting  value,  while  a 
compromise  may  settle  a  particular  case  and  leave  the  doubt  for 
continuing  debate  by  parties  and  counsel. 

It  is  to  be  hoped  that  this  Society  will  advocate  greater  unani- 
mity in  insurance  law,  and  a  uniform  policy  to  be  used  in  all  the 
states.  It  may  even  be  advisable  to  consider  a  revision  of  clauses 
not  now  in  the  Standard  Policy,  for  it  seems  important  to  take  these 
clauses,  as  well  as  the  main  policy,  outside  the  realm  of  legal  debate. 
The  application  of  the  law  depends  so  greatly  on  language  that  we 
emphasize  the  importance  of  special  forms,  because  it  is  common 
experience  that  the  best  laid  plans  may  be  frustrated  by  inattention 
to  seeming  trifles.  With  the  lapse  of  time  nothing  is  more  certain 
than  that  some  of  our  present  views  will  change,  and  that  indeed  is 
the  best  proof  of  progress.  But  principles  of  law  become  firmly 
settled  and  a  review  of  some  of  the  recent  decisions  in  this  State 
plainly  shows  that  many  of  the  legal  controversies  have  arisen  from 
a  departure  from  established  rules,  and  much  of  this  litigation 
should  not  have  been  necessary.  In  conclusion  we  may  quote  the 
most  recent  expression  of  our  highest  court  referring  to  the  form 
of  policy :  "Insurance  contracts  above  all  others  should  be  clear 
and  explicit  in  their  ternis.  In  a  word,  they  should  be  so  plain  and 
unambiguous  that  men  of  average  intelligence  who  invest  in  these 
contracts  may  know  and  understand  their  meaning  and  import." 
(Paskusz  v.  Phila.  Cas.  Co.  213  N.  Y.  22). 


151 


IX 
NON-LIABILITY  MATTER 

William  B.  Ellison 
Of  Ellison  and  Ellison,  Attorneys 

It  may  be  well  at  the  outset  to  divide  and  discuss  in  their  re- 
spective order  the  provisions  of  the  policy  to  which  I  am  expected 
to  address  myself.     They  are  as  follows: 

First:  That  the  insurer  shall  not  be  liable  for  loss  caused  di- 
rectly or  indirectly  by  order  of  any  civil  authority. 

Second:  The  insurer  shall  not  be  liable  for  loss  by  explosion 
of  any  kind  unless  fire  ensues,  and  in  that  event,  for  the  damagfc  by 
fire  only. 

Third:  If  the  subject  of  insurance  is  a  building,  and  it  or  any 
part  thereof  fall,  except  as  the  result  of  fire,  all  insurance  on  such 
building  or  its  contents  shall  immediately  cease. 

Fourth :  The-  insurer  shall  not  be  liable  for  loss  occasioned  by 
ordinance  or  law  regulating  the  construction  or  repair  of  the  build- 
ing in  question. 

First. 

Loss  BY  Order  o^  Civil  Authority. 

The  situation  existing  prior  to  the  insertion  of  the  provision 
against  loss  caused  by  civil  authority,  may  be  readily  understood  by 
perusal  of  the  case  of  City  Fire  Ins.  Co.  v.  Corlies,  21  Wendell  (N. 
Y.)  367. 

In  this  case/the  action  was  on  a  policy  which  insured  the  plain- 
tiflf  against  loss  or  damage  by  fire  on  certain  earthenware  in  crates 
contained  in  a  brick,  slated  store  at  No.  75  Pearl  Street,  New  York. 

On  the  trial,  it  appeared  that  in  the  great  fire  on  the  morning 
of  December  17th,  1835,  the  store  No.  75  Pearl  Street  was  blown 
up  with  gunpowder  and  the  goods  insured  totally  destroyed.  The 
explosion  was  ordered  by  the  Mayor  of  the  City  to  arrest  the  prog- 
ress of  a  fire  then  raging  to  the  east  of  this  store.  The  building 
next  to  the  store,  but  not  the  store  itself,  was  on  fire  at  the  time 
of  the  explosion  and  the  buildings  all  around  this  store  in  every 
direction  took  fire  and  were  more  or  less  burned  or  totally  destroyed 
by  the  course  of  the  flames;  and  according  to  every  probability,  the 
fire  would  have  destroyed  the  store  in  question  with  its  contents, 
had  it  not  been  blown  up. 

152 


Non-Liability  Matter 

The  defendant  moved  to  dismiss  the  plaintiff's  complaint  on 
each  of  the  following  grounds : 

(1)  That  the  loss  did  not  arise  from  a  cause  contemplated 
by  the  policy,  but  was  a  remote  consequence  of  the  fire  not  neces- 
sarily-arising from  it. 

(2)  The  mere  fact  of  bringing  gunpowder  upon  the  premises 
suspended  the  policy,  although  deposited  without  the  knowledge  of 
the  plaintiff. 

(3)  A  loss  by  explosion  of  gunpowder  cannot  be  said  to  be 
a  loss  by  fire,  and  those  cases  in  wh'.ch  a  recovery  can  be  had  where 
tHe  goods  have  been  destroyed  not  by  fire,  but  by  water  or  by  break- 
age or  the  consequences  of  the  fire,  are  cases  where  the  injury  arose 
in  the  attempt  to  save  the  goods  insured;  here  the  goods  insured 
were  intentionally  destroyed  to  savie  the  property  of  others. 

(4)  The  act  was  done  by  the  Mayor  by  virtue  of  his  office 
for  the  benefit  of  the  citizens  at  large,  and  the  corporation  of  the 
City  is  liable  for  his  acts  even  at  common  law  independently  of  the 
statute;  if  he  had  no  authority,  then  his  own  was  an  usurped  power, 
which  is  expressly  excepted  by  the  policy. 

(5)  This  fire  was  a  general  calamity,  and  property  destroyed 
to  put  an  end  to  it  should  be  a  general  tax  on  the  citizens  and  not 
a  partial  one  on  this  insurance  company ;  and  in  a  doubtful  case  a 
policy  should  be  so  construed  as  to  lay  a  general  rather  than  a  par- 
tial contribution. 

The  learned  Court  with  the  foregoing  questions  before  it  and 
speaking  through  Mr.  Justice  Bronson,  said : 

There  has,  I  think,  been  a  loss  by  the  peril  insured  againsjt,  within 
the  meaning  of  the  policy.  In  Grim  v.  Ins.  Co.,  13  Johns,  451,  no 
doubt  seems  to  have  been  entertained,  either  by  the  court  or  counsel, 
that  a  loss  by  the  explosion  of  gunpowder  was  a  loss  by  fire.  And  in 
Waters  v.  Ins.  Co.,  11  Pet.  213,  the  point  was  so  adjudged.  The  court 
was  of  the  opinion  that  fire  was  the  proximate  cause  of  the  loss. 

II.  According  to  the.  terms  of  the  policy,  if  the  building  was  used 
for  the  purpose  of  storing  gunpowder,  the  contract  was,  for  the  time, 
suspended.  And  see  Duncan  v.  Ins.  Co.,  6  Wend-,  488.  But  placing  gun- 
powder with  a  lighted  match  in  the  building,  for  the  express  purpose  of 
producing  an  explosion,  which  immediately  followed,  was  a  very  different 
thing  from  what  the  parties  contemplated  when  they  inserted  this  pro- 
vision in  the  contract.  Whether  the  insurers  are  liable  for  this  voluntary 
destruction  of  the  property,  is  a  question  yet  to  be  considered.  But  I 
think  it  quite  clear  that  they  have  not  established  the  allegation  that  the 
building  was  used  for  the  storing  of  gunpowder. 

III.  The  building  containing  the  goods  was  destroyed  by  order  of 
the  mayor  of  the  city,  for  the  purpose  of  arresting  the  progress  of  a  con- 
flagration. Are  the  insurers  answerable  for  this  voluntary  destruction 
of  the  property?  This  question  has  been  presented  in  a  double  form— 
the  one  supposing  that  the  mayor  acted  with  and  the  other  that  he  acted 
without  authority. 

1S3 


The  Fire  Insurance  Contract 

1.  Let  us  first  assume  that  the  mayor  acted  illegally.  If  the  fire  bad 
been  kindled  by  an  incendiary,  it  is  not  denied  that  the  insurers  would  be 
answerable.  Why  are  they  not  then  answerable,  if  the  mayor  acted 
without  authority?  The  act,  though  not  done  for  a  wicked  purpose,  was 
as  illegal  as  though  it  had  been  the  work  of  a  felon.  The  answer 
attempted  is,  that  although  the  mayor  had  no  authority,  yet  as  he  acted 
colore  officii,  this  is  a  case  of  loss  happening  by  means  of  usurped  power, 
which  is  expressly  excepted  by  the  policy. 

It  is  impossible  to  maintain  that  a  mere  excess  of  jurisdiction  by  a 
lawful  magisrate,  is  the  exercise  of  an  usurped  power  within  the  meaning 
of  this  contract.  That  is  not  what  the  insurers  had  in  mind  when  they 
made  the  exception.  It  was  an  usurpation  of  the  power  of  government 
against  which  they  intended  to  protect  themselves.  Such  was  the  inter- 
pretation given  to  the  same  words  in  a  policy^s  early  as  the  year  1767. 
Drinkwater  v.  London  Assur.,  v.  2  Wils.,  363.  (The  property  insured  was 
destroyed  by  a  mob,  which  arose  on  account  of  the  high  price  of  provis- 
ions; and  the  insurers  were  held  liable,  notwithstanding  a  proviso  in  the 
policy  that  they  would  not  answer  for  a  destruction  by  "usurped  power/' 
Bathurst,  J.,  said  those  words,  according  to  the  true  import  thereoF  arid 
the  meaning  of  the  parties,  could  only  mean  an  invasion  of  the  Kingdom 
by  foreign  enemies  to  give  laws  and  usurp  the  government,  or  an  internal 
armed  force  in  rebellion,  assuming  the  power  of  government,  by  making 
laws,  and  punishing  for  not  obeying  those  laws,  Wilmot,  Ch.  J.,  said  the 
words  meant  an  invasion  from  abroad,  or  an  internal  rebellion,  when 
armies  are  employed  to  support  it;  when  the  laws  are  dormant  and  silent, 
and  the  firing  of  towns  is  unavoidable.  In  Langdale  v.  Mason,  2  Marsh. 
Ins.,  791,  it  was  said  by  Ld.  Mansfield,  that  these  words  were  ambiguous, 
but  they  had  been  the  subject  of  judicial  determination;  that  they  must 
mean  rebellion  conducted  by  authority — determined  rebellion,  with  gen- 
erals who  could  give  orders.  And  he  added:  "usurped  power  takes  in 
rebellion,  acting  under  usurped  authority."  Whatever  doubt  there  may 
have  been  originally  about  the  meaning  of  the  words  "usurped  power," 
in  a  policy,  their  legal  import  had  been  settled  long  before  this  contract 
was  made;  and  we  cannot  assume  that  these  parties  used  the  words  in 
any  other  than  their  legal  sense. 

2.  But  the  mayor  acted  under  lawful  authority;  there  was  no  usur- 
pation of  any  kind.  Whether  he  had  the  concurrence  of  two  aldermen, 
as  the  statute  provides,  or  not,  there  can  be  no  doubt  of  his  comn^on  law, 
power,  as  the  chief  magistrate  of  the  city,  to  destroy  buildings,  in  a  case 
of  necessity,  to  prevent  the  spreading  of  a  fire.  Indeed,  the  same  thing 
may  now  be  done  by  any  magistrate,  or  even  by  a  citizen  without  official 
authority.     Mayor  of  N.  Y.  v.  Lord,  17  Wend.,  285. 

IV.  If  the  mayor  acted  by  lawful  authority,  it  is  then  said  that  the 
property  was  destroyed  for  the  benefit  of  the  city,  and  that  the  Corpora- 
tion (not  the  insurers)  must  bear  the  loss.  This  case  does  not  fall  within 
the  statute  charging  certain  losses  on  the  city,  because  it  does  not  appear 
that  the  mayor  had  "the  consent  and  concurrence  of  any  two  aldermen," 

2  R.  L.,  368,  sec.  81;  and  for  the  further  reason,  that  the  property  would 
have  been  consumed  by  fire  if  its  destruction  had  not  been  ordered  by  the 
magistrate.  Mayor  of  N.  Y.  v.  Lord,  17  Wend.,  285.  It  is  said  that  the 
Corporation  is  liable  at  the  common  law  for  the  acts  of  the  mayor;  but 
no  authority  was  cited  in  support  of  the  position,  and  I  am  not  prepared 
to  say  that,  in  a  case  like  this,  the  doctrine  can  be  maintained.  The  incli- 
nation of  my  mind  is  strongly  the  other  way. 

But  suppose  the  city  is  liable,  I  4o  not  see  how  that  fact  can  affect 
this  contract.  If  the  insurers  pay  the  loss  they  may,  perhaps,  have  an 
action  against  the  corporation  of  the  city,  in  the  name  of  the  assured,  to 
recover  back  the  money.     Mason  v.  Sainsbury,  2  Marsh.  Ins.  794;  S.  C, 

3  Doug.  61.  But  however  that  may  be,  the  fact  that  the  assured  may 
have  a  remedy  against  the  city,  cannot  change  or  qualify  the  undertak- 
ings of  the  insurers. 

154 


Non-Liability  Matter 

This  lt.»ds  mc  to  notice  a  little  more  particularly  the  extent  of  the 
contract.  The  company  agrees  to  make  good  unto  the  assured  all  such 
loss  or  damage  to  the  property  as  shall  happen  by  fire.  Thus  far  there 
is  no  limit  or  qualification  of  the  underlraking.  If  the  loss  happen  by  fire, 
unless  there  was  fraud  on  the  part  of  the  assured,  which  is  not  pretended 
in  this  case,  it  mr^ters  not  how  the  flame  was  kindled.  Whether  it  be  the 
result  of  accidcr*  ^r  design — whether  the  torch  be  applied  by  the  honest 
magistrate  or  the  wicked  incendiary — whether  the  purpose  was  to  save 
a  city,  as  at  N.  Y.,  or  a  country,  as  at  Moscow — the  loss  is  equally  within 
the  terms  of  the  contract.  That  the  insurers  intended  the  general  under- 
taking should  extend  to  every  possible  loss  by  fire,  is  evident  from  the 
fact  that  they  afterwards  proceed  to  specify  particular  losses  by  fire  for 
which  they  will  not  be  answerable.  Ins.  Co.  v.  Lawrence,  10 'Pet.  507. 
The  exceptions  are  contained  in  the  sixth  condition  of  the  proposals  an- 
nexed to  the  policy.  It  is  unnecessary  to  recite  the  clause,  because  it  is 
not  pretended  that  this  case  comes  within  any  of  the  exceptions,  save 
that  relating  to  a  loss  happening  by  means  of  "usurped  power,"  and  that 
point  has  already  been  considered. 

There  has  then  been  a  loss  by  fire.  The  case  falls  within  the  general 
undertaking  of  the  insurers,  and  is  not  afifected  by  any  of  the  exceptions 
which  they  thought  proper  to  make  to  the  extent  of  their  liability.  We 
cannot  add  another  exception.     The  insurers  are  bound  by  their  contract. 

The  foregoing  authority  has  been  accepted  throughout  sub- 
stantially the  whole  of  the  United  States  as  correctly,  defining  the 
/aw  on  the  questions  there  at  issue.    One  illustration  is  the  case  of : 

PORTSMOUTH  INS.  CO.  v.  REYNOLDS, 
9  Ins.  L.  J.  606. 

Mr.  Justice  Burks  speaking  for  the  Supreme  Court  of  Appeals  of 
Virginia,  said: 

The  general  undertaking  extends  to  all  loss  by  fire  from  whatever 
cause,  unless  occasioned  by  the  fraud  or  design  of  the  insured.  As  was 
sjrd  by  Judge  Bronson  in  City  Fire  Ins.  Co.  v.  Corlies,  21  Wen.  367, 
tl\c  company  agrees  to  make  good  unto  the  assured  all  such  loss  or  dam- 
age to  the  property  as  shall  happen  by  fire. 

Thus  far  there  is  no  limit  or  qualification  of  the  undertaking.  If  the 
loss  happen  by  fire,  unless  there  was  fraud  on  the  part  of  the  assured, 
it  matters  not  how  the  flame  was  kindled,  whether  it  be  the  result  of  acci- 
dent or  design,  whether  the  torch  be  applied  by  the  honest  magistrate 
or  the  wicked  incendiary,  whether  the  purpose  was  to  save  a  city,  as  at 
New  York,  or  a  country,  as  at  Moscow,  the  loss  is  equally  within  the 
terms  of  the  contract.  That  the  insurers  intended  the  general  engage- 
ment should  extend  to  every  possible  loss  by  fire  is  evident  from  the  fact 
that  they  afterwards  proceed  to  specify  particular  losses  by  fire  for  which 
they  will  not  be  answerable.  See  also  Ins.  Co.  of  Alexandria  v.  Law- 
rence, 10  Peters,  pp.  517-518. 

To  meet  the  construction  thus  given  to  the  insurance  contract 
referred  to,  and  to  obviate  the  situation  that  was  thus  created,  there 
uas  inserted  in  policies  subsequently  written  in  one  form  or  an- 
other, the  provision  now  contained  in  the  standard  form  of  policy 
of  this  State,  which  is  intended  to  and  does  relieve  the  insurer  from 
loss  under  similar  circumstances,  and  I  do  not  find  that  the  validity 
of  the  clause  in  question  has  been  successfully  questioned.  Indeed, 
it  has  been  sustained  in  the  case  of 

155 


The  Fire  Insurance  Contract 
conner  v.  manchester  assur.  co., 

33  Ins.  L.  J.  844. 
In  this  case,  Chief  Justice  Gilbert,  speaking  for  the  United  States 
Circuit  Court  of  Appeals  in  the  9th  Circuit,  said : 

It  is  contended,  further,  that  the  property  was  not  directly  or  indi- 
rectly destroyed  by  order  of  civil  authority;  that  there  was  no  law  au- 
thorizing the  supervisors  of  a  county  to  destroy  the  property  of  the  cit- 
izens thereof;  and  that  the  property  of  the  plaintiffs  in  error  was  de- 
stroyed by  accident  or  neglect,  and  without  their  fault.  The  record  of 
the  findings  of  the  trial  court  shows  that  the  fact  was  established  that 
the  fire  was  started  under  an  order  of  the  supervisors  of  the  county. 
The  statutes  of  California  of  1897  (pp.  465,  466,  c.  277)  confer  authority 
upon  the  supervisors  of  a  county  to  provide  for  the  destruction  of  in- 
sects injurious  to  fruit  trees,  vines  or  plants,  and  to  make  and  enforce 
local  police,  sanitary  and  other  regulations  not  in  conflict  with  general 
laws.  But  whether  or  not  there  was  lawful  authority  to  start  the  fire 
which  indirectly  caused  the  damage  in  this  case,  there  was  de  facto 
authority.  The  order  was,  in  fact,  made,  and  made  by  the  officers  to 
whom  the  said  powers  were  given,  and  thereby  the  loss  occurred.  This, 
we  think,  excuses  the  insurance  company:  Barton  v.  Home  Ins.  Co.,  42 
Mo.  156.  The  facts  that  the  loss  was  the  result  of  a  fire  started  on  other 
property,  and  that  the  property  of  the  plaintiffs  in  error  was  not  ordered^ 
to^  l^e-  hiirned.  do  not  render  the  exemptions  of  the  policy  inapplicable7 
There  was  but  o'ne  fire.  It  was  ordered  by  civil  authority.  It  indirectly 
caused  the  loss,  and  there  was  no  intervening  cause:  Insurance  Co.  Tr 
Boon,  95  U.  S.  117;  Grand  Trunk  R.  R.  Co.  v.  Richardson,  91  U.  S.  454; 
Krippner  v.  Biehl,  28  Minn.  139. 

It  is  also  interesting  to  note  that  in  the  case  of 

HOCKING  v.  BRITISH  AM.  ASSUR.  CO., 
40  Ins.  L.  J.  799, 

Mr.  Justice  Gose,  speaking  for  the  Supreme  Court  of  Washington, 
says,  that  the  word  "indirectly"  was  not  limited  in  its  application 
to  "invasion,  insurrection,  riot,  civil  war  or  commotion,"  but  was 
equally  applicable  to  a  loss  caused  by  ''order  of  any  civil  authority." 
In  discussing  this  phase  of  the  case  then  under  consideration,  the 
learned  Justice  said: 

It  bases  its  exemption  upon  the  following  facts:  The  insured  died 
of  smallpox  the  day  preceding  the  fire,  and  was  removed  from  the  house 
for  burial  about  one  hour  before  the  fire  occurred.  The  fire  resulted 
from  a  fumigation  of  the  house  ordered  by  the  board  of  health.  At  the 
close  of  plaintiff's  testimony,  a  judgment  of  non-suit  was  entered.  The 
plaintiff  has  appealed. 

The  appellant  first  contends  that  the  word  '"indirectly"  has  refer- 
ence only  to  the  causes  preceding  the  phrase  "or  by  order  of  any  civil 
authority;"  that  this  is  made  plain  by  the  use  of  the  word  "by"  in  the 
phrase  last  quoted,  and  that  the  exemption  in  that  clause  is  available 
only  in  case  of  loss  occurring  "directly"  by  order  of  some  civil  authority. 
It  is  also  said  that  the  clause  "or  by  theft"  gives  support  to  this  view. 
We  think  that  such  a  construction  would  do  violence  to  the  language 
which  the  parties  have  seen  fit  to  use,  and  that  it  would  be  also  a 
strained  and  unnatural  interpretation  of  their  meaning.  As  was  laid  in 
Insurance  Co.  v.  Boon,  95  U.  S.  117,  24  L.  Ed.  395:  "Policies  of  insur- 
ance, like  other  contracts,  must  receive  a  reasonable  interpretation  con- 
sonant with  the  apparent  object  and  plain  intent  of  the  partiei.    This  if 

156 


Non-Liability  Matter 

entirely  consistent  with  the  rule  that  ambiguities  should  be  construed 
most  strongly  against  the  underwriters  and  most  favorably  to  the 
assured." 

It  is  also  contended  that  the  proximate  cause  of  the  fire  was  the 
negligence  of  the  health  officer,  and  that  the  fire  was  not  even  the  in- 
direct result  of  the  order  of  the  board.  It  is  argued  that  the  exemption 
was  only  intended  to  apply  to  a  case  where  the  property  is  destroyed  by 
some  direct  act  of  the  civil  authority  to  prevent  the  spread  of  fire  or 
disease  or  such  like.  We  think  the  contention  is  not  sound.  Putting 
aside  refined  distinctions,  it  is  obvious  that  the  preponderating  or  pro- 
ducing cause  of  the  fire  was  the  order  of  the  board  of  health  directing 
its  inferior  officers  to  ffrtnigate  the  house.  The  civil  authority  put  its  ■ 
own  agency  into  operation,  and  the  fire  was  the  indirect  result.  There  I 
was  no  intervening  cause.  The  proximate  cause  is  the  efficient  cause,  J 
the  one  which  puts  the  other  causes  into  motion.  Conner  v.  Manchester)' 
Assur.  Co.,  130  Fed.  743,  65  C.  C.  A.  127,  70  L.  R.  A.  106,  is  in  point.  In 
that  case  the  defendant  had  insured  a  crop*  of  grain  for  the  plaintiff 
against  loss  or  damage  by  fire.  By  order  of  the  board  of  supervisors  of 
the  county  in  which  the  insured  property  was  situate,  a  fire  was  started 
in  the  grass  upon  certain  pasture  land  at  a  point  three  or  four  miles 
distant  from  the  land  upon  which  the  plaintiff's  grain  was  situated,  for 
the  purpose  of  destroying  grasshoppers  and  averting  the  disaster  which 
their  presence  threatened.  The  fire  got  beyond  control,  spread  to  the 
plaintiflFs'  land  and  burned  their  grain.  The  policy  contained  a  clause 
identical  with  the  one  under  consideration.  In  applying  it  to  the  facts 
in  the  case,  the  court  said:  "The  facts  that  the  loss  was  the  result  of  ai 
fire  started  on  other  property,  and  that  the  property  of  the  plaintiff  inj 
error  was  not  ordered  to  be  burned,  do  not  render  the  exemptions  of  th( 
policy  inapplicable.  There  was  but  one  fire.  It  was  ordered  by  civil  au- 
thority. It  indirectly  caused  the  loss,  and  there  was  no  interveninj 
cause"— citing  Insurance  Co.  v.  Boon,  95  U.  S.  117,  24  L.  Ed.  395;  Gran( 
Trunk  R.  R.  Co.  v.  Richardson,  91  U.  S.  454,  23  L.  Ed.  356.  See,  also. 
Barton  v.  Home  Ins.  Co.,  42  Mo.  156,  97  Am.  Dec.  329.  The  case  of  In- 
surance Co.  V.  Boon,  supra,  contains  an  exhaustive  discussion  of  the 
principles  applicable  in  stipulations  like  the  one  under  consideration,  and 
supports  the  view  announced  in  the  text. 

Just  how  far  the  courts  might  go  to  sustain  the  clause  in  ques- 
tion where  there  was  merely  an  assumption  of  "civil  authority"  as 
distinguished  from  real  authority,  offers  a  grave  question,  and  I 
am  inclined  to  assume  that  the  burden  would  rest  on  the  insurer  to 
prove  that  those  directing  the  act  out  of  which  the  loss  in  question 
grew,  had  authority  so  to  do. 

In  the  case  of 

AMERICAN  CENTRAL  INS.  CO.  v.  STEARN'S  LUMBER  CO., 
41  Ins.  L.  J.  125, 

Chief  Justice  Hobson,  speaking  for  the  Court  of  Appeals  of  Ken- 
tucky, and  discussing  the  question  as  to  whether  the  direct  or  in- 
direct destruction  of  the  property  insured  by  persons  tinauthorized, 
or  in  other  words  without  "civil  authority,"  but  assuming  to  have 
such  authority,  would  relieve  the  insurer  from  liability  under  its 
policy,  said: 

THe  house  wai  burned  by  order  of  the  marshal.  The  power  of  the 
marakal  ia  such  catet  U  thus  defined  by  ttatuttt    "Tht  marihatt  and 


The  Fire  Insurance  Contract 

their  deputies  shall  have  in  each  state  the  same  powers  in  executing  the 
laws  of  the  United  States  as  sheriflFs  and  their  deputies  in  such  state  may 
have  by  law  in  executing  the  laws  thereof."  U.  S.  Compiled  Statutes 
1901,  §788. 

The  power  of  the  sheriff  in  executing  a  criminal  process  is  covered 
by  section  4583  of  the  Kentucky  Statutes,  and  section  40  of  the  Criminal 
Code:  "In  executing  a  writ  of  habeas  corpus  or  any  criminal  or  penal 
process  requiring  an  actual  arrest,  the  sheriff  or  other  officer  may  break 
open  the  outer  or  any  other  door  of  the  dwellings  or  other  house  of  the 
defendant,  or  of  any  other  person,  if  it  be  necessary  to  enable  him  to 
make  the  arrest."  Ky.  St.  4583  (Russell's  St.  §256.)  "To  make  an  ar- 
rest, an  officer  may  break  open  the  door  of  a  house  in  which  the  defend- 
ant may  be,  after  having  demanded  admittance  and  explained  the  pur- 
pose for  which  admittance  is  desired."     Criminal  Code,  §40. 

It  will  thus  be  seen  that  the  marshal's  power  is  the  same  as  the 
sheriff's,  and  that  neither  is.  authorized  to  burn  a  building  in  making  an 
arrest.  In  Goodman  v.  Condo,  12  Pa.  Super.  Ct.  466,  the  court  had  be- 
fore it  the  liability  of  a  sheriff,  in  a  Case  like  this,  for  burning  down  a 
house  in  which  a  felon  was  secreted,  in  order  to  arrest  him.  The  court  . 
held  the  sheriff  liable  for  the  loss  of  the  building.  It  said:  "The  sheriff 
in  this  case  does  not  rely  upon  any  law  which  required  this  particular 
act,  causing  the  damage  to  be  done,  and  prescribing  the  manner  in 
which  it  should  be  done.  He  stands,  therefore,  just  as  any  other  resi- 
dent of  the  village  in  which  these  occurrences  happened  would  stand,  so 
far  as  any  right  to  destroy  property  is  concerned.  It  is  true  it  was  his 
official  duty  to  arrest  the  felon;  but  so  was  it  the  duty,  though  not  offi- 
cial, of  the  resident  to  do  the  same  thing.  To  enable  him  to  perform 
his  duty  he  has  been  clothed  with  ample  power,  for  the  whole  posse 
comitatus  is  at  his  command.  He  may  break  open  doors  in  order  to  fol- 
low felons,  and  if  they  are  killed,  provided  they  cannot  be  otherwise 
taken,  it  is  justifiable,  though  if  they  kill  him  whilst  he  is  endeavoring 
to  arrest  them  it  is  murder.  Brooks  v.  Commonwealth,  61  Pa.  352  (100 
Am.  Dec.  645).  The  law,  since  it  has  thus  invested  him  with  such  ample 
power,  has  not  gone  further  and  authorized  him  to  destroy  property 
when  such  destruction  simply  removes  somewhat  of  the  danger  involved 
in  the  performance  of  his  duty.  The  arrest  of  a  felon  is  always  at- 
tended with  some  danger,  but  this  is  an  incident  of  the  office  of  sheriff. 
Its  extent  is  reduced  to  a  minimum  by  the  great  power  given  to  him, 
but  it  is  obvious  that  it  cannot  be  removed  entirely.  This  burned  house 
did  not  threaten  the  life  of  the  sheriff.  It  was  the  desperate  man  within 
it.  It  is  true  the  house  furnished  some  measure  of  protection  to  the  man 
within,  whilst  accomplishing  his  lawless  purpose;  but  its  destruction  can 
in  no  sense  be  said  to  have  removed  a  danger  which  threatened  the 
sheriff's  life.  So  long  as  the  lawless  purpose  existed,  so  long  was  there 
danger  to  the  sheriff.  It  is  evident,  therefore,  that  the  only  purpose  of 
destroying  the  house  was  to  render  the  arrest  less  dangerous.  In  this 
respect  it  was  simply  an  aid  to  and  in  ease  of  the  sheriff,  and  upon  prin- 
ciple must  be  paid  for  by  him.  Where  he  incurs  expense  or  inflicts 
damage  for  the  purpose  of  aiding  him  in  the  performance  of  his  duties, 
he  is  liable  personally  unless  the  law  has  provided  otherwise.  Rausch 
V.  Ward,  44  Pa.  389." 

/         The  deputy  marshal  in  the  case  before  us  had  no  more  authority  to 

/  set  the  house  on  fire  than  the  sheriff  in  the  case  cited.     The  loss  of  the^ 

/  house  was  not  due,  directly  or  indirectly,  to  the  order  of  any  civil  au-^ 

I   thority,  for  the  marshal  had  no  authority  to  burn  the  house.    He  was  not" 

I    a  civil  authority  for  this  purpose.     The  rioters  were  in  the  house;  the 

I  marshal's  posse,  acting  under  his  orders,  were  not  rioters.     The  loss  of 

the  house  was  not  due,  directly  or  indirectly,  to  the  riot  carried  on  by  the* 

men  within  the  house.     It  was  due  directly  to  the  wrongful  act*  of  the 

marshal  in  setting  fire  to  the  house  without  authority.    The  riot  wUhin 

158 


Non-Liability  Matter 

the  house  was  the  occasion  of  his  wrongful  act,  but  the  loss  of  the  house 
was  not  the  proximate  result  of  their  unlawful  acts.  The  loss  of  the 
house  was  the  direct  result  of  another's  unlawful  act,  which  intervened 
between  their  act  and  the  burning  of  the  house.  The  unlawful  act  of  the 
marshal  in  setting  fire  to  the  house  was  the  cause  of  the  loss.  It  neces-. 
sarily  follows  that  the  insurance  company  was  not  released  from  liability* 
by  the  clause  of  the  policy  above  quoted. 

The  case  of  American  Central  Ins.  Co.  vs.  Steam's  Lumber 
Co.,  just  quoted  from,  must  however,  be  read  in  conjunction  with 
the  law  as  laid  down  in  the  case  of  City  Fire  Ins.  Co.  vs.  Corlies, 
hereinbefore  reviewed,  where  the  court  in  meeting  the  charge  that 
the  Mayor  of  the  City  had  had  no  authority  to  order  the  destruc- 
tion of  the  building  in  question,  said: 

But  the  Mayor  acted  under  lawful  authority;  there  was  no  usurpa- 
tion of  any  kind.  Whether  he  had  the  concurrence  of  two  aldermen,  as 
the  statute  provides,  or  not,  there  can  be  no  doubt  of  his  common  law 
power  as  the  chief  magistrate  of  the  city  to  destroy  buildings  in  case  of 
necessity  to  prevent  the  spreading  of  a  fire.  Indeed,  the  same  thing  may 
be  done  by  any  magistrate  or  even  by  a  citizen  without  official  authority. 
Mayor  of  N.  Y.  v.  Lord,  17  Wend.  285. 

This  phase  of  the  question  is  not  without  its  difficulties,  but 
time  will  not  permit  me  just  now  to  discuss  it  further. 

Second. 

Loss  BY  Explosion. 

The  earliest  policies  contain  no  clause  with  reference  to  lia- 
bility fpr  losses  from  explosions,  and  as  a  rule  it  was  then  held  that 
such  a  loss  was  not  one  for  which  the  insurer  was  liable. 

An  exception  was  made,  however,  where  the  explosion  was 
itself  caused  by  fire. 

And  where  the  loss  resulted  partly  from  explosion  and  partly 
from  combustion,  it  was  held  to  be  within  the  terms  of  a  policy  in- 
suring against  "loss  or  damage  by  fire." 

13  Am.  &  Eng.  Encyc.  of  Law,  132-133. 

In  the  later  policies,  as  in  the  standard  form,  the  insurer  against 
fire  stipulates  for  exemption  from  liability  from  explosion.  And 
in  the  great  majority  of  cases  where  this  clause  has  been  under  con- 
sideration, it  has  been  upheld  and  a  recovery  from  loss  by  explo- 
sion denied. 

BRIGGS  V.  N.  A.,  etc.,  INS.  CO.. 

53  N.  Y.  446. 
ST.  JOHN  v.  AM.  MUT.  INS.  CO., 

11  N.  Y.  516. 
STRONG  V.  SUN  MUT.  INS.  CO., 

31  N.  Y.  103. 

EVANS  V.  COLUMBIAN  INS.  CO., 
44  N.  Y.  146. 

159 


The  FntE  Insurance  Contract 

There  ii  a  wealth  of  other  authority  to  support  the  clause  in 
question. 

The  case  oi 

HUSTACE  V.  PHENIX  INS.  CO., 
175  N.  Y.  29t, 

is  now  most  frequently  cited  as  an  authority  on  the  proposition 
now  under  consideration,  but  this  decision  must  be  taken  with  some 
caution  for  two  reasons, — first,  the  plaintiff  stipulated  himself  out 
of  court  by  conceding  that  before  ignition,  the  explosion  in  question 
"caused  said  building  to  fall  and  become  a  total  loss,"  and  second, 
the  clause  in  question  as  it  appears  in  the  standard  form  of  policy, 
was  apparently  not  correctly  printed  in  the  papers  on  appeal. 

It  is  quite  clear  that  when  the  insured  stipulated,  as  he  did, 
that  his  building  had  become  a  total  loss  by  reason  of  the  explosion 
in  question  before  any  fire  occurred,  he  put  himself  out  of  court. 

You  will  also  find  upon  a  careful  perusal  of  the  Hustace  case, 
that  the  clause  relating  to  the  loss  by  explosion  was  printed  in  the 
papers  on  appeal  with  the  punctuation  so  changed  as  to  materially 
affect  the  construction  that  should  be  given  thereto. 

Chief  Justice  Parker,  writing  for  the  Court  of  Appeals,  quoted 
the  clause  as  it  was  apparently  before  him,  in  these  words: 

This  company  shall  not  l»e  liable  for  loss  caused  directly  or  indi- 
rectly by  invasion;  insurrection;  riot;  civil  war  or  commotion;  military 
or  usurped  power;  or  by  order  of  any  civil  ^^.uthority;  or  by  theft;  or  by 
negligence  of  the  insured  to  use  all  reasonable  means  to  save  and  pre- 
serve the  property  at  and  after  a  fire  or  when  the  property  is  endangered 
by  a  fire  in  neighboring  premises;  or  (unless  fire  ensues  and  in  that  event 
for  damages  by  fire  only)  by  explosion  of  any  kind;     ♦     ♦     ♦. 

The  clause,  however,  as  contained  in  the  standard  form  is  as 
follows : 

This  company  shall  not  be  liable  for  loss  caused  directly  or  indi- 
rectly by  invasion,  insurrection,  riot,  civil  war  or  commotion,  or  mili- 
tary or  usurped  power,  or  by  order  of  any  civil  authority;  ♦  *  *  or 
(unless  fire  ensues  and  in  that  event  for  the  damage  by  fire  only)  by  ex- 
plosion    ♦     *     ♦. 

It  will  thus  be  readily  observed  that  the  semi-colons  placed  after 
the  words  "invasion,"  "in.sttrrection,"  "riot,"  "civil  war  or  commo- 
tion" and  "military  or  usurped  power,"  arc  errors  that  crept  into 
the  record.  There  should  have  been  commas  in  place  of  semi- 
colons. As  the  court  read  the  record,  it  held  the  words  "directly 
or  indirectly"  applicable  to  loss  by  explosion  as  well  as  to  loss 
caused  by  "invasion,"  "insurrection,"  "riot,"  "civil  war  or  commo- 
tion," "military  or  usurped  power,"  "or  by  order  of  any  civil  au- 
thority."   Futhermore,  as  the  court  apparently  read  the  record,  the 

14$ 


Non-Liability  Matter 

insurer  was  not  liable  for  even  the  loss  by  fire  that  followed  the 
explosion,  although  the  policy  itself  clearly  provides  the  contrary. 
By  express  words,  the  insurer  is  liable  in  case  fire  ensues  for  all 
damages  caused  by  the  fire  in  question.  Such  a  loss  is  undoubt- 
edly "indirectly"  caused  by  the  explosion,  and  the  Court  of  Appeals 
apparently  fell  into  error  in  so  construing  the  policy  as  to  make 
the  word  "indirectly"  applicable  to  a  loss  by  explosion. 

The  Hustace  case,  as  all  of  you  remember,  grew  out  of  the 
explosion  in  the  Tarrant  building  on  October  19th,  1900,  and  con- 
siderable litigation  followed. 

The  attorney  for  Hustace,  as  I  have  before  stated,  stipulated 
himself  out  of  court  by  conceding  that  his  building  was  a  total  loss 
caused  by  the  explosion  before  ignition,  but  other  attorneys  were 
not  similarly  caught,  as  evidenced  by  the  result  of  the  case  of 

EPPENS,  SMITH  &  WIEMANN  CO  v.  HARTFORD  FIRE  INS.  CO., 

99  App.  Div.  221. 

In  the  case  just  cited,  counsel  for  the  assured  raised  the  issue 
that  the  explosion  in  the  Tarrant  building  caused  the  ignition  of 
the  Eppens,  Smith  &  Weimann  building,  and  that  the  loss  therein 
was  caused  solely  by  fire.  And  further,  that  the  fall  of  the  building 
or  such  portions  of  it  as  fell,  were  the  result  of  internal  combustion. 

The  Eppens,  Smith,  Weimann  case  was  very  hotly  contested 
and  had  a  more  or  less  varied  career. 

At  the  first  trial  had  before  the  late  Mr.  Justice  Amend,  ap- 
proximately thirty  members  of  the  Fire  Department  decked  out  in 
the  full  splendor  of  their  uniforms,  test\^ed  more  or  less  consistently 
to  the  effect  that  immediately  upon  the  happening  of  the  explosion 
the  Eppens,  Smith,  Weimann  building,  with  others,  immediately 
collapsed,  and  then  followed  some  fire  in  the  ruins.  This  testimony 
was  met  by  about  an  equal  number  of  civilian  witnesses,  and  with 
the  case  in  that  shape  it  was  after  a  trial  lasting  substantially  a 
week,  submitted  to  the  jury  who  found  for  the  defendant. 

The  learned  court,  however,  at  the  instance  of  defendant's 
counsel,  had  charged  the  jury  among  other  things,  as  follows : 

That  if  the  front  or  Warren  street  wall  of  the  Fahys  Building,  or  a 
substantial  part  thereof,  was  shattered  before  fire  had  consumed  this 
property,  the  verdict  must  be  for  the  defendant. 

Immediately  following  the  verdict  of  the  jury  and  the  entry 
of  judginent  thereon  in  defendant's  favor,  the  insured  took  an  ap- 
peal to  the  Appellate  Division  of  the  Supreme  Court,  First  Depart- 

141 


f 


The  Fire  Insurance  Contract 

ment,  where  the  judgment  in  question  was  reversed  on  the  gunuid 
that  the  waU  in  question  might  well  have  been  ''shattered"  and  not 
yet  ''fall." 

The  Appellate  Court  therefore  held  that  the  charge  to  the  jury 
by  the  learned  Trial  Judge  to  the  effect  that  if  the  jury  found  that 
the  wall  had  been  "shattered"  was  reversible  error  and  a  new  trial 
was  ordered. 

On  the  retrial  of  the  case,  which  was  before  Mr.  Justice  Bowl- 
ing, now  of  the  Appellate  Division,  there  was  substantially  the  same 
conflict  in  testimony  and  the  result  w^as  a  disagreement  of  the  jury. 

Following  the  inability  of  the  jury  to  agree,  the  case  was  sub- 
mitted to  Mr.  Justice  Dowling  alone  on  the  testimony  taken  before 
him  and  the  jury,  and  after  the  submission  of  briefs,  a  decision  was 
rendered  in  favor  of  the  assured  which  w^as  later  affirmed  by  the 
Appellate  Division  and  the  Court  of  Appeals. 

From  the  foregoing,  it  is  clear  that  the  provision  in  the  standard 
p;)licy  which  eliminates  loss  by  explosion  is  valid  and  has  been  sus- 
tained by  ample  authority,  but  at  the  same  time  it  is  always  im- 
periled by  the  assured  raising  the  issue  as  to  whether  or  not  the 
loss  w^as  caused  by  the  explosion  or  by  fire  accompanying  or  imme- 
diately following  the  same. 

The:  "Fall"  Clause. 

As  all  of  you  are  no  doubt  aware,  the  standard  form  of  policy 

provides  that  the  insurer  shall  not  be  liable  under  the  following 

conditions : 

If  a  building  or  any  part  thereof  fall  except  as  the  result  of  fire,  all 
insurance  by  this  policy  on  such  building  or  its  contents,  shall  imniedi- 
atcTy  cease. 

The  language  used  is  clear  and  explicit,  and  in  my  opinion  the 

clause  is  entirely  valid  and  effective. 

Its  application,  however,  was  questioned  in  the  case  of 

LEONARD  V.  THE  ORIENT  INS.  CO. 
30  Ins.  L.  J.  980, 
where  Chief  Justice  Woods,  speaking  for  the  United  States  Circuit 
Court  of  Appeals  in  the  Seventh  Circuit,  said: 

In  Dows  V.  Insurance'  Co.  (127  Mass.  346),  where  the  action  was 
upon  fire  policies  containing  a  clause  concerning  explosions  like  that  in 
the  policy  before  us,  it  was  said,  on  the  authority  of  Scripture  v.  Insur- 
ance Co.  (10  Cush.  356)  that,  "the  explosion  in  the  upper  story  having 
been  caused  by  fire,  the  insurers,  if  no  clause  had  been  inserted  restrict- 
ing their  liability  for  losses  by  explosion,  would  have  been  liable  for  the 
losses,  whether  by  the  explosion  or  by  the  subsequent  fire,  to  the  amount 
of  the  insurance."  One  of  the  policies  also  contained  the  provision, 

162 


Non-Liability  Matter 

"If  a  building  shall  fall,  except  as  the  result  of  fire,  ail  insurance  by 
this  company  on  it  or  its  contents  shall  immediately  cease  and  deter- 
mine." 
in  respect  to  which  it  was  said: 

"The  question  is  whether  this  last  provision  is  applicable  to  the 
facts  of  the  case,  and  in  the  opinion  of  the  majority  of  the  judges,  it  is 
not.  The  provision,  being  introduced  by  the  insurers  and  for  their  ben- 
efit, is,  by  a  familiar  rule,  to  be  construed,  in  case  of  ambiguity,  most 
strongly  against  them.  It  appears  to  us  to  have  had  in  view  the  case  of 
a  building  falling  b}'-  reason  of  inherent  defects,  or  by  the  withdrawal 
of  the  necessary  support,  as  by  digging  away  the  underlying  or  adjacent 
soil.  It  might,  perhaps,  include  the  case  of  a  building  thrown  down  by 
a  storm  or  flood  or  earthquake.  But  it  would  be  construing  this  provi- 
sion too  liberally  in  favor  of  the  insurers  to  hold  it  to  include  the  case 
of  the  destruction  of  a  building  by  an  explosion  within  the  building 
itself,  and  of  a  fire  immediately  ensuing  upon  and  connected  with  such 
an  explosion,  the  measure  of  the  liability  for  which  has  been  carefully 
and  precisely  defined  in  the  previous  provisions  of  the  policy." 

The  fact  that  in  the  present  case  the  explosion  occurred  outside  of 
the  building  in  wliich  the.  insured  goods  were  kept  cannot  affect  the  lia- 
blliTy"^  the  insurer,  if  otherwise  liable,  for  the  loss  by  fire  which  imme- 
diately ensued.  If  there  had  been  no  fall  of  the  building  or  of  any  part 
of  it,  and  the  flame  attending  or  ensuing  upon  the  explosion  had  reached 
the  insured  goods  through  an  open  door  or  window,  liability  under  the 
policy  for  the  loss  would  be  beyond  dispute.  Is  it  to  be  said  that  there 
is  no  liability  simply  because  the  first  effect  of  the  explosion  was  to 
break  a  passageway  into  the  building  for  the  fire,  which,  in  a  few  mo- 
ments, followed?  Confessedly,  there  would  be  liability  if  the  flame  had 
entered  through  any  opening,  caused  or  not  caused  by  the  explosion,  if 
no  part  of  the  building  had  fallen;  but  should  there  be  no  liability  if  a 
piece  of  glass  falling  from  a  window  shattered  by  the  explosion  had 
given  admission  to  the  flames?  The  language  of  the  contract  is  clear 
that  if  any  part  of  the  building  shall  fall,  except  as  the  result  of  fire,  all 
insurance  on  building  or  contents  "shall  immediately  cease."  The  words 
are  surely,  as  they  have  been  declared  to  be,  "terse  and  expressive." 
They  are  unqualified  and  universal,  admitting  of  neither  interpretation 
nor  construction,  and,  if  applicable,  it  would  seem,  should  be  allowed 
their  literal  significance.  It  is  not  to  be  said  that  they  are  applicable, 
and  yet  not  to  be  applied  literally.  It  may  not  be  said  that  "any  part" 
of  a  building  must  be  deemed  to  mean  an  important  part,  or  such  a  part 
as  might  cause,  or  be  supposed  likely  to  cause,  or  at  least  to  enhance 
the  danger  of,  loss  by  fire.  "It  was  competent  for  these  parties  to  fix  the 
terms  of  their  agreement."  Where  they  wrote  and  subscribed  "any 
part,"  they  must  be  presumed  to  have  meant  any  part,  great  or  small,  if 
observable  or  readily  discoverable.  Even  if  it  could  be  said  that  the  part 
must  be  large  enough  to  cause  or  to  be  likely  to  enter  into  the  risk  of 
loss  by  fire,  the  qualification  could  mean  little,  because  conditions  are 
readily  supposable,  and  are  not  improbable,  in  which  the  fall  of  material 
of  small  weight  or  bulk  would  be  enough  to  start  a  fire.  Not  much  is 
necessary  to  overturn  a  stove  or  to  scatter  the  fire  of  an  open  grate  or 
hearth,  and  still  less  to  ignite  a  match.  If  there  had  been  a  window  on 
the  west  side  of  the  building  in  question,  the  falling  of  a  shutter  or  of  a 
pane  of  glass  would  probably  have  been  followed  by  the  same  loss  to  the 
plaintiff  in  error  which  ensued  upon  the  falling  of  the  corner  of  the 
building.  On  the  theory  of  strict  adherence  to  the  meaning  of  plain 
words,  these  propositions  cannot  well  be  denied;  and  upon  that  theory 
the  case  of  Kiesel  &  Co.  v.  Sun  Ins.  Office  of  London  (31  C.  C.  A.  515) 
is  urged  upon  our  attention  in  support  of  the  ruling  below.  The  case, 
however,  is  not  in  point.  The  policy  there  in  suit  contained  the  clauses 
now  under  consideration;  but,  there  having  been  no  explosion,  the  build- 
ing   fell,    and    the    goods    insured    were    burned,    and    the    question    was 

163 


The  Fire  Insurance  Contract 

whether  the  fall  was  caused  by  the  fire  or  by  a  gale  of  wind.  It  is,  per- 
haps, worth  while,  however,  to  observe  that  the  literal  significance  of  the 
contract  seems  to  have  been  departed  from  when  it  was  said  in  the  opin- 
ion that  if  the  building  "was  on  fire,  and  if  it  would  have  fallen  by  force 
of  the  wind  if  there  had  been  no  fire,  then  its  fall  could  not  be  said  to 
have  been  the  result  of  the  fire,  and  the  defendant  was  not  liable."  Any 
question  of  non  sequitur  in  the  statement  aside,  it  is  certainly  not  incon- 
sistent with  the  express  terms  of  the  contract  that  in  such  a  case  the  in- 
surer should  be  liable  for  the  damage  done  before  the  fall  occurs,  though 
not  caused  by  the  fire.  The  insurance  ceases  only  at  the  instant  of  the 
fall,  and  it  follows,  on  a  strict  construction,  that  "the  cause  of  the  fall" 
can  be  the  test  of  liability  only  from  that  instant.  The  case  before  us 
is  one  of  destruction  by  fire,  which  immediately  followed,  and  with  pro- 
priety may  be  said  to  have  been  caused  by,  an  explosion.  Whether  that 
explosion  was  caused  by  fire,  it  is  not  necessary  for  the  present  purpose 
to  consider.  See  Briggs  v.  Insurance  Co.,  53  N.  Y.  446.  The  liability  of 
the  insurance  company  for  fire  immediately  ensuing  upon  an  "explosion 
of  any  kind  or  lightning"  was  "carefully  and  precisely  defined"  in  a 
clause  devoted  to  the  subject^  and  we  agree  with  the  opinion  in  Dows  v. 
Insurance  Co.,  supra,  that  the  succeeding  clause,  whatever  its  construc- 
tion when  applicable,  should  not  be  deemed  "to  include  cases  of  destruc- 
tion by  explosion  and  by  fire  ensuing  upon  and  immediately  connected 
therewith."  In  this  way  the  two  clauses  may  well  stand  together,  neither 
interfering  with  the  legitimate  office  of  the  other;  while  if  the  latter  is 
to  be  applied  and  enforced  according  to  its  literal  meaning  in  every  case 
where,  by  reason  of  an  explosion,  or  otherwise,  the  building,  or  a  part 
of  it,  falls  just  before  or  during  a  fire,  which  otherwise  would  be  within 
the  contract,  it  will  lead  to  results  which  the  parties  to  policies  may  not 
both  be  supposed  to  anticipate,  and  which  the  courts  need  not  and  should 
not  prove. 

The  meaning  and  effect  of  the  "fall"  clause  was  well  defined 

by  Judge  Lacombe,  in  Western  Assurance  Co.  vs.  Mohlman,  83  Fed. 

Rep.  811,  where  at  page  819,  he  said: 

What  does  this  particular  clause  mean,  "If  a  building,  or  any  part 
thereof,  fall,  except  as  the  result  of  fire,  all  insurance  by  this  policy  on 
stich  building  or  its  contents  shall  immediately  cease?"  Manifestly,  it 
does  not 'merely  provide  that  the  insurer  will  not  be  liable  for  the  par- 
ticular variety  of  loss  by  fire  which  results  from  a  fall.  It  stipulates  for 
very  much  more,  viz.,  that  the  contract,  which  it  is  expressly  provided 
shall  normally  continue  for  a  year,  shall,  in  the  event  of  a  fall,  absolutely 
cease  and  determine,  so  that  if  a  fall  shall  take  place  which  in  no  way 
injures  the  property  insured  and  it  be  thereafter  destroyed  by  fire  hap- 
pening otherwise  than  by  fall  or  from  prohibited  causes,  the  insurer  is, 
nevertheless,  not  liable,  because  an  event  has  happened  which,  by  agree- 
ment of  the  parties,  put  an  end  to  the  contract  altogether. 

In  Kiesel  vs.  Sun  Insurance  Office,  88  Fed.  Rep.,  243,  the  Court, 
speaking  through  Judge  Sanborn  (p.  245)  says: 

No  words  occur  to  us  more  apt,  terse  and  expressive  than  those 
contained  in  the  policy  with  which  to  answer  this  question:  "If  a  build- 
ing or  any  part  thereof  fall,  except  as  the  result  of  fire,  all  insurance  by 
this  policy  on  such  building  or  its  contents  shall  immediately  cease."  If 
the  building  falls  before  the  goods  insured  are  damaged  by  fire,  and  if 
the  fall  is  not  caused  by  fire,  from  that  instant  the  insurance  ceased. 

The  purpose  of  parties  to  an  insurance  policy  in  making  their  con- 
tract is  to  indemnify  the  insured  against  all  destruction  or  damage 
caused  by  fire,  but  to  give  no  indemnity  against  any  destruction  which 
resulted  from  other  causes.  Naturally  the  dominant  thought  throughout 
the   entire  agreement  and  hence  the  key  to  its  interpretation  and   the 

164 


Non-Liability  Matter 

measure  of  the  liability  of  the  company  under  it,  is  the  cause  of  the  de- 
struction or  damage.  Generally  speaking,  if  that  cause  is  fire,  there  is 
liability.  If  fire  is  not  the  cause, "there  is  no  liability.  In  the  particular 
clause  in  issue  in  this  case  the  same  purpose  controls,  the  same  key  in- 
terprets, the  same  test  determines  the  liability.  If  the  fall  of  the  build- 
ing was  caused  by  fire,  then  the  defendant  was  liable,  whether  the  goods 
insured  were  burned  before  or  after  the  fall;  but  if  the  fall  occurred  be- 
fore the  fire  attacked  the  goods,  and  if  that  fall  was  caused  by  an  earth- 
quake, by  a  waterspout,  by  a  cyclone  or  by  any  other  cause  than  fire,  the 
express  agreement  was  that,  when  the  fall  occurred,  the  insurance  ceased 
and  there  was  no  liability,  if  the  building  was  on  fire,  and  if  it  would 
not  have  fallen  withoutthe  fire,  its  fall  might  well  be  said  to  have  been 
the  result  of  the  fire;  but  if  it  was  on  fire  and  if  it  would  have  fallen  by 
the  force  of  the  wind,  if  there  had  been  no  fire,  then  its  fall  could  not  be 
said  to  have  been  the  result  of  the  fire,  and  the  defendant  was  not  Hable. 

In  Nelson  vs.  Traders  Fire  Insurance  Co.,  86  App.  Div.,  66, 
the  east  wall  of  the  building,  which  was  the  east  wall  of  a  hotel,  col- 
lapsed,  causing  the  stores  immediately  above  and  some  portion  of 
the  roof,  or  stories  over  the  plaintiff's  stgre^to^  fall  into  the  hotel 
premises.  A  fire  started  in  the  ruins  and  in  attempting  to  extin- 
guish it  the  insured  property  was  damaged.  The  plaintiff's  prop- 
erty was  in  no  manner  injured  by  the  falling  walls,  and  but  for  the 
fire  they  would  have  suffered  no  damage.  It  was  held  that  the 
plaintiffs  were  not  entitled  to  recover  upon  the  policy. 

At  page  68,  the  Court  said : 

That  the  risk  of  fire  is  greatly  increased  by  the  collapse  of  a  por- 
tion of  a  building  is  self-evident.  In  fact,  in  the  case  at  bar,  except  for 
such  collapse,  no  fire  would  have  resulted  and  no  damage  would  have 
been  done  to  the  plaintiff's  property.  But  whether  the  falling  of  the 
building,  or  a  part  of  it,  did  or  did  not  increase  the  hazard,  it  is  unim- 
portant to  inquire.  The  defendant  had  a  right  to  provide  that  its  lia- 
bility should  cease  immediately  upon  the  happening  of  such  event,  if  its 
intention  so  to  do  was  expressed  in  clear  and  unambiguous  terms  in  the 
contract  of  insurance.  We  think  such  is  the  clear  meaning  of  the  lan- 
guage employed.  "If  a  building  or  any  part  thereof  fall,  except  as  the 
result  of  fire,  all  insurance  by  this  policy  on  such  building  or  its  contents 
shall  immediately  cease."  A  part  of  the  building  in  question  fell,  not  as 
a  result  of  fire,  and  the  defendant  simply  asks  that  it  be  determined  that 
all  insurance  by  this  policy  (the  policy  in  suit)  on  the  contents  of  such 
building  ceased  immediately  upon  the  falling  of  a  substantial  part  of 
such  building. 

The  Court  then  refers  to  the  Kiesel  case  (88  Fed.  Rep.,  243, 

supra),  and  after  approving  of  its  doctrine,  at  page  271,  concludes : 

In  the  case  at  bar,  a  substantial  part  of  the  building  in  which  the 
plaintiff's  property  was  located  fell,  not  as  the  result  of  fire,  and  by  the 
express  terms  of  the  policy  it  is  provided  that  thereupon  the  insurance 
upon  such  property  which  is  a  part  of  the  contents  of  the  building  im- 
mediately ceased.  We  think  a  reasonable  interpretation  of  the  clause  in 
the  policy  compels  us  to  hold  that  immediately  upon  the  falling  of  the 
east  half  of  the  building  in  question,  the  insurance  upon  plaintiffs'  prop- 
erty ceased. 

It  is  true  that  in  the  case  of  Western  Assurance  Co.  vs.  Mohl- 

mann  Co.,  83  Fed.  R.,  811,  it  was  held  that  the  burden  of  proof  was 

165 


The  Fire  Insurance  Contract 

upon  the  defendant  to  establish  that  the  building  fell  by  a  cause 
other  than  fire,  but  the  explosion  clause  of  the  standard  policy  was 
not  in  any  way  involved  in  that  case.  When,  however,  a  case  like 
the  one  now  before  the  Court  came  before  the  United  States  Circuit 
Court  Judge  Wallace  presiding,  for  decision,  Judge  Wallace  dis- 
tinctly and  unequivocally  ruled  that  the  existence  of  the  explosion 
clause  changed  the  rule  which  had  been  adopted  in  the  Mohlmann 
case,  and  that,  when  it,  the  explosion  clause,  was  present  for  con- 
sideration and  a  factor  in  the  situation,  the  burden  of  proof  was 
upon  the  plaintiff. 

In  the  case  of  Mattlage  vs.  German  American  Insurance  Co., 
tried  before  Judge  Wallace  and  a  jury  on  April  7,  1904,  Judge  Wal- 
lace said : 

Ordinarily,  I  should  say  that  the  defendant  had  the  burden  of  pn^of 
upon  this  issue,  but  the  case  is  a  somewhat  peculiar  one  in  one  respect. 
The  fall  of  the  building,  if  it  did  fall,  until  it  was  destroyed  by  fire,  was 
caused  by  an  explosion,  and  if  it  was  caused  by  an  explosion,  the  damag<" 
ensuing  must  fall  upon  the  plaintiff,  because  the  defendant  is  exonerated 
under  its  contract. 

Loss  Occasioned  by  Ordinance  or  Law  Regulating 
Construction  or  Repair. 

The  liability  of  the  insurer  under  our  form  of  policy  is  subject 
to  the  following  provision : 

This  company  shall  not  be  liable  ♦  ♦  *  for  loss  occasioned_J)y 
ordinance  or  law  reg'iTt^Tfifi'g  construction  or  repair  of  buildings     *     *     *. 

The  provision  just  quoted,  has  been  the  subject  of  very  spirited 
dispute  so  far  as  its  application  and  effect  is  concerned,  throughout 
the  various  jurisdictions  in  the  United  States  and  elsewhere,  and 
it  may  not  yet  be  said  that  the  matter  is  entirely  clear. 

Judge  Deitch,  in  his  Lectures  on  "The  Standard  Fire  Insurance 

Policy,"  said: 

On  those  policies  not  containing  the  above  provision,  the  company 
is  liable  for  a  total  loss  in  those  cases  where  a  building  is  damaged  to 
such  an  extent  as  to  come  within  the  law  or  ordinance  forbidding  its 
repair. 

HAMBURG-BREMEN  FIRE  INS.  CO.  v.  GARLINGTON, 

66  Tex.  103. 

LARKIN  V.  GLENS  FALLS  INS.  CO., 

(Minn.)  29  Ins.  L.  J.  833. 

BRADY  V.  INS.  CO., 

11  Mich.  445. 

MONTELEONE  v.  INS.  CO., 
47  La.  Ann.  1563. 

FIRE  ASS'N  V.  ROSENTHAL. 
108  Pa.  St.  474. 
These  authorities  lay  down  the  rule  that  such  ordinances  are  a  part 
of  the  contract.of  insurance,  and  that  the  insurance  company  is  bound 

166 


Non-Liability  Matter 

thereby.  The  company  is  entitled  to  what  remams  of  the. Jiuilding  ar  to 
have  the  value  oT^yKaT  remains  deducted  from  the  recovery.  The  rule 
announced  in  the  above  cases  would  not  apply  in  case  of  a  loss  where  the 
above  provision  appears  in  the  policy.  The  object  of  the  insertion  of 
this  provision  in  the  New  York  standard  form  of  policy  (and  the  same 
provision  is  found  in  nearly  all  of  the  other  standard  forms  of  policies) 
was_to  avoid  the  rule  announced  in  these  cases. 

In  discussing  a  somewhat  similar  condition,  Mr.  Milnes,  in  his 
hand-book  entitled  "Fire  Loss  Settlements,"  states  the  law  as 
follows : 

A  company  electing  to  rebuild  after  a  fire  occup}^  precisely  the 
sarnejposrtion  tjie_in^j^ed  would  if  r^liuilding-  apart  frqm  one,  as  regards 
any  disabihty  or  stipulation  imposed  by  any  local  authority.  The  in- 
sured might  be  req^uired  to  set  back  to  a  new  street  line,  or  to  leave  for 
the  future  a  certain  portion  of  the  site,  Formerly  'built  upon,  uncovered. 
By  Ihus  restricting  the  area  of  the  new  building  a  reduction  might  be  ef- 
fected in  the  cost.  The  company  would  be  entitled  to  the  benefit  of  this 
reduction,  whether  they  elected  to  re\nstate  or  adjusted  the  loss  upon  a 
cash  basis.  If,  by  reason  of  the  regulations  of  any  local  authority,  the 
cost  of  rebuilding  be  increased,  the  liability  of  the  company  does  not  fol- 
low such  increase,  but  stops  at  what  it  would  have  cost  to  rebuild  had 
such   regulation  not  been  in  force. 

In  the  case  of : 

McCRKADY  v.  THE  HARTFORD  FIRE  INS.  CO., 
61  A.  D.  (N.  Y.)  583, 

Mr.  Justice  Patterson,  in  speaking  for  the  full  court,  said: 

The  real  question  upon  this  branch  of  the  case  is:  What  is  the 
measure  of  liability  of  the  defendant  under  its  policy?  The  plaintiffs  in- 
sist that  it  is  the  value  of  the  building  as  it  stood  just  before  the  tire. 
Under  the  terms  and  conditions  of  the  policy  in  suit,  which  is  in  tiie 
standard  form  required  by  the  law  of  the  State  of  New  York,  the  par- 
ties have  themselves  agreed  upon  the  measure  of  liability,  the  extent  of 
it  being  distinctly  provided  for  by  a  stipulation  in  the  policy  binding 
upon  both  parties.  *  *  *  By  this  stipulation  the  parties  settled  for 
themselves  the  measure  of  damages  in  case  of  loss.  The  plaintifTs  ex- 
pressly agreed  that  the  indemnity  to  be  furnished  by  the  policy  sliould 
be  the  sum  that  it  would  cost  the  insured  to  repair  or  replace  the  build- 
ing with  material  of  like  kind  and  quality.  That  was  the  construction 
given  to  the  policy  by  the  trial  judge,  who^  in  charging  the  jury,  repeat- 
edly stated  to  them  that  on  the  question  di  damages  the  consideration 
by  which  they  were  to  be  governed  was,  what  it  would  cost  to  restore 
the  building  after  the  lire  in  order  to  place  it  in  the  same  condition  in 
which  it  was  before  the  fire  with  respect  to  the  quality  and  kind  of  ma- 
terial. *  *  *  fhe  standard  form  of  policy  was  prepared  under  the 
auhority  of  chapter  488  of  the  Laws  of  1886,  and  the  use  of  that  form  is 
made  by  statute  obligatory  upon  all  companies  doing  business  of  fire 
insurance  within  the  State  of  New  York.  When  the  policy  of  insurance 
in  this  case  was  issued,  therefore,  not  only  w'as  the  measure  of  damage 
a  stipulation  of  the  policy,  but  the  law  respecting  fire-proof  buildings 
had  been  in  operation  for  many  years  and  the  standard  policy  was 
adopted  in  view  of  existing  provisions  of  law  and  of  the  decisions  of  the 
courts  of  the  State  of  New  York  concerning  the  extent  of  the  liability 
of  fire  underwriters. 

We  will  assume  that  the  ordinary  rules  of  construction  apply  to  all 
the  provisions  of  the  standard  policy,  and  that  interpretation  will  be 
made  in  favor  of  the  assured  and  for  the  purpose  of  granting  him  stipu- 
lated indemnity  for  his  loss,  and  that  but  ior  the  stipulation  ti;e  measure 

167 


The  Fire  Insurance  Contract 

of  indemnity  would  be  the  difference  between  the  actual  cash  value  of 
the  property  just  before  the  fire  and  its  value  after  the  fire  if  there  is  a 
partial  joss;  but  here  the  parties  have  agreed  to  a  particular  limitation 
of  the  liability  which  "in  no  event"  shall  exceed  the  amount  to  be  ascer- 
tained within  that  limitation.  The  stipulation  does  not  refer  to  an  elec- 
tion by  the  insurer  to  rebuild,  but  to  the  measure  of  the  liability  of  the 
underwriter. 

We  think  the  construction  given  to  the  policy  by  the  trial  judge  was 
right,  and  that  the  issue  to  be  determined  by  the  jury  was  properly  put 
before  them. 

Judge  Cooky,  in  his  Briefs  on  the  Law  of  Insurance,  at  page 
3050,  discusses  the  question  now  under  consideration  and  concedes 
that  the  provision  of  the  policy  barring  loss  caused  by  ordinance 
or  law  regulating  construction  or  repair  is  valid  and  effective. 

Mr.  George  A.  Clement,  in  his  excellent  work  on  "Fire  Insur- 
ance as  a  Valid  Contract,"  Vol.  1,  p.  Ill,  states  the  rule  as  follows: 

The  limitation  in  the  standard  policy  that  the  liability  of  the  com- 
pany "shall  in  no  event  exceed  what  it  would  then  cost  the  insured  to 
repair  or  replace  the  same  with  material  of  like  kind  and  quality"  does 
not  refer  to  cases  where  the  company  elects  to  rebuild,  but  fixes  the 
measure  of  liability  in  all  cases,  and  is  not  affected  by  a  local  statute  in 
force  when  the  standard  policy  was  prescribed,  governing  the  construc- 
tion, alteration  or  removal  of  buildings. 

A  case  very  frequently  referred  to  affecting  this  question  is 
that  of 

L.ARKIN  V.  GLENS  FALLS  INS.  CO., 
29  Ins.  Journal,  p.  833, 

where  Mr.  Justice  Brown,  speaking  for  the  Supi-eme  Court  of  Min- 
nesota, said: 

The  principal  question  in  the  case  is  whether  plaintiff  suffered  a 
totaMoss.  It  is  not  claimed  that  the  building  was  totally  destroyed,  btrt- 
it  is  claimed  that  it  was  damaged  to  such  an  extent  as  to  render  it  prac- 
tically worthless  without  extensive  repairs,  and  that  it  could  not  be  re- 
paired, because  the  building  inspector  refused  to  grant  a  permit  author- 
izing the  same.  Defendant  did  not  elect  to  repair  the  building,  as  it  had 
a  right  to  do  under  the  policy,  but  offered  to  pay  the  cost  of  such  repair 
in  full  settlement  of  its  liability.  The  ordinances  of  the  city  of  St.  Paul 
create  and  establish  fire  limits  in  the  city  within  which  the  city  assumes 
a  supervisory  control  over  the  kind  and  character  of  buildings  to  be 
erected  therein,  and  of  the  alteration  and  repair  of  the  same.  Certain 
specified  kinds  or  classes  of  buildings  are  prohibited  from  being  erected 
therein,  and  conditions  under  which  a  building  within  such  limits  may 
be  altered  and  rejiaired  are  specified  and  pointed  out.  A  building  in- 
spector is  provided  for,  who  has  control  and  supervision  over  such  mat- 
ters. By  a  fair  construction  of  such  ordinances,  the  inspector  is  empow- 
ered to  condemn  buildings  located  within  the  fire  limits  whenever,  in  his 
judgment,  they  have  been  damaged  by  fire  or  decay  to  the  extent  of  50 
percent  of  their  value;  and  when  so  condemned  by  him,  and  when  he  re- 
fuses a  permit  to  make  repairs  on  such  a  building,  it  is  made  unlawful 
for  the  owner  thereof  to  make  the  same.  There  is  no  question  in  this 
case  but  that  the  insured  building  was  within  such  fire  limits,  and  no 
question  but  that  the  building  inspector  refused  a  permit  to  repair  the 
same  after  the  fire.  Nor  is  there  any  question  but  that,  without  proper 
and  suitable  repairs,  the  building  was  rendered  practically  worthless  by 
the  lire.    So  we  are  confronted  with  the  question  as  to  the  effect  of  such 

168 


NON-LlABILTTY  MATTER 

ordinances,  an4  the  action  of  the  inspector  thereunder,  on  the  contract 
of  insarance.  The  question  is  a  new  one  in  this  State,  and  an  examina- 
tion of  the  books  discloses  very  few  adjudged  cases  on  the  subject  in 
other  States.  We  hare  found  only  the  following:  Insurance  Co.  v.  Gar- 
lington,  66  Tex,  103;  Brady  v.  Insurance  Co.,  11  Mich.  445;  Brown  v.  In- 
surance Co.,  1  El.  &  El.  853;  Association  v.  Rosenthal,  108  Pa.  St.  474; 
Monteleone  y.  Insurance  Co.,  48  La.  Am.  1563.  These  authorities  lay 
down  the  rule  that  such  ordinances  are  a  part  of  the  contract  of  insur- 
ance, and  that  the  insurer  is  bound  thereby.  This  is  in  line  with  the  gen- 
eral doctrine  that,  where  parties  contract  upon  a  subject  which  is  sur- 
rounded by  statutory  limitations  and  requirements,  they  are  presumed 
to  hare  entered  into  their  engagements  with  reference  to  such  statute, 
and  the  same  enters  into  and  becomes  a  part  of  the  contract.  There 
would  seem  to  be  no  logical  reason  why  this  general  rule  should  not 
apply  to  a  cas«  of  this  kind.  The  parties  are  j)xesumed  to  know  of  the 
ordinances.  Th^y  directly  and  mateflally  afifect  their  rights  in  case  of  a 
loss^ttder  the  policy,  and  should  govern  and  control  in  the  adjustment 
and  settlement  of  such  loss.  Joyce,  Ins-  (§3170),  states  the  law  as 
follows: 

"If  tfee  policy  be  upon  a  building  of  such  material  and  character 
and  situation  with  relation  to  fire  limits  that  it  cannot  be  repaired,  be- 
cause of  a  city  ordinance  prohibiting  repairs  to  such  buildings  within 
fire  limits  when  damaged  to  the  extent  of  one-third  their  value  by  fire, 
*  ♦  *  and  tbe  insurers  are  prevented  from  repairing,  a  recovery  may 
be  had  for  a  total  loss." 

To  this  may  be  added  the  qualification  that,  if  what  remains  of  the 
building  after  the  fire  be  of  any  value  oyer  and  above  the  cost  and  ex- 
pense oi  removing  it,  such  excess  value  must  be  deducted  from  the  re- 
covery. The  evidence  on  this  subject  is  that  the  building  was  of  no  value 
whatever  over  a«d  above  what  it  would  cost  to  take  it  down  and  remove 
it  from  the  lot.  There  can  be  no  question  as  to  the  authority  of  the  city 
to  enact  the  ordinances  in  question.  They  are  in  the  interests  of  the 
public  welfare  and  within  the  police  power,  and  we  adopt  the  view  that 
they  beconae  an  integral  part  of  all  contracts  of  insurance  upon  property 
within  the  fire  limits  to  which  they  apply.  Counsel  for  defendant  docs 
not  seriously  contend  to  the  contrary. 

It  must  be  observed,  however,  that  from  the  reported  decision 
just  quoted  from,  it  does  not  appear  that  the  policy  there  sued  on 
contained  the  provision  protecting  the  insurer  against_lpss  caused 
hy  ordinance  or  law. 

Another  interesting  case  is  that  of 

HEWINS  V.  LONDON  ASSUR.  CORP.. 
184  Mass.  177, 

wherein  the  validity  of  the  clause  in  question  was  sustained. 

From  the  foregoing  authorities,  I  think  it  is  reasonably  well 
settled  that  the  provision  of  th€  standard  policy  now  under  dis- 
cussion is  valid,  protects  the  insurer,  and  limits  his  liability  to  that 
within  the  language  used. 


169 


X 

CANCELLATION  AND  SUBSTITUTION 

Martin  Conboy 
Of  the  New  York  Bar 

The  meaning  of  the  cancellation  clause  of  the  New  York 
Standard  Fire  Policy,  and  the  extent  of  the  authority  of  agents  and 
brokers  as  mediums  by  or  through  whom  cancellation  and  substitu- 
tion may  be  effected. 

Language:  of  Policy. 

The  cancellation  clause  of  the  New  York  Standard  Fire  policy 

(lines  51-55)  is  as  follows: 

This  policy  shall  be  cancelled  at  any  time  at  the  request  of  the 
insured;  or  by  the  company  by  giving  five  days'  notice  of  such  cancel^ 
lation.  If  this  policy  shall  be  cancelled  as  hereinbefore  provided,  or  be- 
"come  void  or  cease,  the  premium  having  been  actually  paid,  the  un- 
earned portion  shall  be  returned  on  surrender  of  this  policy  or  last 
renewal,  this  company  retaining  the  customary  short  rate;  except  that 
when  this  policy  is-  cancelled  by  this  company  by  giving  notice  it  shall 
retain  only  the  pro  rata  premium. 

While  the  general  title  of  this  chapter  is  "Cancellation  and 
Substitution,"  the  .subject,  for  reasons  more  particularly  of  interest 
to  us,  will  be  considered  under  two  main  heads,  viz:  (first)  the  in- 
terpretation of  the  cancellation  clause,  or  more  properly  what  must 
be  done  under  the  cancellation  clause  to  effect  cancellation,  and 
(second)  the  knowledge  and  authority  of  agents  and  brokers  in  re- 
lation to  a  determination  of  whether  cancellation  and  substitution 
have  been  eft'ected. 

Before  passing  to  the  question  of  authority  of  agents  and 
brokers  we  shall,  therefore,  consider  how  the  cancellation  clause  has 
been  construed  by  the  courts  and  what  has  been  held  to  be  neces- 
sary to  a  valid  cancellation  thereunder. 

I. 

Interpretation  oe  the  Canckei.ation  Ci^ause. 
The  phrase  that  has  caused  the  most  contention,  the  last  one, 
"except  that  when  this  policy  is  cancelled  by  this  company  by  giv- 
ing notice  it  shall  retain  only  the  pro  rata  premium,"  taken  by  itself 
seems  to  indicate  that  when  the  policy  is  cancelled,  that  is  at  the 
very  moment  of  cancellation,  inasmuch  as  only  the  pro  rata  pre- 
mium may  be  retained,  all  the  rest  of  the  premium  must  be  re- 
turned.    This  is  merely  an  application  to  the  summary  process  of 

170 


Cancellation  and  Substitution 

cancellation,  permissible  under  the  policy,  of  the  ordinary  equitable 
doctrine,  relating  to  cancellation  of  any  instrument,  that  unearned 
benefits  thereunder  must  be  returned.  It  is  only  equitable,  that  a 
return  ja£-lhe-  unearned  premium  should  be  a.  condition  precedent^ 
to  cancellation.  If  the  return  of  the  unearned  premium  had  been 
enjoined  upon  the  insurance  cQmpany  without  such  act  being  made 
a  condition  of  valid  cancellation,  it  would  be  possible  for  the  com- 
pany to  deprive  the  policyholder  of  his  insurance  leaving  him  only 
a  law  suit  for  his  premium. 

When  the  preceding  portion  of  the  clause  is  read,  however, 
some  reason  appears  for  the  contrary  point  of  view.  The  unearned 
prprrrrrnrPrTTTo'TTe'rptvrpp^^  <^n  the  surrender  of  the  policy,  and  the 
sentence  m^^which  this  direction  is  contained  is  quite  distinct  from 
that  describino^  the  method  of  cancellation.  Such  is  the  argument 
of  Chief  Judge  Parker  in  an  able  dissenting  opinion  in  the  leading 
case,  Tisdell  v.  New  Hampshire  Fire  Ins.  Co.,  155  N.  Y.,  163. 

That  a  return  of  the  unearned  premium  is  a  condition  pre- 
cedent to  cancellation  was  decided  by  Judge  Bartlett  at  the  trial 
of  the  earlier  case  of  Nitsch  v.  American  Central  Ins.  Co.  The 
decision,  affirmed  both  at  general  term  and  in  the  court  of  appeals, 
without  opinion,  appears  no  where  In  the  reports. '  For  a  time  the 
Appellate  Division  held  that  an  ofifer  to  refund  the  unearned  pre- 
mium was  sufficient  to  meet  the  requirements^  but  in  the  Tisdel 
case,  the  Court  of  Appeals,  following  some  earlier  cases  upon  ex- 
plicit clauses  in  poHcies  *  decided  that  an  actual  repayment  or  ten- 
der was  necessary,  and  the  law  is  well  settled  now  that  a  fire  in- 
surance company  defending  an  action  on  a  policy  upon  the  ground 
tha^it  had  cancelled  the  same  must  show  that  its  notice  of  cancella-  i 
tioii^was  accompanied  by  an  actual  tender  of  the  unearned  portion 
of  the  premium  paid.**  -^ 

The  majority  opinion  in  the  Tisdell  case  represents  the  weight 
of  authority '  although  Judge  Parker's  views  have  prevailed  in  the 
federal  courts,'  and  in  some  other  jurisdictions.* 

1  83   Hun.   614  and  152  N.  Y.,  635. 

2  For   Judge    Bartlett's    reasoning   see   the    quotation    in    note    to    Davidson    v.    Germania 

Ins.  Co..  13  L.  R.  A.,  N.  S.,  884. 

3  Walthear  v.   Pennsylvania  F.  Ins.   Co.,  2  App.   Div.   328;   Backus  v.   Exchance  F    Ins 

Co.,  26  App.   Div.  91.  t>        •         - 

4  Van  Valkenburgh  v.   Lenox  Fire  Ins.   Co.,   51    N.   Y.   465;   Griffiey  v.   New  York   Cen- 

tral Ins.  Co.,  100  N.  Y.,  417. 

5  C.  A.   Smith  Lumber  Co.  v.  Colonial  Assurance  Co.,   172  App.  Div.   149. 

6  German   Union   Fire   Ins.    Co.    v.    Clarke,    116   Md.,   622;    82   Atl.,   974;    Hartford    Fire 

Ins.  Co.  V.  Tewes,  132  111.  App.  321;  Chrisman  &  S.  Bkg.  Co.  v.  Hartford  In.s 
Co.  75  Mo  App.  310;  Aetna  Ins.  Co.  v.  McGuire,  51  111.  342;  Phoenix  Assurance 
Co.  V.  Hunger  Improved  Cotton  Machine  Mfg.  Co.  92  Tex.  297;  Philadelphia 
Linen  Co.  v.  Manhattan  F.  Ins.  Co.,  8  Pa.  Dist.  Ct.  261.  See  Taylor  v  Insurance 
Co.  of  North  America,  105  Pac.   (Okla.)   354  for  a  review  of  the  authorities 

7  Schwarzschild  &  Sulzberger  Co.  v.  Phoenix  Ins.   Co.,  124  Fed.  52;  El  Paso  Reduction 

Co.  V.  Hartford  Fire  Ins.  Co.,  121  Fed.  939;  see  also  Chadbourne  v  German- 
American  Ins.  Co.,  31   Fed.,  533. 

171 


The  Fire  Insurance  Contract 

There  is  a  suggestion  by  Judge  Vann  of  the  New  York  Court 
of  Appeals,  in  a  dissenting  opinion  in  another  case*  that  a  sur- 
render of  policy  is  necessary  to  a  cancellation  by  the  insured  ap- 
parently on  the  ground  that  a  return  of  the  unearned  premium  is 
necessary  to  cancellation. 

This  would  seem,  however,  to  be  applying  the  rule  in  the  Tis- 
dell  case  beyond  its  reason  for  the  phrase  upon  which  that  case  is 
founded  applies  only  to  cancellation  by  the  company. 

In  a  Virginia  case, "  the  agents  of  the  cancelling  company  had 
made  urgent  and  repeated  efforts  to  obtain  from  the  insured  pay- 
ment of  premiums  that  they  had  remitted  to  the  company  and  even- 
tually served  a  cancellation  notice  covering  certain  policies,  one  of 
which  was  involved  in  the  suit.    The  notice  concluded  as  follows : 

On  the  four  policies  mentioned  in  this  notice,  no  part  of  the  pre- 
miums has  ever  been  paid,  and  the  premiums  earned  for  the  time  they 
have  been  in  force,  including  costs  of  protest  of  drafts,  etc.,  amounts  to 
$36.28. 

The  return  premiums  on  the  three  policies  last  named  amount  to 
$43.08,  of  this  we  apply  $36.28  to  the  premiums  due  on  the  first  four 
policies,  leaving  balance  of  $6.80  to  be  paid  you  on  return  of  the  policies. 
Please  return  all  of  the  policies  without  delay. 

This  notice  was  sent  and  received  in  August.  The  insured 
treated  it  with  silence  and  proceeded  to  reinsure  part  of  the  prop- 
erties covered  by  the  cancelled  policies  in  other  companies.  In  the 
following  February  there  was  a  fire,  and  claim  was  made  t)n  the 
cancelled  policies,  it  being  contended  that  the  notice  of  cancellation 
was  insufficient,  because  the  unearned  premium  was  not  returned. 

There  were  two  recoveries  in  favor  of  the  insured,  both  re- 
versed, and  in  the  report  to  which  I  have  referred,  the  Supreme 
Court  of  Appeals  of  Virginia,  without  the  citation  of  a  single  au- 
thority, disposed  of  the  contention  made  by  the  insured  by  apply- 
ing the  $6.80  of  unearned  premiums  to  the  satisfaction  of  premiums 
on  the  policy  during  the  period  between  notice  of  cancellation  and 

8  Davidson   v.    German    Ins.    Co.,    13    L.    R.    A.    (N.    S.)    884;    65    Atl.    996,    where    an 

elaborate  foot-note  will  be  found;  Webb  v.  Granite  State  Fire  Ins.  Co.,  129  N.  W. 
19   (Mich.). 

9  "Whether  the  insurer  or  the  insured  is  the  actor  in  the  attempt  to  cancel,  cancella- 

tion is  not  complete  until  the  unearned  premium  is  returned.  (Tisdell  v.  New 
Hampshire  Fire  Ins.  Co.,  155  N.  Y.,  163,  165.)  If  the  insured  is  the  actor,  the 
surrender  of  the  policy  and  the  return  of  the  premium  are  concurrent  acts.  If  the 
insurer  is  the  actor,  the  notice  and  the  return  of  the  premium  are  sufficient  for 
the  insured  might  be  unwilling  to  surrender  the  policy."  Vann,  J.,  dissenting  in 
Buckley  v.  Citizens  Ins.  Co.,  188  N.  Y.,  399,  at  405. 

The  cases  where  cancellation  is  at  the  instance  of  the  insured  seem  all  to  be 
confused  with  a  cancellation  by  mutual  consent.  It  seems  a  curious  doctrine  to 
compel  the  insured  to  secure  the  unearned  premium  from  the  company  before  he 
can  cancel.  See  Ragley  Lumber  Co.  v.  Insurance  Company  of  North  America,  94 
S.  W.  185;  42  Tex.  Appeals,  511;  Stevenson  v.  Sun  Insurance  Office,  119  Pac.  529 
(Cal.  App.).  The  case  of  Farmers  Mut.  Ins.  Co.  v.  Phenix  Ins.  Co.  of  Brooklyn, 
90  N.  W.  1000;  65  Neb.,  14  reversed  (but  the  point  in  question  reaffirmed)  in  95 
N.  W.  3;  65  Neb.  14,  is  distinguished  on  the  ground  that  the  recovery  of  unearned 
premiums  was  what  was  there  involved. 

10  Hamburg-Bremen  Fire  In*.  Co.  v.  Browning,  48  S.  E.  2. 

172 


Cancellation  and  Substitution 

the  occurrence  of  the  fire  at  the  rate  of  $2.55  per  month,  thus  wip- 
ing out  the  margin  of  premium  and  effecting  a  cancellation  eo  in- 
stanti  by  what  might  not  inaptly  be  termed  a  legal  tour  de  force. 
The  conclusion  is  thus  stated: 

The  fire  did  not  occur  for  more  than  six  n>  ;nths  after  the  cancel- 
lation notice,  at  which  time  the  policy  sued  on  liad  long-  since  elapsed 
by  the  non-payment  of  premiums. 

Te:nde:r  op  Inte:rv^ning  Liabiuty  Unnkce:ssary. 

There  is  nothing  in  the  language  of  the  standard  policy  that 
requires  the  company  to  tender,  as  a  condition  of  cancellation,  the 
amount  due  on  any  intervening  liability. "  In  the  absence  of  any 
provision  making  payment  of  intervening  liability  a  condition  pre- 
cedent to  cancellation  of  the  policy  and  in  view  of  the  express  re- 
quirement for  payment  of  the  unearned  portion  of  the  premium,  the 
conclusion  would  seem  to  follow  that  in  order  to  effect  a  cancella- 
tion a  tender  of  the  amount  of  intervening  liability  either  in  full 
or  as  reduced  by  the  earned  portion  of  the  premium  Is  unnecessary. 
Another  reason  for  this  conclusion  is  that  the  loss  which  the  com- 
pany is  required  to  pay  is  no  part  of  the  benefit  that  it  obtains 
from  the  insured  and  which  vmder  the  equitable  doctrine  referred 
'io  at  the  outset,  as  well  as  under  the  explicit  determination  of  the 
courts  of  this  state,  must  be  returned  to  the  extent  that  it  is  un- 
earned. 

Form  of  Notick  of  Cancei.i.ation. 

The  notice  of  cancellation  must  state  unconditionally  the  de- 

termination  of  the  company  to  cancel  at  a  specific  time. "  A  no- 
tice by  the  agent  that  the  company  "will  cancel  the  policy  I  sent 
you,"  is  insufficient. "    If,  however,  it  is  clear  from  the  language  of 

11  A  dictum  in  American    Employers  &c.   Ins.   Co.   v.   Fordyce,   62  Ark.   562,  seems  op- 

posed to  the  text,  but  does  not  change  the  writer's  opinion.     It  is  as  follows: 

"If  the  entire  premium  had  been  paid  and  no  liability  had  accrued  between  the 
time  of  the  execution  of  the  policy  and  the  time  of  cancellation  the  insurer  might 
have  cancelled  the  policy  under  certain  conditions  tUerein  contained  by  refunding 
the  premium  less  the  pro  rata  portion  thereof  for  the  time  the  policy  was  in  force. 
If  in  the  meantime,  a  liability  had  accrued  cancellation  without  the  assent  of  as- 
sured could  only  take  place  by  refunding  the  premium,  less  the  pro  rata  for  the 
time  the  policy  had  been  in  force,  and  also  by  the  payment  of  intervening  lia- 
bilities." 

12  "No  particular  form  of  notice  is  prescribed.   It  is  only  necessary  that  the  company 

positively,  distinctly,  and  unequivocally  indicate  to  the  insured  that  it  is  its  inten- 
tion that  the  policy  shall  cease  to  be  binding  as  such  upon  the  expiration  of  five 
days  from  the  time  when  this  intention  is  made  known  to  the  insured;  and  it  does 
not_  matter  whether  this  information  is  conveyed  by  the  use  of  the  words  "Your 
policy  will  be  canceled  in  five  days,"  or  "Your  policy  is  already  canceled," 
Davidson  v.  German  Ins.  Co.,  13  L.  R.  A.   (N.  S.),  889. 

13  Gardner  v.   Standard  Ins.   Co.,   58   Mo.   App.   611;   Chrisman  &   Sawyer   Bkg.   Co.   v. 

Hartford  Ins.  Co.,  75  Uo.  App.  310;  McNillis  v.  Aetna  Ins.  Co.,  176  111.  App.  575. 
Where  the  notice  %o  a  mortgagee  was  signed  by  an  agent  without  showing  for 
whom  he  was  acting,  was  dated  in  a  different  town  from  that  in  which  the  prop- 
erty was  situated  and  t'le  name  of  the  mortgagor  was  so  blurred  as  to  be  illegible, 
It  was  held  insufficient." 

State  Ins.  Co.  of  Dcs  Moines,  Iowa  v.  Hale,  95  N.  W.  473;  1  Neb.  (unoff.)  191. 

173 


The  Fire  Insurance  Contract 

the  notice  that  the  company  wishes  to  determine  its  Uabihty  and 
fixes  the  time  of  termination,  the  notice  is  sufficient.     Thus,  a  no- 
tice expressing  a  ''desire  to  terminate  HabiUty"  and  stating  that  the~ 
po|_icy  "will  be  cancelled  on  our  books  on  the  14th  inst.,  five  _day.s 
fronTdate"  has  been  held  to  suffice"^ 

Manner  of  Giving  Notice. 

The  manner  of  giving  notice  has  thus  been  defined  by  an  able 
federal  judge: 

Our  conclusion  is  that  under  the  provision  of  an  insurance  policy 
that  it  may  be  cancelled  by  the  insurer  by  giving  notice  of  cancellation 
and  tendering  a  ratable  proportion  of  the  premium  to  the  insured  mail- 
ing the  notice,  or  a  copy  of  it,  and  the  return  premium  in  a  letter  post- 
paid and  addressed  to  the  insured  at  its  post  office  address,  or  delivering 
a  copy  of  the  notice  and  the  return  premium  to  an  agent  of  the  insured 
in  charge  of  its  office  and  business  are  sufficient  to  effect  the  cancellation, 
where  the  insured  is  a  foreign  corporation  and  all  its  officers  are  absent 
from  the  state  in  which  its  office,  its  principal  place  of  business,  and  thc- 
property  insured  are  situated." 

Form  of  Tkndi-r  of  UnfarnFd  Premium. 

The  directions  of  the  cancellation  clause  should  be  strictly  com- 
plied with."  A  tender  of  another  policy  for  a  part  of  the  insurance 
with  the  balance  of  the  unearned  premium  in  money  is  not  sufficient 
tender  in  states  following  the  Tisdell  case." 

When  Notice  Takes  Effect. 

Notice  of  cancellation  takes  effect  only  from  its  receipt."  Thus 
where  a  notice  of  cancellation  sent  by  an  insurance^bfflpa^ny  was 
/contained  in  an  envelope  which  bore  in  its  corner  the  name  of  the 
I  company's  agents  but  coupled  not  with  the  name  of  the  insuring 
company  but  that  of  another  company,  for  which  they  were  also 
agents,  and  the  envelope  thus  marked  was  received  but  laid  aside 
unopened,  it  was  held  that  there  was  not  sufficient  notice,  the  ac- 
tual notice  not  having  been  seen  by  the  addressee  before  the  fire 
and  the  envelope  not  being  so  marked  as  to  give  him  warning."  Thus 
also,  where  a  registered  letter  was  received  in  the  post  office  in  the 
town  of  the  assured's  residence  more  than  five  days  before  the  fire 
and  two  successive  notices  that  such  a  letter  had  been  received  were 

13-a     Berpson  v.   Builders  Ins.   Co.,  38  Cal.   541;   Ralston  v.   Royal  Ins.  Co.,   140   Pac.   552. 
American  Glove  Co.  v.  Pennsylvania  Ins.  Co.,  113   Pac.  688;   15   Cal.  App.   17. 

14  Sanborn,  J.    in  Liverpool,  London  &  Globe  Ins.   Co.  v.  Harding,  201  Fed.  515. 

15  Scheel    v.    German    American    Ins.    Co.    76    Atl.    507;    Northern    Pine    Crating    Co.    r. 

Liverpool,  London  &  Globe  Ins.  Co.,   143   Wis.   433. 

16  Quong  Tue  Sing  v.  Anglo-Nevada  Assurance  Corp.   (Cal.)   10  L.  R.   A.   144. 

17  Crown   Point  Iron  Works  v.  Aetna  Ins.   Co.,   127  N.  Y.,  608;   Davidson  v.   Germania 

supra;   Mullen  v.  Dorchester  Mut.  F.  Ins.  Co.,  121   Mass.   171;  Farnum  v.  Phoenix 
Ins.  Co..  83  Cal.  246;  Hartford  Ins.  Co.  v.  Tewes,   132  111.  App.  321. 

18  Fritz  V,  Pennsylvania  Fire  Ins.  Co.  (N.  J.)  88  Atl.,  1065;  50  L.  R.  A.   (N.  S.)  35. 

174 


Cancellation  and  Substitution 

placed  in  the  assiired's  letter  box,  the  assured  was  held  not  to  have 
sufficient  notice  because  he  did  not  actually  receive  the  letter  within 
five  days  of  the  fire." 

Under  this  topic  belongs  also  a  curious  case  which  recently 
arose  in  Alabama/"  The  policy  in  that  case  contained  the  provision 
that  "notice  of  cancellation  deposited  in  the  United  States  mail  post- 
^g^_DLep.ai4.  to  the  address  of  the  assured,  as  stated  herein,  shall  be 
suffident  notice,  and  the  check  of  the  company  or  its  duly  author- 
ized agent  similarly  mailed  a  sufficient  .tender  of  any  unearned 
premium."  The  notice  of  cancellation  with  check  enclosed  was  sent 
by  the  company  to  the  insured  by  registered  mail,  a  direction  being 
put  upon  the  envelope  to  return  if  undelivered  within  five  days.  But 
for  such  a  direction  the  postmaster  would  have  been  justified  under 
the  postal  regulations  in  retaining  it  for  any  period  under  three 
months,  if  he  thought  by  so  doing  he  might  deliver  it.  The  ad- 
dressee, the  insured,  was  out  of  town  when  the  letter  arrived  and 
as  he  did  not  return  for  more  than  five  days  thereafter,  he  nevei 
received  the  notice,  it  being  returned  to  the  company  pursuant  to 
instructions.  The  court  held  that  this  was  not  effective  notice  of 
caiicellation. 

-     --^  Hov^  Time  is  Computed 

The  time  is  not  computed  from  the  precise  moment  of  receipt 
nor  from  noon  of  the  day  thereof,  even  though  the  insurance  runs 
from  noon  to  noon,  but  the  time  provided  for  in  the  cancellation 
clause,  as  is  the  case  with  time  provisions  in  all  collateral  matters 
connected  with  the  insurance  policy,  is  computed  to  the  general  legal 
rule  "of  excluding  the  first  day  and  counting  the  days  as  legal  days 
beginning  and  ending  at  midnight."" 

It  seems  to  be  the  law  in  Maryland  that  a  notice,  although 
stating  that  five  days  notice  is  given,  which  specifies  a  date  upon 
which  the  cancellation  is  to  take  efi'ect  and  which  fails  to  reach  the 
insured  five  days  or  more  before  the  time  specified,  not  only  is  in- 
effective in  cancelling  the  policy  at  the  date  intended  but  is  utterly 
ineffective  to  cancel  the  policy  at  any  time."  This  seems  to  be  be- 
cause in  that  state  the  cancellation  of  the  insurance  company  on  its 
books  of  the  insurance  is  necessary.*  According  to  the  general 
weight  of  authority  no  act  on  the  part  of  the  company  other  than 

19  Potomac  Ins.  Co.  v.  Atwood,  118  III.  App.  349. 

20  American  Automobile  Ins  Co.  v.  Watts,  67   So.   758. 

21  Pennsylvania  Plate  Glass  Co.  v.  Spring  Garden  Ins.  Co.,  189  Pa.,  255;  42  Atl.   138. 

22  German    Union    Fire   Ins.    Co.    v.    Clarke,    116    Md.    622;    82    Atl.    974;    39    L.    R.    A. 

(N.   S.)   829. 

23  American   Fire  Ins.   Co.  v.  Brooks,  8*3   Md.   22. 

175 


The  Fire  Insurance  Contract 

giving  notice  and  making  proper  payment  is  necessar3L.to . cancelk- 
tion,"  while  a  notice  which  specifies  a  particular  time  when  cancel- 
lation shall  become  effective,  although  it  will  not  affect  a  cancellation 
until  five  days  after  its  receipt  is  not  invalid  though  received  within 
that  time  of  the  day  which  is  specified." 

Notice  to  ExcIvUde  Sunday. 

The  question  of  the  inclusion  or  exclusion  of  Sunday  from  the 
five  days  given  in  the  Standard  Fire  policy  after  notice  of  cancel- 
lation either  as  regards  an  intervening  Sunday  or  a  Sunday  upon 
which  the  five  days  begin  or  end  does  not  seem  to  have  arisen  in 
any  adjudged  case  in  this  country.  Oases  involving  similar  ques- 
tions in  regard  to  other  periods  of  time  are  so  common  that  it  is 
extremely  doubtful  whether  a  case  precisely  in  point  from  a  foreign 
jurisdiction  would  have  any  particular  force  as  settling  a  question 
of  insurance  law.  The  question  would  quite  as  probably  be  settled 
by  the  past  decisions  of  the  particular  jurisdiction  on  the  general 
subject  of  the  reckoning  of  time. 

Since  the  general  rule  of  computation  of  time,  which  has  been 
held  to  apply  to  the  computation  of  time  preceding  effective  can- 
cellation, excludes  the  day  from  which  computation  is  made,  no 
question  is  raised  if  the  notice  of  cancellation  reaches  the  insured 
on  a  Sunday.  Thus,  when  the  day  on  which  an  assessment  upon  a 
life  policy  fell  due  was  Sunday  and  thirty  days  of  grace  were  given 
the  thirty  days  began  to  run  at  midnight  of  Sunday." 

Where  the  last  of  the  five  days  falls  upon  Sunday  we  are,  how- 
ever, confronted  by  a  different  problem,  the  solution  of  which  de- 
pends in  great  measure  upon  whether  the  Standard  Fire  policy  is 
to  be  governed  by  the  rules  of  construction  applying  to  statutes  of 
this  State.  If  such  were  the  case,  not  only  would  the  specific  pro- 
visions of  the  General  Construction  Law"  be  applicable  in  this  juris- 
diction but  the  distinction  on  this  point,  which  is  quite  widely  recog- 
nized, between  the  computation  of  contract  and  statute  time  would 
come  into  operation.  It  seems  pretty  definitely  settled,  however,  that 
the  provisions  of  the  policy  although  prescribed  by  the  legislature 
are  to  be  construed  by  the  ordinary  rules  of  contract  construction. 

The  object  of  the  New  York  statute  is  declared  to  be  to  provide  a 
uniform  contract  or  policy  of  fire  insurance — not  to  prescribe  terms  which 

24  Bergson  v.  Builders  Ins.  Co.,  38  Cal.  541.  »        .         ^,         ^ 

25  Fritz  t.  Pennsylvania  Fire  Ins.  Co.   (N.  J.)   supra;  American  Glove  Co.  r.   Pen»«rl- 

vania  Fire  Ins.  Co.,  IS  Cal,  App.  11;  Philadelphia  Linen  Co.  r.  ManhatUn  Fire 
Ins.  Co.  of  N.  Y.,  8  Pa.  Dist.  Ct.  261;  Emmott  v.  Slater  Mut.  F.  Ins.  Co.  7  R.  I., 
562;  Commercial  Union  Fire  Ins.  Co.  v.  King,  156  S.  W.,  445;  Ralstoa  v.  Roysl 
Ins.  Co.,  140  Pac.  552. 

26  Aetna  Life  Ins.  Co.  v.  Wimberly,  23  L.  R.  A.  (N.  S.)  759;  119  S.  W.  855. 

27  Section  20. 

176 


Cancellation  and  Substitution 

should  seem  to  the  legislature  reasonable.  When  the  act  was  passed, 
the  form  of  policy  had  not  yet  been  adopted.  Its  preparation  was  left 
to  insurance  men,  to  wit,  the  New  York  Board  of  Fire  Underwriters, 
»nd  by  section  3  of  the  act  it  is  provided  that  any  policy  made  in  terms 
inconsistent  with  the  provisions  of  the  act  shall  nevertheless  be  binding 
upon  the  company.*' 

So  it  was  said  with  regard  to  the  arbitration  provision  of  the 

Massachusetts  Standard  policy.^ 

It  is  argued  for  the  defendant,  that  the  provision  may  have  more 
effect  to  bar  the  plaintiff's  action  if  construed  as  a  statute  than  if  regarded 
merely  as  a  contract.  If  the  Legislature  prescribes  and  annexes  to  a 
particular  riflfht  a  special  remedy  a  party  is  confined  to  that  remedy. 
Boyntoft  v.  Middlesex  Ins.  Co.,  4  Met.  21z.  But  this  provision  is  not  in 
form  a  legislative  enactment.  It  is  put  forward  by  the  Legislature  as  a 
contract  to  be  entered  into  by  the  parties,  and  to  derive  its  validity  from 
their  consent.  It  is  their  contract;  as  such  it  does  not  deprive  the  plain- 
tiff of  his  action  and  his  trial  by  jury;  it  not  to  be  presumed  that  the 
Legislature  intended  by  prescribing  the  form  of  contract,  and  prohibit- 
ing any  other  to  give  it  eflfect  in  depriving  a  party  of  rights  which  as  a 
contract  it  would  not  have. 

A  further  reason  is  that  the  terms  of  the  standard  policies  were 
used  prior  to  their  adoption  by  the  legislature  in  insurance  contracts 
and  "It  is  to  be  assumed  that  these  terms  were  used  in  this  policy  in 
the  sense  in  which  they  were  previously  used  and  defined."^® 

If  in  accordance  with  the  foregoing  authorities  we  assume  that 
the  Standard  Fire  Insurance  policy  is  to  be  interpreted  by  the  or- 
dinary rules  of  contract  construction,  we  may  rely  upon  a  great 
weight  of  authority'^  to  the  effect  that  the  period  will  not  expire/ 
until  Monday  night.  It  is  noticeable,  however,  that  this  rule  is/ 
usually  based  on  the  ground  that  performance  of  a  contract  upoii 
Sunday  would  be  against  law  or  invalid. 

Such  being  the  case,  the  assured  was  under  no  obligation  to  do 
what  would  have  been  not  only  an  illegal  act  but  also  one  which  the 
other  party  was  not  bound  to  recognize.  In  this  view  of  the  case  there 
was  no  iuch  default  on  the  part  of  the  assured  in  not  paying  the  pre- 
mium fully  due  on  the  Ist  of  October  as  should  be  held  to  terminate  the 
policy.'* 

Similarly  the  principal  case  against  the  foregoing  proposition" 
is  based  upon  the  assertion  that  the  performance  of  a  contract  on 
Sunday  would  be  both  lawful  and  valid. 

28  Richtrdi  on  Insurance  (2nd  6d.),  53. 

29  Reed  y.  Washington  Ins.  Co.,  138  Mass.  572. 

30  Joka  Daris  k  Co.  y.  Insurance  Co.  of  Nortk  America,  115  Mich.  382;  see  also  to  the 

same  effect  KolHt*  t.  Equitable  Trust  Fire  Ins.  Co.,  99  N.  W.  892:  Chichester  v 
N.  H.  Fire  Ins.  Co.,  74  Conn.  510;  51  Atl.  545. 

31  The  Harbinfer,  50  Fed.  941:   Striker  y.  Vanderbilt,  27  N.  J.  L.,  68;   Salter  y    Burt 

20  Wend.  205;  Ayery  v.  Stewart,  3  Conn.  69;  Campbell  v.  International  Life  As- 
surance Soc,  4  Bosw.  298;  (this  case  and  that  of  Amis  v.  Kyle  [infra]  contain 
elaborate  histories  of  Sabbath  observance);  Barrett  v.  Allen,  10  Ohio  426;  Balk- 
will  y.  Bridteport  .Wood  Furnishing  Co.,  62  111.  App.  663;  Post  v.  Garrow  18  Neb 
682;  26  N.  W.  580;  Warne  y.  Wagoner,  15  Atl.  307;  Porter  y.  Pierce.  120  N.* 
Y.  217. 

S3     Hammond  v.  American  Mutual  Life  Ins.  Co.,  10  Gray,  306. 

33  Amis  y.  Kyle,  3  Yerg.  3l;  see  also  Mingus  v.  Britchet,  14  N.  C,  78;  Kilgour  y. 
Miles.  6  GUI  &  J.  268. 

177 


The  Fire  Insurance  Contract 

Although  in  the  instance  w«  are  considering  the  contract  does 
not  require  any  act  to  be  done  on  the  final  day  and  therefore  may 
seem  to  differ  from  the  ordinary  case  it  would  appear  that  the  gen- 
eral rule  would  apply,  first,  as  was  remarked  in  a  New  Jersey  case," 
"So  to  hold  is  to  put  this  case  in  accord  with  the  great  weight  of 
authority  and  is  consistent  with  the  well  settled  rule  that  so  far  as 
fair  construction  of  the  language  used  will  permit,  the  conditions 
and  provisions  of  a  policy  with  reference  to  forfeiture  should  be 
sldctly  constructed  in  favor  of  the  insured  and  against  the  com- 
pany;" second,  because  the  point  is  so  comparatively  trivial  that 
public  convenience  would  seem  to  require  a  uniform  rule  rather 
than  one  based  upon  nice  reasoning  in  each  case ;  and  third  because 
the  object  for  which  the  five  days'  notice  is  given  in  an  insurance 
policy  is  to  allow  the  insured  to  obtain  a  new  insurance  policy  in 
another  company,  which  would  be  practically  difficult  on  Sunday.'" 
The  last  reason  would  apply  equally  well  to  Sunday  occurring 
between  the  first  and  last  of  the  five  days  as  to  one  falling  upon  the 
last  day.  Upon  this  point,  however,  the  authorities  are  by  no  means 
so  clear.  (The  rule' is  laid  down  by  a  considerable  number  of  cases, 
notably  in  Michigan  and  Massachusetts  that 

when  a  statute  fixes  a  limitation   of  time  within  which  a  particular  act 
may  or  may  not  be  done  if  the  time  limited  exceeds  a  week,  Sunday  is 
\included  in  the  computation;  but  if  it  is  less  than  a  week,  Sunday  is  cx- 
Jcluded.    This  is  the  established  rule  of  interpretation  in  this  state.'" 

The  cases  supporting  this  view  that  have  been  examined  have 
been  without  exception  cases  of  statute,"  and  the  commentator  to 
the  anonymous  case  in  2  Hill  (N.  Y.)  375  makes  the  assertion  that 
the  rule  is  confined  to  statutory  interpretation.  No  reason  appears 
for  this  distinction,  however.  The  cases  against  the  foregoing  rule 
are  quite  numerous.'*  and  one  at  least-  applies  the  rule  which  it  lays 
down  as  well  to  contracts  as  to  statutes.*" 

34  Bohles  v.   Prudential  Ins.  Co.,  86  Atl.  438. 

35  Bard  v.  Firemen's  Ins.  Co.,  108  Me.  506;  81  Atl.  870;  Rosen  v.  German  Alliance.  106 

Me.   229;    76  Atl.   688;    Hartford   Fire  Ins.    Co.   v.  Tewes,   132  111.   App.   321;   Conti- 
nental Ins.   Co.  V.  Donell.  25  Ky.   Law  Rep.    1501. 

36  Cunningham  v.   Mahon,   112  Mass.  58. 

37  Hannum    v.    Tourtellot,    10    Allen    494;    Tuttle    v.    Boston,    215    Mass.    57;    Haley    v. 

Young,  134  Mass.  364;  Cowley  v.  McLoughlen.  141  Mass.  181;  Campfield  v.  Cook, 
92  Mich.  626;  Fellmen  v.  Mercantile  F.  &  M.  Ins.  Co.,  116  La.  723;  Thayer  v. 
Felt.  4  Pick.  354;  Craig  v.  U.  S.  Accident  &  Health  Co..  61  S.  E.  423  (S.  C); 
Minor  v.  McDonald,  140  .S.  W.  401;  Snell  v.  Scott,  2  Mich.  N.  P.  108;  Anony- 
mous, 2  Hill  375;  LeFavdur  v.  Bartlett>  42  N.  H.,  555;  Mason  v.  Thomas,  36  N. 
H.  302;  Tuttle  v.  Gates,  24  Me.  395;  Whipple  v.  Williams,  4  How.  Pr.  27  State  ex 
rel  State  Pharmaceutical  Assn.  v.  Michel,  52  La.  Ann.,  926;  49  L.  R.  A.  218;  in 
New  York  the  case  of  Whipple  v.  Williams  is  disapproved  in  Taylor  v.  Corhiere, 
8  How.  Pr.  385. 

38  Cressey  v.  Parks,  75  Me.,  387;  46  Am.  Rep.  406;  German  Savings  Bank  v.  Cady,   114 

la.,  228;  Anderson  v.  Baughmen,  6  Mich.  298;  Corey  v.  Hiliiker,  15  Mich.  314; 
State  v.  Green,  66  Mo.  631;  Keter  v.  Ry.  Co.,  86  N.  Car.,  346;  Payton  v.  State,  35 
Tex.  Crim.  508;  Obeer  v.  Steer,  28  Cir.  Ct.  Rep.  (Ohio)  620;  Adams  v.  State,  35 
Tex.  Crim.  285;  Martin  v.  Sunset  Tel.  &  Tel.  Co.,   18  Wash.  260. 

39  Bowles  v.  Brauer,  89  Va.  466. 

178 


Cancellation  and  Substitution 

Bearing  in  mind  the  object  of  the  five  days  provision  and  the 

difficulty  of  securing  insurance  on  Sunday,  it  would  seem  that  the 

following  reasoning  of  Lord  Chief  Justice  Ellenborough  would  be 

peculiarly  applicable  to  the  situation  in  question  :^^ 

Lord  Ellenborough,  C-  J.  The  object  of  the  rule  is,  that  the  bail 
should  have  four  days  allowed  them  to  search  the  ofifice  that  they  may 
know  whether  it  be  necessary  to  render  their  principal  or  not.  That 
being  so  and  Sunday  not  being  a  day  on  which  any  search  can  be  made 
the  bail  would,  if  Sunday  were  reckoned  as  one  of  the  days  only  have 
three  entire  days  during  which  they  could  search  the  office.  I  am  there- 
fore of  opinion  that  the  ca.  sa.  should  have  lain  in  the  office  four  entire 
days  exclusive  of  the  Sunday;  and  consequently  that  the  proceedings  are 
irregular. 

Strict  Complia.nxf:  May  Bk  Waivkd. 

An  insurance  policy  may  be  cancelled  by  agreement  betvveen 
the  parties  and  the  right  to  fiv^  days  notice  or  the  return  of  the 
unearned  premium  may  be  waived.  A  surrender  of  the  policy  by 
the  insured  to  tlie  coni{)any  w  ill  be  generally  held  to  be  such  waiver,*^ 
not,  however,  if  it  appear  tlial  tlie  insured  vras  ignorant  of  his 
rights.''-  A  formal  sun-ender  of  the  policy  is,  however,  only  impor- 
taQt^as  evidence  of  such  an  agreement  and  cancellation  may  be  made 
immediately  without  return  of  premium  or  surrender  of  tlie  policy 
if  there  is  a  meeting  of  the  minds  of  the  parties  to  that  effect.^''  'The 
requirements  of  the  policy  as  to  the  cancellation  by  the  insurance 
company  ai-e  inserted  foi-  the  benefit  of  the  assured,  and  may  be 
waived  by  him,''^''  It  must,  of  course,  appear  that  the  act  upon 
which  the  alleged  waiver  depends  was  authorized  by  the  party  to  be 
bound  thereby.'*^ 

40  Howard  v.   Smith.   1    Barn.    &   Aid.   528. 

41  Buf-Mey   v.    CU'/eTie    Ins     C'i  .    118   N.    V     399;    Gorge    Hotel   v.    Liverpool,    London   & 

Globe  Ins.  Co.,  122  .^rp.   Div.   152:  KelUy  v    Aetna  Ins.  Co  .  84   S.    E.   502. 

42  Rosen    v.    German    Alliance    Ins.    Co.,    76    Atl.    688.       Bragg    v.    Royal    Ins.    Co.,    98 

Atl.  632. 

43  Hillock    V.    Traders    Ins.    Co.,    54    Mich.    532    (opinion    by    Cooley,    C.    J.);    Cox    v. 

Farmers  Mut.  F.  Ins.  Co.,  133  Ga.,  175;  see  Home  Ins.  Co.   v.   Chattahoochie  Lum 
ber  Co..  126  Ga.  334. 

44  Hancock  v.  Hartford  Fire  Ins.  Co.,  81   Misc.    (N.  Y.)    159,   163. 

45  Northern   Pine   Crating   Co.    v.    Liverpool,   London   &   Globe,   143   Wis.,   433. 

The  following  quotations  from  a  very  recent  case  in  Pennsylvania  indicate  further 
complications  that  may  arise  out  of  the  surrender  of  policies  by  the  insured  to  ^he 
in.surer  and  the  pos.sible  interpretation   of  the   act  as  a   waiver. 

"The  agent's  version  of  the  affair  is  that  he  was  directed  by  the  company  to 
cancel  the  policy,  that  he  went  to  the  insured  and  without  indicating  for  which 
company  he  was  acting,  told  him  that  he  had  to  reduce  the  line  of  insurance  held 
by  him  and  that  the  insured,  the  plaintiff,  told  him  that  he  would  give  him  all  the 
policies  and  that  he  should  select  the  one   that   he   wanted."     *     *     ♦ 

"Takin;?  the  agent's  story,  plaintiff's  direction  to  him  was  merely  a  permission 
to  the  agent  to  make  his,  the  agent's,  selection  of  a  po'icy  for  cancellation.  It 
may  well  be  argued,  that  the  act  of  cancellation  was  the  act  of  the  company 
through  its  agent,  that  the  indefinite  permission  given  without  relation  to  any  par- 
ticular policy  constitutes  no  waiver  of  the  provisio.*  of  the  company  requiring  no- 
tice of  cancellation." 

"The  account  of  the  transaction  as  given  by*  the  plaintiff  diffej^s  very  mate- 
rially from  the  above.  He  asserts  that  the  agent  told  him  one  of  the  policies  had 
to  be  changed  but  the  agent  could  not  recall  which,  but  thought  he  could  tell  if 
he  saw  them  all,  that  the  plaintiff  then  gave  him  all  the  policies  and  asked  him  to 
keep  them  in  his  safe.  The  policy  in  question  required  five  days'  notice  of  can- 
cellation.    Of  course,   if  the  plaintiff's  story  was   believed  by   the  jury   there   could 

179 


r 


The  Fire  Insurance  Contract 

In  determining  to  whom  notice  must  be  given,  the  general  principle 
is  that  the  notice  must  be  given  to  the  person  upon  whom  rests  the  ob- 
ligation to  pay  the  premium.^^ 

Th^  Right  of  Mortgagsks. 

This  notice  to  the  party  responsible  for  premiums  is  not,  how- 
ever, always  sufficient.  A  mortgagee  is  entitled  to  the  same  notice 
ugon  cancellatlQiuby  the  company  a s"tlie  insured  himself  would  be 
and  this  is  true  independently  of  the  mortgagee  clause  if  the  policy 
provide  thatihe  loss  is  payable  to  the  mortgagee.*'^ 

It  has  been  held  under  the  Maine  Standard  policy,  and  the  same 
reasoning  would  apply  to  the  New  York  policy,  that  the  mortgagor^ 
may  not  cancel  the  insurance  as  regards  the  mortgagee  by  giving 
notice  to  the  company,  unless  he  also  gives  jiotice  to  the  mQrtgagee.*'^ 
!        So  also  the  consent  of  the'  mortgagee  of  the  insured  premises 
to  the  cancellation  ol  the  policy,  without  the  knowledge  of  the  in- 
sured, is  ineffectual  and  cannot  deprive  the  latter  of  his  rights." 
1        Since,  under  the  cases,  the  mortgagee  clause  constitutes,  in  addi- 
tion to  the  contract  with  the  mortgagor,  a  separate  and  independent 
contract,  whereby- the  mortgagee's  interest  is  insured,  notice  to  the 
mortgagee  of  cancellation  of  the  mortgagee  clause  may  be  in  prac- 
tice a  very  effective  method  of  ending  liability  to  the  mortgagor, 
when  it  is  difficult  to  serve  notice  on  the  latter, 
i        The  question  of  the  effect  of  a  notice  of  cancellation  sent  to 
the  insured  upon  the  interests  of  parties  unnamed  in  the  policy  and 
only  included  by  virtue  of  such  a  clause  as  "on  account  of  whom 
it  may  concern,"  "their  own  or  held  by  them  in  trust  or  on  commis- 
sion" or  similar  clauses  does  not  seem  to  have  been  answered  in 
any  cases. 

be  but  one  result  and  that  would  be  a  verdict  in  his  favor."     ♦     ♦     • 

"A  contract  for  insurance  providing  for  notice  cannot  be  cancelled  without  it. 
Where  a  polic;r  ha»  been  delivered  by  the  insured  to  the  local  agent  at  his  request 
and  the  condition  as  to  this  delivery  is  disputed  as  to  whether  it  was  eo  sur- 
rendered for  cancellation  or  correction  the  treatment  of  the  policy  raises  a  disputed 
fact  which  is  properly  for  the  jury.  Mauk  v.  Commercial  Union  Ass.  Co.,  7  Pa. 
Super.  Ct.  633." 

'  Davis  V.  Continental  Ins.  Co.,  60  Pa.  Super.  Ct.  341. 

146     Coolcy's  Briefs  on  Insurance,  p.  2796. 

^7  Latten  r.  Royal  Ins.  Co.,  45  N.  J.  L.  453,  where  the  court  said:  "On  the  plainest 
principles  of  justice,  the  insurer,  under  such  a  stipulation  cannot  terminate  the 
contract  of  insurance  by  withdrawing  it  before  the  expiration  of  the  term  speci- 
fied in  the  contract  without  notice  to  the  mortgagee." 

This  was  in  a  cast  in  which  the  premium  had  been  paid  by  the  mortgagor  and 
no  more  explicit  provision  existed  in  the  policy  in  regard  to  the  mortgagee  than 
"Loss,  if  any.  payable  to  Fanny  Latten  and  Angelica  Latten,  mortgagees." 

Rawle  V.  American  Central  Ins.  Co.,  17  S.  E.  1013;  94  S.  C.  299;  Glasscock  v 

I  Liverpool,  London  &  Globe  Ins.  Co.,   188  S.  W.  281    (—  App.  Tex.). 

48  Gilman  v.  Commonwealth  Ins.,  112  Me.  528;  92  Atl.  721;  L.  R.  A.  1915,  c.  758. 

49  Peterson  v.  Hartford  Fire  Ins.  Co.,  87  111.  App.,  567,  reversed  on  question  of  orac- 

tice  in  187  111.  395. 

The  text  to  th«  contrary  in  16  Am.  &  Eng.  Ency.  of  Law  (2nd  Ed.),  page  873, 
for  which  the  case  of  Mueller  t.  San  Francisco  Ins.  Co.,  187  Pa.  309,  is  cited  as 
authority,  is  discussed  and  declared  to  be  unsound  in  Continental  Ins.  Co  v 
I'arkcs.   142  Ala.  650,  at  p.  656. 

180 


Cancellation  and  Substitution 

One  test  for  determining  whether  notice  of  cancellation  must 
be  given  to  persons  other  than  the  person  liable  for  premium^ 
whetHersuch  persons  were  individually  contemplated  when  the  con- 
tract  ^^as  made.^®  Subject  to  this  qualification,  all  persons  who  are 
by  the  terms  of  the  J'^^^'^y.Jll^*^r.t£^d-  i!lJIi£^l1^flil^^"S  ^*  ^-JQ^g^ 
should  receive  such  notice.^"^ """ -^ "       '  ""^ 

When  goods  are  held  in  trust  it  is.  of  course., lawful  for  the 
trustee  to  insure  them  in  his  own  name  and  hemay  recover  for  the 
eirtTre  value  liolding  the  excess  over  his  own  interest  in  them  for 
tlig^Benefit  of  those  who  have  entrusted  the  goods  to  hinr^  Under 
such  circumstances  it  would  seem  that  notice  to  the  assured  would 


protect  the^ompany  against  the  interest  o£  thcJienefk-i^iriev-because 
it  is  inferable  that  he  is  their  agent  to  insure  and  keep  insured^and, 
therefore^  to  receive  notice  of  cancellation. 

The  force  of  this  argument  lies  in  the  difference  between  such 
an  insurance  and  that  under  a  mortgagee  clause.  It  is  believed  that 
this  view  is  not  controverted  by  the  case  of  Utica  Canning  Company 
against  Home  Insurance  Company.^^  In  that  case  Lewis  DeGroff 
8c  Son  were  insured  by  policies  containing  a  commission  clause,  and 
when  their  warehouse  burned  down  there  w-as  injured  a  quantity 
of  beans  belonging  to  the  plaintiff.  The  plaintiff  requested  DeOroft* 
&  Son  to  include  the  value  of  its  beans  in  the  proofs  of  loss  and 
collect  the  same  from  the  insurance  company  for  its  benefit,'ibut 
DeGroff  &  Son  refused  so  to  do.  It  later  requested  DeGroff  &  Son 
to  bring  a  suit  on  the  policies  or  permit  the  plaintiff  to  sue  in  their 
name  on  the  policies,  and  was  again  refused.  The  loss  which  was 
not  the  entire  amount  of  the  insurance  was  paid  DeGroff  &  Son,  and 
in  settlement  the  latter  gave  to  the  insurance  company  a  receipt, 
attempting  the  cancellation  of  the  policies.  This  was  on  December 
30th,  1907.    On  the  18th  November  preceding  the  plaintiff  had  filed 

50  "Of  course,   it  niust  be  made  to   appear  that   the   owner   was  in   the   intention   of  the 

perst  n  effecting  the  insurance  when  the  contract  was  made  (1  Phillips  on  Ins.,  p. 
198.  "Sec.  383).  Such  intention  need  not  have  fastened  at  the  time  of  entering 
into  the  contract  upon  the  very  person,  who,  when  the  contract  matures,  seeks  to 
take  the  benefit  of  it.  Otherwise  policies  to  commission  merchants,  warehouse- 
men, factors  and  persons  in  the  position  of  these  plaintiffs  in  which  are  clauses 
of  this  general  nature,  would  be  of  little  avail.  For  obviously,  it  cannot  be  fore- 
seen who  will,  in  the  course  of  the  term  of  the  policy  come  into  such  relations 
with  them.  And  it  is  to  be  assumed  that  everyone  was  in  the  intention  of  the  in- 
surer, who  subsequently  with  design  takes  such  relations  to  him  as  brings  him 
within  the  clauses  of  the  policy.  The  intention  must  have  been  to  effect  insur- 
ance for  any  person  and  all  persons  who  during  the  running  of  the  policy  should 
have  goods  within  its  description  of  property  insured." 

Wearing  v.  Indemnity  Fire  Ins.  Co.,  45  N.  Y.  606,  613. 

See  also,  Hagan  v.   Scottish  Ins.  Co.,  186  U.   S.  432. 

51  Rawle  v.  American  Central  Ins.   Co.,  77  S.   E.   1013;   45   L.   R.  A.    (N.   S.)   463;   cf., 

Mueller  v.   Southside  Fire  Ins.   Co.,  87   Pa.   St.   403. 

52  California  Ins.  Co.  v.  Union  Compress  Co.,  133  U.   S.  at  409;  Munich  Assurance  Co. 

v.  Dodwell  &  Co..  128  Fed.  410;  Home  Ins.  Co.  v.  Baltimore  Warehouse  Co.,  93 
U.  S.  527;  Symmers  v.  Carroll,  149  App.   Div.   641. 

53  132  App.   Div.   420, 

181 


The  Fire  Insurance  Contract 

its  proofs  of  loss  in  a  suit  in  its  own  name  against  the  insurance  com- 
pany and  it  was  allowed  to  recover.  It  will  be  seen  from  the  fore- 
going facts  that  the  case  recognizes  the  right  of  theinsured. under 
a  commission  clause  to  recover,  tlae  whole  amount  and  the  case 
goeFno  further  than  to  allow  recovery  by  the  bailor  in  case  a  bailee 
^  wrongfully  refuses  to  sue  in  his  behalf. 

A  case  in  Alabama  which  it  is  interesting  to  consider  with  the 
foregoing  is  that  of  Snow  v.  Carr."  In  that  case  Snow,  a  seller  of 
musical  instruments  and  other  merchandise,  was  insured  under  the 
commission  clause.  The  fire  which  destroyed  his  place  of  business 
caused  damage  exceeding  the  amount  of  the  insurance  to  his  own 
property,  and  also  destroyed  a  piano  belonging  to  the  plaintiff,  Carr. 
Snow  did  not  include  the  cost  of  the  piano  in  his  proofs  of  loss  and 
refused  to  share  the  proceeds  of  the  policy  with  the  plaintiff  on  the 
ground  that  he  had  the  right  to  satisfy  his  own-  claim  first.  It  was 
held  that  the  plaintiff  could  recover  her  proportionate  share  of  the 
insurance  from  Snow. 

It  would  seem  from  the  Alabama  case  that  DeGroff  &  Son, 
the  insured  in  the  New  York  case,  might  have  prevented  any  recov- 
ery by  the  plaintiff  against  the  insurance  company  had  they  made 
proof  of  loss  for  the  entire  damage  to  the  goods  insured,  which 
would  have  included  the  plaintift''s  beans,  and  limited  the  plaintiff's 
remedy  to  a  suit  against  themselves.  The  attempted  cancellation 
was,  of  course,  invalid  as  to  the  plaintiff  because  made  by  them  after 
loss  and  after  the  proofs  had  been  submitted  by  the  plaintiff". 

Ei^FE^CT  01?  Assignment. 

An  assignmentofjhe  policy  assented  to  by  the  company  and 
accompanying'Tconve}^ance  of  the  insured  property  to  the  assignee^' 
constitutes,  according  to  the  better  authority  a  novation,  and  giveT" 
riseTo  a  new  contract  between  the  insurer  and  the  assignee.^^'    Cases 

54  "'er  Ala.  363.  ,         ,     ,  ,  ,  . 

55  "If.   indeed,   on   a  transfer   of   the   estate,    the   vendor   assigns    his   policy    to    the    pur- 

chaser and  this  is  made  known  to  the  insurei;,  and  is  assented  to  by  him,  it  con- 
stitutes a  new  and  original  promise  to  the  assignee,  to  indemnify  him  in  like  man- 
ner, whilst  he  retains  an  interest  in  the  estate;  and  the  exemption  of  the  insurer 
from  further  liability  to  the  vendor,  and  the  premium  already  paid  for  insurance 
for  a  term  not  yet  expired  are  a  good  consideration  for  such  promise  and  coiibii- 
tute  a  new  and  valid  contract  between  the  insurer  and  the  assignee.  But  such  un- 
dertaking will  be  binding,  not  because  the  policy  is  in  any  way  incident  to  the  es- 
tate, or  runs  with  the  land,  but  in  consequence  of  the  new  contract.  Even  the 
assignment  of  a  chose  in  action,  with  the  consent  of  the  debtor,  and  a  promise 
on  his  part  to  pay  the  assignee,  constitutes  a  new  contract  on  which  the  assignee 
may  sue  in  his  own  name." 

Shaw,  C.  J.,  in  Wilson  v.  Hill,  3  Met.  66;  see  also  Ellis  v.  Insurance  Co  of. 
N.  A..  32  Fed.  646;  Virginia-Carolina  Chem.  Co.  v.  Sundry  Ins.  Cos.  108  Fed 
451;  Shearman  v.  Niagara  Fire  Ins.  Co.,  46  N.  Y.  526;  Stecn  v.  Niagara  Fire  In.s 
Co..  89  N.  Y.  314;  Hooper  v.  Hudson  River  Fire  Ins.  Co.,  17  N.  Y  424-  Citv 
Fire  Ins.  Co.  of  Hartford  v.  Isaac  Mark,  4.S  111.  482;  Kimball  v.  Monarch  ins  Co 
70  la.  513;  Bayless  v.  Merchants  Town  Mutual  Ins.  C!o.,  106  Mo.  App.  684-  lio'ue 
Mutual  Ins.  Co.  v.  Nichols,  72  S.  W.  440;   BuUman  v.  North  British  &  Mercantile 

182 


Cancellation  and  Substitution 

in  which  the  pohcy  is  assigned  after  a  loss  or  in  which  the  assignee 
is  merely  made  the  appointee  to  receive  the  money  upon  loss  should 
be  carefully  distinguished.  The  usual  example  on  the  latter  transac- 
tion is  one  in  which  the  policy  is  assigned  as  collateral  security  either 
by  itself  or  accompanying  a  mortgage  of  the  property.  The  holdings 
in  such  cases  have  sometimes  thrown  doubt  on  the  general  prin- 
ciple.^ 

A  novation  may  be  analyzed  into  two  constituent  contracts,  one, 
to  which  the  insurance  company'isa  stranger,  by  which  the  assignor 
invests  the  assignee  with  the  right  to  collect  the  money  when  due 
in  his  stead;  the  other,  between  the  assignee  and  the  company, 
whereby  in  return  for  the  relinquishment  of  the  claim  of  the  as- 
signee, the  insurer  enters  into  a  new  contract  of  insurance."  It  is 
evident  that  without  the  preliminary  assignment  the  new  contract 
with  the  insurance  company  would-be-mthaut consideration.  So  it 
has  been  held,  where  there  was  no  contract  ever  entered  into  with 
the  assignor  that  that  fact  constitutes  a  defense,  against  the  as-. 
^gnee.^*  As  to  the  result  when  the  policy  was  procured  by  misrep- 
resentation of  the  assignor,  the  cases  are  in  disagreement.^^  When 
the  assignor  commits  a  breach  of  the  contract  such  as  leaving  the 
premises  unoccupied  or  allowing  them  to  be  encumbered  and  the 
violation  continues  past  the  time  of  assignment,  the  acquiescence  by 
the  assignee  In  the  continuance  of  such  cause  of  forfeiture  will  be 
sufficient  to  forfeit  the  new  contract  as  against  himself.^" 

Where,  however,  the  effect  of  the  assignor's  breach  has  ceased 
before  the  assignment,  the  new  contract  with  the  assignee  will  be 
considered  as  a  compromise  of  the  assignor's  claim.  Brewer,  J.,  has 
thus  stated  the  principle  :^^ 

But  it  is  said  there  is  really  no  consideration  for  this  contract  on 
the  part  of  the  company;  that  the  breach  of  the  policy  by  the  assignor 
forfeited  all  right  to  the  unearned  premium;  and  therefore  the  company 
received  no  consideration  for  any  promise  to  insure  for  the  unexpired 
term.  The  assignment  of  this  policy  is  an  assertion  practically  by  the 
assignor  of  a  right  to  an  unearned  premium,  and  the  claim  of  such  un- 

Ins.  Co.,  159  Mass.  119. 

The  foregoing  cases  are  to  the   effect   that  any   cause   of   forfeiture   committed 

prior  to  the  assignment  by  the  assignor  will  not  be  a  defense  against  the  assignee. 

The  Ellis  case  supra  is  the  best  on  this  point.     It  is  by  Brewer,  J.,  and  covers  the 

whole  subject. 

56  The  cases  cited  in  19  CYC  635  are  largely  of  this  kind  although  certain   cases  con- 

tain passages  directly  opposed  to  the  doctrine  above  stated.  Wilson  v.  Mut.  Fire 
Ins.  Co.,  174  Pa.  St.  554.  Reed  v.  Windsor  Co.  Mut.  Fire  Ins.  Co.,  54  Vt.  413. 
Mr.  Richards  does  not  approve  of  the  novation  theory  (3rd  ed.),  p.  355,  but  see 
J.  B.  Ames  "Novation"  6  Harv.  L.,  Rev.  184. 

57  James  B.  Ames  "Novation"  (supra). 

58  McCIuskey  v.  Pro  v.  Wash.  Ins.  Co.,  126  Mass.  306. 

59  Citizens  Fire  Ins.  Soc.  &  L.  Co.  v.  Doll,  35  Md.  89  and  Ellis  t.  Council  Bluffs  Ins. 

Co..  64  la.  507. 

60  Ellis  V.  State  Ins.  Co.,  68  Pa.  578;  Ins.  Co.  of  N.  A.  v.  Garland,  108  III.  220. 

61  Elhs  V.  Ins.  Co.  of  N.  A.,  32  Fed.  646.     The  three  foregoing  cases  brought  by  plain- 

tiff Ellis  all  arising  out  of  the  same  fire  offer  the  most  instructive  comparison  in 
regard  to  the  point  in  question. 

183 


The  Fire  Insurance  Contract 

earned  premium,  presented  to  the  assignee,  is  assented  to  by  the  com- 
pany when  it  consents  to  the  assignment.  It  matters  not  that  there  rnay 
have  been  no  actual  right  to  such  unearned  premium,  for  the  recognition 
and  compromise  of  a  claim  is  consideration.  Further  than  that,  there 
would  be  the  injury  to  the  assignee  as  well  as  the  benefit  to  the  insurer 
to  be  considered. 

Let  us  suppose  that  the  insurance  company  seeks  to  cancel  the 
policy  in  the  hands  of  the  assignee,  is  then  the_as^[g[niTa_ent_to  be 
considered  an  admission  by  the  company  that  the  premium  has  been 
paid  so  as  to  obligate  it  to  pay  the  unearned  portion  upon_cancella- 
tion?  Such  is  a  possible  interpretation  of  Mr.  Justice  Brewer's 
words.  But  no  reason  appears  why  the  company  admits  anything 
more  by  the  assignment  than  that  the  obligation  to  pay  upon  the 
occurrence  of  a  loss  has  attached.  It  is  submitted  that  the  above 
quotation  was  not  intended  to  mean  more  than  this. 

Where  the  principle  that  an  assignment  with  consent  of  the 
insurer  constitutes  a  new  contract  is  fully  recognized,  it  would  seem 
that  the  assignee  could  incur  no  liabihties  for  premiums  due  from 
the  original  Insured.  When  he  sues  on  the  policy,  therefore,  such 
premiums  would  not  be  set  off.  Such  is  the  case  when^n^jdinary 
contract  is  transferred  with  the  consent  of  the  obligor,^^  and  the 
same  rule  would  seem  to  be  applied  to  insurance  law.^^ 

Insot.vency  of  Company. 

While  there  are  some  contrary  decisions,  the  weight  of  authority 
supports  the  proposition  that  on  the  judicial  adjudication  of  the  in- 
solyency  of  a  stock  insurance  company  and  the  appointment  of  a 
receiver  the  outstanding  policies  of  the  company  are  /^^o  facto  can: 
celed,  and  that  a  claim  for  a  loss  thereafter  occurring  is  not  a  prov- 
able claim  against  the  company.  (14  Ruling  Case  Law,  p.  853, 
where  the  principal  authorities  are  collected.) 

Request  by  Insured. 

Finally  on  this  branch  of  the  subject  it  should  be  noted  that 
cancellation  of  the  policy  and  return  of  the  unearned  premium,  at 
the  "request"  of  the  insured^  are  mandatorily  imposed  upon  the 
company  by  the  Insurance  Law  (Ch.  XXVIII  of  the  Consol.  Laws, 
sec.  122).  Ah  instructive  case  on  what  constitutes  a  "request"  for 
cancellation  by  the  insured  is  referred  to  in  the  footnote.^* 

62  Lane  v.  Winthrop,   1   Bay,   116   (S.   C)    1   Am.   Dec,  599;   Mowry  v.   Todd,   12   Mass. 

.281;  Thompson  v.  Emery,  27  N.  H.,  267;  King  v.  Fowler,   16  Mass.  397;  Henry  v. 
Brown,  19  Johns.  49. 

63  Phillips  V.   Merrimack  Mut.   Fire  Ins.  Co.,  Tenn.  Cush.   350. 

64  Boutwell  v.  Globe  &  Rutgers  Fn-Q  ins.  Co.,  193  N.  Y.  323,  reversing  117.  App. 

Div.   104. 

184 


Cancellation  and  Substitution 

II. 

Knowlkdgk  and  Authority  of  Agknts  and  Brokers. 

It  is  a  general  rule  of  the  law  of  agenc)^  that  an  agent  may  not 
serve  adverse  interests.  This  principle  has  a  very  important  bearing 
upon  the  numerous  varieties  of  agent  that  intervene  between  the 
insurance  company  and  its  policyholders  and  is  continuously  de- 
manding consideration  in  cases  arising  out  of  an  exercise  of  the  right 
of  cancellation.  While  an  intermediary^  between  the  two  parties/ 
cannot  be  as  to  the  same  matter  agent  for  both,  at  the  same  time  he 
cannot  be  agent  for  neither.  The  parties  must  deal  either  person- 
ally or  through  their  respective  agents,  never  through  strangers. 
Although  an  agent  may  not  act  for  both  parties  in  regard  to  the 
same  matter,  he  may  act  for  one  party  in  regard  to  one  matter  and 
for  the  other  in  regard  to  a  closely  related  one. 

These  simple  propositions  are  involved  when  we  consider  the 
position  of  an  inc;nrar\r^  ^I'gk^^  who,  having  secured  insurance  for/ 
a  cj.ient,  receives  a  notice  frgmjhe  company  to  cancel  it.  Although 
he  was  the  agent  of  the  insured  to  procure  the  insurance,  he  is  or-l 
dinarily  held  not  to  be  the  insured's  agent  to  receive  a  notice  of  can-! 
cellation.^^  It  has  been  suggesterl^^  that  his  position  is  not  that  of  an 
agent  for  the  company,  that  he  is  a  mere  stranger  and  that  the  can-i 
cellation  sought  to  be  effected  in  this  manner  is  invalid.  ) 

However,  there  is  abundant  reason  and  authority  for  the  propo- 
sition that  a  broker  may  occupy  such  relations  to  an  insurance  com- 
pany as  to  be  its  agent  in  many  ways,  including  the  receipt  of  premi- 
um moneys.^^ 

The  custom  of  communicating  notice  of  cancellation  in  this 
manner  ''doubtless  had  its  origin  in  the  desire  of  insurance  agents 
to  retain  the  good  will  of  brokers  with  whom  they  had  dealings. 
It  is  to  the  advantage  of  the  broker  to  have  the  opportunity  to  sub- 
stitute other  insurance  for  a  cancelled  policy  and  thereby  prevent 
the  loss  of  his  commissions  or  of  the  business  of  the  assured  his 
principal.  There  is  no  objection  to  the  insurance  agent  favoring 
the  broker  by  giving  him  the  conduct  of  the  cancellation,  provided 

65  Hermann  v.  Hartford  i^ire  ms.  uo.,  luu  in.   Y.,  411;  Farnum  v.  Phoenix  Ins.  Co.,  83 

Cal.  246;  Hartford  Ins.  Co.  v.  Tewes,  132  111.  App.  321;  American  Fire  Ins.  Co. 
V.  Brooks,  83  Md.  22;  Gardner  v.  Standard  Ins.  Co.,  58  Mo.  App.  611;  White  v. 
Connecticut  Ins.  Co..  120  Mass.,  330;  Grace  v.  American  Central  Ins.  Co.,  109 
U.  S.,  278;  Stevenson  v.  Sun  Ins.  Office  (Cal.  App.),  119  Pac.  529;  Latoix  v.  Ger- 
mania  Fire  Ins.  Co.,  27  La.  Ann.  113;  Nat.  Union  Fire  Co.  v.  Baltimore  Asbestos 
Co.,  89  Atl.  408;  Cheshire  B.  Co.  v.  Wilson,  86  Atl.  26;  Kehler  v.  New  Orleans 
Ins.  Co.,  23  Fed.  709. 

66  Hartford  Ins.  v.  Tewes   (supra). 

67  Smith   Lumber   Co.    v.    Colonial   Assurance   Co.,    172   App.    Diy.    149,    151,   and   cases 

there  cited. 

185 


The  Fire  Insurance  Contract 

the  agent  does  not  thereby  sacrifice  the  interests  of  his  principal, 

the  insurance  compay."^* 

The  agency_of  the  broker  for  the  company  is  necessarily  a 

narrow  one.    The  ordinary  agent  for  an  insurance  company  is  liable 

to  his_2nncipal  for  failure  to  promptly  communicate  notice  of  can- 

I  cellation  to  the  insured^^  and  his  prompt  communication  of  such 

1  notice  to  an  intervening  broker  will  not  relieve  him.'^"     A  ^broker, 

however,  fully  discharges  his  duty  in  that  regard  and  is  relieve3~ 

from  liability  by  passing  the  notice  on  to  the  person  from  whom  he 

received  the  application  for  insurance,  even  though  such  person  be^ 

another  broker  and  not  the  insured  himself.    His  liability  is  defined 

as  analagous  to  that  of  a  gratuitous  bailee;  whether  he  would  be 

liable  to  the  company  even  if  he  took  no  steps  at  all  to  communicate 

the  notice  of  cancellation  to  the  insured  is  a  matter  of  doubt.     In 

the  case  of  Condon  v.  Exton-Hall  Brokerage  Agency,  Seabury,  J., 

uses  these  words : 

Strictly  speaking,  no  contractual  relation  existed  between  the  plain- 
tiff's assignors  and  the  defendant,  and  in  treating  the  defendant  as  if  it 
occupied  the  position  of  a  gratuitous  bailee  we  view  the  case  in  the  most 
favorable  aspect  to  the  plaintiff.'^i 

Certain  it  is  that  this  agency  is  limited  strictly  to  the  act  of 
communicating  notice  of  cancellation  to  the  insured  in  behalf  of 
the  company.  The  agency  is,  moreover,  unaffected  by  the  circum- 
stance that  the  broker  receives  his  pay  by  deducting  it  from  the 
premiums  before  sending  them  to  the  company .'^^ 

Wh^n  Broker  is  Agent  for  Insured. 

We  have  seen  that  the  agency  of  the  broker  for  the  insured  ex- 
tends as  a  rule  only  to  securing  the  insurance  and  not  to  receiving 
notice  ^f  cancellation  in  his  behalf.  He  may,  of  course,  be  specially 
authorized  to  receive  such  notice.  **If  he  possesses  that  power  it 
arises  from  some  actual  or  apparent  authority  super-added  to  the 
mere  power  to  enter  into  the  contract."*^^  The  facts  which  in  vari- 
ous cases  have  been  held  to  show  such  authority  are  not  easy  of 
analysis.  Where  the  broker  "had  been  the  agent  of  the"  insured 
"for  about  two  years,  through  whom  it  procured  insurance  upon  its 

68  Sage,  J.,  in  Franklin  Ins.  Co.  v.  Sears,  21  Fed.,  290. 

69  Washington  F.  &  M.  Ins.   Co.  v.   Chesbro,   35   Fed.  477;   Phoenix  Ins.  Co.   v.   Pratt, 

36  Minn  409,  31  N.  W.,  454;  Phoenix  Ins.  Co.  v.  Frissell,  142  N.  Y.,  513;  British 
American  Ins.  Co.  v.  Wilson,  11  Conn.,  559;  60  Atl.  293;  Norwich  Union  Fire 
Ins.  Soc.  V.  Dalton  (Tex.),  175  S.  W.  459;  Phoenix  Ins.  Co.  v.  A.  B.  Banks  et 
al.,  169  S.  W.  233;  L.  R.  A.  1915  A  860;  Queen  City  F.  Ins.  Co.  v.  First  Nat. 
Bk.  (N.  D.),  120  N.  W.  545;  22  L.  R.  A.  (N.  S.)  510. 

70  Franklin  Ins.  Co.  v.  Sears,  21   Fed.  290. 

71  88  Misc.,  130. 

72  Morris  McGraw  Woodenware  Company  v,  German  Fire  Insurance  Company,  126  La. 

32;  38  L.  R.  A.,  N.  S.  614. 

73  Andrews,  J.,  in  Hermann  v.  Ins.  Co.  (supra), 

186 


Cancellation  and  Substitution 

property  from  various  companies  in  all  to  the  amount  of  $10,000." 
and  where  it  did  not  appear,  "that  he  received  any  particular  instruc- 
tions as  to  the  companies  from  which  he  was  to  receive  insurance 
or  as  to  the  rates  of  premium  or  the  amount  to  be  insured  by  any 
particular  company"  it  was  held  that  such  additional  authority  was 
inferable."^* 

As  generally  in  questions  of  agency,  if  prior  acts  of  the  same 
kind  by  the  agent  have  been  subsequently  ratified  by  the  principal, 
proof  of  this  fact  will  afford  strong  evidence  of  agency.  Thus  if 
the  broker  has  in  the  past  received  notice  of  cancellation  which  the 
insured  has  recognized  as  valid,  it  will  be  held  that  his  authority  to 
do  so  has  continued.^^  If  both  parties  acted  with  knowledge  of  a 
local  custom  whereby  the  broker  was  generally  authorized  to  re- 
ceive notice  of  cancellation,  it  would  seem  that  such  custom  may  be 
shown  to  prove  the  agency ."^^  The  contract  between  the  insured 
and  his  broker  being  rarely,  if  ever,  a  written  one,  no  question  arises 
in  these  cases  as  to  the  variation  of  a  written  contract  by  parol 
evidence.  On  the  other  hand,  if  evidence  of  such  a  custom  be  in- 
troduced not  to  show  the  fact  that  the  broker  had  authority  to  re- 
ceive notice  of  cancellation  for  the  insured  but  that  generally  irre- 
spective of  his  agency  it  was  customary  for  notice  of  cancellation 
to  be  given  to  the  person  procuring  the  insurance  the  evidence  will 
not  be  admitted.^^  Such  a  showing  would  be  directly  contrary  to 
the  express  words  of  the  policy  that  notice  must  be  given  to  the  in- 
sured and  the  admission  of  such  evidence  would  be  to  vary  tht 
written  contract  by  parol. 

No  different  rule  is  involved  in  regard  to  the  power  of  the 
broker  to  cancel  in  behalf  of  the  insured  than  that  in  regard  to  his 
power  to  receive  notice  of  cancellation  from  the  company.  If,  as 
has  been  seen,  a  mere  broker  may  not  passively  receive  notice  of 
cancellation,  a  forildri  he  cannot  cancel  on  his  own  initiative.'*  On 
the  other  hand,  where  the  broker  has  such  general  agency  as  would 
allow  him  to  receive  notice  of  cancellation,  it  would  seem  that  if  he 
think  best  he  may  cancel  on  his  own  initiative  and  is  "clothed  with 

74  Stone   v.   Franklin   Fire  Ins.    Co.,    105    N.   Y.    543.      Similar  cases   are   Rothschild   v. 

American  Central  Fire  Insurance  Company,  74  Mo.  417;  Edwards  v.  Home  In- 
surance Co.,  100  Mo.  App.  695;  East  Texas  Fire  Insurance  Co.  ▼.  Blum,  76  Tex. 
653;  Buick  v.  Mechanics  Ins.  Co.,  103  Mich.  75;  Dickert  v.  The  Ins.  Co.,  52  S. 
C.  412. 

75  Snyder  v.  Commercial  Union  Ins.  Co.,  67  N.  J.  L.   7. 

76  Benedict  v.  Security  Insurance  Co.,  147  App.  Div.  810:  Norwich  Union  F.  Ins.   Soc 

V.   Dalton.  175   S.  W.   459. 

77  Grace    v.    American    Central    Insurance,    109    U.    S.    278;    Standard    Oil   Company   v. 

Triumph  Insurance  Company,  64  N.  Y.  65;  Mutual  Assurance  Society  v.  Scottish 
Union  and  National,  84  Va.   116. 

78  American  Fire  Insurance  Co.  v.  Minsker  Realty  Co.,  83  Misc.   (N.  Y.)    1. 

187 


The  Fire  Insurance  Contract 

full  authority  to  act  for  the  plaintiff  in  procuring,  modifying  or 
cancelling  the  policy  in  question  and  his  acts  in  respect  to  the  policy 
are  the  same  as  if  done  by  the  plaintiff.""^*  Certain  clauses,  before 
the  Standard  Policy  was  adopted,  were  sometimes  put  into  a  policy 
allowing  notice  of  cancellation  to  be  given  to  the  person  procuring 
the  insurance.  In  such  case  notice  to  the  broker  was  sufficient,^*^  but 
by  an  overwhelming  weight  of  authority  the  more  common  clause 
that,  anyone  procuring  the  insurance  should  be  held  to  be  agent  for 
the  insured  "in  any  transactions  relating  to  this  insurance"  was  held 
to  apply  only  to  transactions  relating  to  the  procurement  of  the  in- 
surance.^ 

Notice:  Skrve:d  on  Broke:r. 

From  this  general  accord  of  authority  the  peculiar  case  of 
Karelsen  v.  Sun  Fire  Office,^^  seems  to  dissent.  In  that  case  notice 
given  to  a  broker  by  the  insurance  company  and  not  communicated 
to  the  insured  was  held  effective  to  cancel  the  policy.  The  case  is 
rested  rather  indifferently  upon  any  one  of  three  grounds;  that  the 
clause  in  the  policy, similar  to  the  one  referred  to  made  such  notice 
effective;  that  the  agent  was  a  general  agent,  (concerning  this  point 
there  is  no  evidence  cited  in  the  opinion  that  would  seem  to  warrant 
such  a  conclusion)  ;  and  lastly  that  although  the  agent  did  not  have 
authority  to  cancel  at  the  start,  the  fact  that  he  had  not  delivered  the 
policy  of  the  insured  gave  him  such  authority.  The  Hermann  case,^^ 
in  the  Court  of  Appeals  of  this  state,  holding  that  an  ag^ent  to  prq- 
curejnsurance  is  not  necessarily  one  to  cancel,  is  distinguished  upon 
this  last  ground  in  these  words : 

The  Hermann  case  (100  N.  Y.  411)  is  not  applicable,  for  in  that  case, 
the  policy  had  been  delivered  to  the  assured  and  the  authority  of  the 
brokers  was  at  an  end.  While  here  the  brokers  had  not  as  yet  obtained 
the  policies  and  in  the  Stone  case  had  not  made  delivery  to  the  assured. 
Consequently  their  right  as  well  as  their  duty  to  represent  the  plaintiffs 
in  all  matters  necessary  to  accomplish  that  which  they  had  undertaken, 
remained. 

Suggestions  to  this  effect  are  very  common.^*  In  another  case 
in  New  York  the  Hermann  case  is  again  distinguished  as  follows: 

In  that  case  the  brokers  had  delivered  the  policy  to  the  insured  and 

79  Standard  Oil  Co.  v.  Triumph  Ins.   Co.   supra. 

80  Lipman  v.   Niagara  Fire  Ins.    Co.,   121   N.   Y.  454. 

81  American  Fire  Ins.  Co.  v.  Brooks,  83  Md.   22;  Grace  v.  Am.  Cent.  Ins.   Co.    (supra); 

Von  Wein  v.  Scottish  Union  and  National,  20  T.  &  S.  (N.  Y.)  490;  White  v.  Conn. 
Fire  Ins.  Co.,  120  Mass.  330;  Kehler  v.  New  Orleans  Insurance  Co.,  23  Fed.   709. 

82  122  N.  Y.  545. 

83  100  N.  Y.  411. 

b4  Hermann  case  supra;  John  R.  Davis  Lumber  Co.  v.  Hartford  Fire  Ins.  Co.,  37  L. 
R.  A,  131;  Rothschild  v.  American  Central  Ins.  Co.,  74  Mo.  41;  Fowler  Cycle 
Works  V.  Western  Ins.  Co.,  Ill  111.  App.  631;  Walroth  v.  Hanover  Fire  Ins.  Co., 
139  App.  Div.  407;  Hodge  v.  Security  Ins.  Co.,  33  Hun.  583  at  588;  Ikellar  v. 
Hartford  Fire  Ins,  Co.,  24  Misc.  136.  If  the  broker  hold  the  policy  as  mere  bailee 
he  will  not  have  authority  to  cancel.  Cassville  Roller  Mill  Co.  v.  Aetna  Ins.  Co., 
79  S.  VV.  720;  IDS  Mo.  App.  146. 

188 


Cancellation  and  Substitution 

there  was  a  complete  ending  of  their  agency.  Had  this  transaction  been 
terminated  by  the  delivery  of  the  policy  to  the  plaintiff,  then  he  alone 
would  have  possessed  the  power  to  return  or  to  permit  the  cancellation 
of  the  policy.  Their  authority  continued  until  they  had  placed  the  insur- 
ance for  plaintiff.  Whatever  was  necessary  to  bring  about  that  result 
was  within  the  compass  of  their  power.^s 

It  would  almost  seem  as  if  the  learned  judge  here  overlooked 

the  fact  that  the  brokers  were  agents  for  the  insured  to  procure  the 

insurance  and  as  soon  as  the  policy  was  given  to  them,  the  insurance 

was  placed,  and  it  would  seem  upon  the  principle  of  the  Hermann 

case  that  then  their  agency  ended.    The  rule,  however,  is  repeatedly 

recognized  in  the  authorities  and  even  is  supported  by  the  weighty 

approval  of  Mr.  Richards,  who  says  :^^ 

But  on  the  other  hand,  until  the  policy  is  delivered  or  so  long  as  thel 
contract  rests  upon  a  binding  slip  in  charge  of  the  broker,  the  broker! 
may  be  served  and  he  can  also  agree  to  cancellation  instanter  in  his  dis-j 
cretion.  ' 

The  general  rule  for  which  the  Hermann  case  and  Grace  case,^^ 

in  the  United  States  Supreme  Court,  are  leading  authorities,  that  a 

broker  unless  some  superadded  power  be  given  him_  is  not  agent  to 

cancel,  is  based  in  the  words  of  Justice  Truax  in  Von  Wein  v.  Scot 

tish  Union  and  National  Ins.  Co.,^^  on  the  principle  that 

An  authority  to  make  a  contract  for  another  does  not  carry  with  it 
by  implication  authority  to  cancel  the  contract, 

and  that  the  ordinary  broker's  authority  is  limited  to  the  procuring  \ 

of  the  insurance.    If  the  broker  is  actually  the  agent  of  the  insured 

to  procure  the  insurance  his  act  in  procuring  it  is  as  effective  as  if 

it  were  done  by  the  insured  himself.     Moreover,  a  contract  on  a 

binding  slip  is  complete  and  includes  all  the  terms  of  the  ordinary 

policy .^^    It  cannot  be  said,  therefore,  that  the  mere  retention  of  the 

policy  postpones  the  closing  of  the  contract.     Such  a  conclusion 

would  work  a  revolution  in  insurance  law.     The  retention  of  the 

policy  then  instead  of  delaying  the  contract  must  operate  upon  the 

agency.    The  agent  must  have  it  in  his  power  by  retaining  the  policy 

to  extend  his  own  agency.     Such  a  doctrine  would  seem  as  novel 

to  the  law  of  agency  as  its  alternative  would  be  novel  to  the  law 

of  insurance. 

The  doctrine  set  forth  in  the  Karelsen  case  has  been  attacked 

in  a  very  strong  opinion  of  Shepard,  J.,  in  Wilson  v.  Hartford  Fire 

85  Ikellar  v.   Hartford  Fire  Ins.   Co.,  24  Misc.    136. 

86  Richards  on  Insurance,  3rd  ed.,  p.  389. 

87  109  U.  S.  278. 

88  20  J.  &   S.  490. 

89  Lipmann  v.   Niagara  Fire  Ins.   Co.,   121  N.  Y.  454;   Karelsen  v.   Sun  Fire  Office,   122 

Nf    Y.  545:  and,  as  applied  to  an  oral  contract,  Hicks  v.  British  American  Ins.  Co., 
162  N.  Y.  284. 

90  17  App.  Cas.  D.  C.   14. 

See  also  National  Union  Fire  Ins.    Co.  v.   Baltimore  Asbestos  Co.,  89   Atl.   408; 
122  Md.    12i. 

189 


The  Fire  Insurance  Contract 

Insurance  Co.,**'  where  referring  to  the  Grace  case  he  speaks  as  fol- 
lows ; 

In  that  case,  it  is  true  that  the  policy  had  passed  into  the  actual 
possession  of  the  insured  before  the  notice  of  cancellation  was  given  to 
the  broker,  who  accepted  the  notice  and  promised  the  surrender  of  the 
policy;  but  we  can  not  agree  that  this  fact  authorizes  any  limitation  of 
the  broad  rule  of  the  decision.  It  would  be  inconsistent  with  the  gen- 
eral principles  of  the  law  of  agency,  applied  by  that  decision,  to  hold, 
that  because  a  policy  is  suffered  to  remain  in  the  hands  of  the  agent  for 
its  procurement  he  thereby  becomes  the  general  agent  of  the  insured — 
for  that  would  be  the  necessary  effect — with  power  to  alter,  to  rescind 
and  to  accept  notice  of  cancellation  and  bind  the  insured  without  his 
knowledge  or  consent.  To  give  such  effect  to  the  mere  possession  of  the 
policy,  after  execution  and  delivery,  would  be,  not  only  to  revive  a  lim- 
ited agency,  for  no  reasonable  purpose,  but  also  to  extend  it  and  invest 
it  with  powers  that  had  not  previously  been  given.  Moreover,  it  would 
be  fraught  with  great  danger  to  the  vast  interests  dependent  upon  insur- 
ance, without  any  general  compensatory  benefit  to  any  other  interest. 

Merely  permitting  the  policies  to  remain  for  a  time  and  uncalled 
for,  in  the  hands  of  the  brokers,  which  is  all  that  this  record  discloses, 
is  perfectly  consistent  with  the  idea  of  the  termination  of  their  agency. 

With  the  receipt  of  the  policy  a  new  relation  is  created  between  the 
insured  and  the  broker,  namely,  that  of  depositor  and  depositary,  the 
possession  of  the  broker  becomes,  in  law,  the  possession  of  the  insured 
and  nothing  more;  his  sole  duty  and  authority,  in  the  new  relation,  is  to 
deliver  the  policy  upon  demand  of  the  insured  or  within  a  reasonable 
time  without  demand. 

This  opinion  was,  however,  overruled  on  a  different  point  in 
the  Supreme  Court  of  the  United  States  in  Hartford  Fire  Insurance 
Co.  V.  Wilson.*^  As  the  ground  of  the  reversal  is  likely  to  be  con- 
fused with  the  question  in  the  Karelsen  case,  it  should  be  briefly 
noticed.  A  policy  of  insurance  may  be  delivered  to  the  brokers  by 
the  company  conditionally  upon  the  approval  of  the  company,  in 
wJiich  case  the  brokers  being  agents  for  the  insured  to  procure  the 
insurance  bind  their  principal  by  the  knowledge  of  the  conditional 
delivery,*^  and  upon  notice  to  them  that  the  condition  is  not  fulfilled, 
the  policy  which  was  never  completely  delivered  never  becomes  ef- 
fective. This  rule  which  arises  out  of  the  complicated  nature  of  an 
insurance  policy,  was  not  applied  by  the  Court  and  lead  to  the  re- 
versal by  the  Supreme  Court  but  the  opinion  was  not  criticised 
above  on  the  point  in  hand.  No  question  of  conditional  delivery 
arose  in  the  Karelsen  or  similar  cases. 

Judge  Shepard's  opinion  is  supported  by  that  of  Circuit  Judge 
Buffington  in  Standard  Leather  Co.  v.  Northern  Assurance  Com- 
pany of  London,®^  but  this  opinion  also  was  overruled,  this  time  in 
the  Circuit  Court  of  Appeals,^*  and  also  upon  a  different  point. 
Judge  Gray's  opinion  in  the  Circuit  Court  of  Appeals,  however,  con- 

91  187  U.  S.  467. 

92  Young  V.  Newark  Fire  Ins.  Co.,  59  Conn.  41. 

93  155  Fed.  689. 

94  165  Fed.  602. 

190 


Cancellation  and  Substitution 

tains  the  only  explanation  of  the  rule  of  law  that  has  yet  been  found, 
as  follows :  * 

Though  not  directly  bearing  upon  the  question  of  the  scope  of  the 
agency  in  the  case  before  us,  it  may  be  well  to  remark  that  under  the 
situation  so  far  as  it  was  admittedly  created  by  the  plaintiffs  the  policies 
were  left  in  the  possession  of  Negley  &  Clark  Company,  while  the  gen- 
eral purpose  of  procuring  the  amount  of  insurance  required  was  being 
transacted,  and  that  no  notice  of  cancellation  from  the  defendant  com- 
pany directly  to  the  plaintiffs  would  have  been  of  as  much  advantage  to 
the  latter,  as  was  the  notice  actually  given  to  the  brokers  who  were 
transacting  the  business  and  upon  whom  the  duty  devolved  to  procure 
other  insurance  in  lieu  of  that  covered. 

This  being  an   explanation   from  convenience  not  altogether 

satisfying  in  principle. 

In  a  Michigan  case,^^  the  rule  was  justified  on  the  ground  that 
the  insured  by  leaving  the  policies  in  the  hands  of  the  broker  made 
a  representation  which  estopped  him  to  deny  the  agency.  Under 
the  facts  of  that  case  there  is  some  ground  for  this  holding,  but  it 
would  seem  untenable  where  the  policy  is  retained  only  a  very  short 
time  or  as  in  the  Karelsen  case  merely  remains  in  binding  slip. 

Ratification  of  Unauthorized  Act  of  Agent. 

It  is  a  general  rule  of  agency  law  that  one  may  do  an  act  in 
behalf  of  another  which  he  was  never  authorized  to  do  and  yet  the 
one  in  whose  behalf  that  act  was  done  may  subsequently  ratify  the 
act  and  adopt  it  as  his  own.  The  ratification  is  said  to  relate  back  to 
the  time  of  the  act  ratified. 

There  is  no  great  difficulty  in  applying  this  rule  to  fire  insur- 
ance contracts,  so  long  as  the  ratification  precedes  a  loss.  Thus 
the  act  of  an  agent  either  in  cancelling  existing  insurance  or  in  pro- 
curing new,  although  in  excess  of  his  authority  at  the  time  of  its 
execution,  may  be  adopted  and  ratified. 

Ratification  After  Loss. 

Where  ratification  is  attempted  after  loss,  however,  a  question 
arises  which  Ts'  not  satisfactorily  settled  by  authority.  Our  first  im- 
pression would  be  that  there  can  be  no  ratification  after  loss  because, 
first  it  would  be  equivalent  to  insurance  after  loss,  and  second,  be- 
cause it  would  be  a  grossly  unmutual  situation  that  would  peimit 
the  insured  to  take  a  policy  when  he  could  collect  upon  it,  although 
the  company  could  not  oblige  him  to  take  it  before  the  loss  oc- 
curred. 

It  is  frequently  stated  by  text  writer^^  and  in  dicta^''  that  insur- 

95  Kooistra  v,  Rockford  Ins.  Co.,  122  Mich.  62. 

96  Clement  Fire  Ins.  481;  1  Wood  Fire  Ins.,  p.  320,  sec.  136;  Mechem  Agency  2nd  ed» 

sec.  524. 

97  Southern  Cold  Storage  Co.  v.  Dechman,  73   S.  W.    (Tex.)   S4S;   Warring  v.  Ins.  Co., 

45  N.  Y.,  606;  Ferguson  v.  Pekin  Plow  Co.,  141  Mo.  161. 

191 


\-V- 


The  Fire  Insurance  Contract 

ance  taken  out  by  an  agent  without  authority  may  be  ratified  by  the 
principal  even  after  loss.  Mr.  Richards  (3rd  ed.,  p.  293,  but  see  p. 
296),  however,  states  the  rule  as  applicable  to  cases  where  the  insur- 
ance is  taken  out  by  a  warehouseman,  bailee,  auctioneer  or  the  like, 
the  property  insured'  being  described  as  "his  own  or  held  in  trust 
or  on  commission"  or  by  some  similar  phrase.  The  rule  when  ap- 
plied to  such  cases  has  been  explained  by  the  theory  that  such  fidu- 
ciary has  authority  by  custom  to  insure  the  goods  of  his  bailor^^  or 
by  the  remark  that  the  money  represents  the  goods  and  the  owner 
of  the  goods  is  entitled  to  the  money.^^  In  such  cases  the  insured 
has  an  interest  in  the  property  because  of  his  possible  liability  over 
to  the  owner  and  although  the  measure  of  such  interest  is  the  full 
value  of  the  property  it  would  be  tmjust  for  him  to  retain  it  as  his 
own.    He  is  accordingly  regarded  as  trustee  thereof  for  the  owner. 

It  is  submitted,  however,  that  the  foregoing  reasons  can  only 
apply  where  either  such'  customary  authority  exists  or  where  the 
person  procuring  the  insurance  stands  in  a  fiduciary  relation  to  the 
owner  of  the  property.  Even  though  he  have  an  insurable  interest 
in  the  property,  if^that  interest  is  entirely  distinct  from  that  of  the 
person  for  whom  he  procures  the  insurance  he  can  only  have  pro- 
cured the  insurance  as  agent  upon  the  other's  interest.  It  can  make 
no  difference  that  the  principal's  name  is  not  mentioned  in  the  policy, 
the  insurance  being  taken  out  "for  whom  it  may  concern."  (See, 
however,  Richards,  3rd  ed.,  p.  296.)  The  test  of  the  rule  must  be 
the  nature  of  the  interest  held  by  him  who' procures  the  insurance. 

The  broader  rule  dependent  specifically  upon  ratification  goes 
back  to  certain  English  cases.  Lucena  v.  Crauford,  the  original 
authority,^®''  was  a  marine  case,  insurance  being  effected  "lost  or  not 
lost"  but  the  decision  does  not  seem  to  b'e  based  upon  this  circum- 
stance. One  of  the  judges  who  decided  it.  Lord  Ellenborough,  re- 
ferred to  it  (in  Routh  v.  Thompson,  13  East.  274  and  Hagedorn  v. 
Oliverson,  2  Maule  &  Sel.  485)  as  authority  for  the  doctrine  of  rati- 
fication after  loss.  There  was,  however,  some  evidence  of  prior 
authorization  and  as  the  opinions  of  the  judges  are  not  reported  it 
is  not  clear  that  it  was  not  put  in  part,  at  least,  upon  the  special 
power  of  the  Crown  to  ratify  the  acts  of  its  subjects.  This  latter 
point  might  have  had  also  some  influence  in  Routh  v.  Thompson,  not, 
however,  in  the  later  case  of  Hagedorn  v.  Oliverson.  In  all  of 
these  cases  the  action  was  brought  by  the  party  procuring  the  in- 

98  Southern  Cold  Storage  Co.  v.  Dechman,  73  S.  W.    (Tex.)   545. 

99  Selden,  J.,  in  Stillwell  v.  Staples,   19  N.   Y.  401. 

100  1   Taunt.   325. 

192 


Cancellation  and  Substitution 

surance  although  in  Lucena  v.  Craufurd,  it  appears  (5  Bos.  &  Pull., 
269)  that  the  plaintiffs  had  no  insurable  interest  in  themselves  and 
in  Hagedorn  v.  Oliverson  it  is  qilite  clear  that  the  plaintiff's  interest 
such  as  it  was,  was  separate  and  distinct  from  that  of  the  person 
for  whom  the  insurance  was  effectuated.  In  view  of  the  elaborate 
discussion  of  insurable  interest  in  Lucena  v.  Crauford  (5  Bos.  & 
Pull.,  269)  and  the  prior  statute  of  19  Geo.  II  the  explanation  sug- 
gested in  Norwich  Ins.  Co.  v..  Dalton,  infra,  that  wagering  policies 
were  then  valid  seems  erroneous. 

In  Williams  v.  North  China  Ins.  Co.,^^^  Cockburn,  C.  J.,  says 
of  the  foregoing  cases: 

The  existing  authorities  certainly  show  that  when  an  insurance  is 
effected  without  authority  by  one  person  on  another's  behalf;  the  princi- 
pat  "n\ay  rat  1  f y  the  insurance  even  after  the  loss  is  known.  Mr.  Benja- 
rnin  asKecTus,  as  a  Court  of  Appeal,  to  review  those  authorities.  His 
contention  was  that  there  could  only  be  a  ratification  when  the  principal 
could  himself  make  the  same  contract  as  that  ratified.  Admitting  that 
for  general  purposes  this  rule  may  be  good,  the  authorities  which  we  are 
asked  to  overrule  are  much  too  strong  and  of  too  long  standing  to  be 
got  over. 

No  case  has  been   found  specifically  limiting  the  doctrine  to 

marine  insurance.  This,  it  is  submitted,  would  not  be  justifiable  on 
the  ground  of  the  existence  in  that  body  of  law  of  insurance  "lost 
or  not  lost"  because  first,  the  circumstances  of  a  principal  ratifying 
an  act  of  his  agent  with  knowledge  of  the  loss  is  quite  different  from 
that  of  taking  out  insurance  when  all  parties  interested  are  ignorant 
of  the  loss,  and  second,  because  a  situation  analogous  to  insurance 
"lost  or  not  lost"  may  arise  in  hre  irisurance.^^^  It  may,  however, 
be  suggested  that  the  great  number  of  interests  that  may  exist  in  the 
subject  matter  of  marine  insurance  makes  the  doctrine  peculiarly 
applicable  to  that  law.^^^ 

The  case  of  Finney  v.  Fairhaven  Ins.  Co.^^'*  is  an  American  case 
which,  like  the  foregoing,  is  inexplicable  upon  any  other  basis  than 
that  of  ratification.  The  insured  was  the  part  owner  of  a  ship  and 
the  policy  taken  out  by  another  part  owner  read' "for  himself  and 
other  owners."  The  court  began  its  opinion  by  observing  that  "it 
was  long  since  determined  that  one  part  owner  had  no  authority  to 
insure  for  the  rest  of  the  owners  although  such  part  owner  was  also 
the  ship's  husband,"  and  held  that  the  insurance  might  be  ratified 
by  the  insured  after  a  loss. 

The  cases  supporting  the  doctrine  of  ratification  after  loss  are 
not,  however,  confined  to  marine  insurance.     In  Marts  v.  Cumber- 

101  1  C.  p.  Div.  757.  / 

102  Gifford  v.  Queen  Ins.  Co.,   1   Hanney   (N.  B.)   432;   Hallock  v.  Commercial  Ins.   Co., 

27  N.  J.  L.  645. 

103  Hooper  v.  Robinson,  98  U.  S.  528. 

104  5   Mete.  192;  38  Am.  Dec.  397. 

193 


The  Fire  Insurance  Contract 

land  Ins.  Co.^®^  the  agent  was  the  husband  of  his  principal  and  the 
same  doctrine  was  announced  although  it  does  not  appear  whether 
it  was  necessary  to  the  decision.  Other  cases  have  been  decided  in 
which  the  agent  had  no  interest  whatever.^^'^ 

Mr.- Frederick  T.  Case  in  an  article  in  the  Green  Bag,^^^  has 
attacked  the  doctrine.  He  looks  upon  it  as  effectuating  a  contract 
without  any  meeting  of  the  minds  and  therefore  erroneous  and  sug- 
gests its  limitation  to  cases  in  which  the  person  procuring  the  insur- 
ance has  himself  an  insurable  interest.  In  the  opinion  of  the  present 
writer  such  a  rule  is  not  narrow  enough  to  be  logical,  nor  broad 
enough  to  include  the  great  body  of  authority.  It  is  submitted  also 
that  his  citation  of  Stebbins  v.  Lancashire  Ins.  Co.,  60  N.  H.  65  as 
contrary  to  the  doctrine  of  ratification  after  loss  is  erroneous  as  that 
case  involved  the  right  of  an  insurance  agent  to  issue  a  policy  for  his 
company  after  a  loss  had  occurred  to  his  own  knowledge.  A  sug- 
gestion has  also  been  made  that  the  doctrine  be  limited  to  cases 
where  the  premium  has  been  actually  paId/°^  and  the  whole  doctrine 
has  been  recently  repudiated  in  a  careful  opinion  in  Texas.^^^  The 
argument  on  both  "sides  has  been  well  stated  in  Finney  v.  Fairhaven, 
supra,  as  follows : 

It  is  argued  th^t  the  part  owners,  on  hearing  of  the  safe  arrival  of 
the  vessel,  may  refuse  to  ratify  the  act  of  their  co-tenant,  and  that  in 
consequence  of  their  refusal  the  underwriters  will  have  no  claim  against 
them  for  their  premium,  while  in  case  of  los3,  the  owners  can  enforce 
the  contract  against  the  underwriters;  and  thus  there  is  no  mutuality  in 
the  case. 

This  reasoning  has  been  urged  in  previous  cases,  and  though  it  is 
not  without  its  force,  yet  the  answer  to  it  is,  that  the  agent  or  part  owner 
who  effects  the  insurance  is  himself  liable  for  the  whole  premium,  be- 
cause the  whole  property  is  at  the  risk  of  the  underwriters,  as  the  own- 
ers may  at  any  time  adopt  the  act,  the  policy  being  made  for  their  ben- 
efit. And  it  may  be  also  said  that  in  making  the  contract,  the  insurers, 
having  been  willing  to  look  to  the  part  owner  for  their  premium  with- 
out calling  for  his  authority  cannot  justly  complain,  if  from  any  cause, 
the  other  owners,  b.y  disavowing  the  act,  do  not  render  themselves  per- 
\^sonally  liable  for  the  payment  of  the  premium. 

Also  in  Marqusee  v.  Hartford  Fire  Ins.  Co.  (supra)  it  was  said 

What  shocks  us  at  first  blush  is  that  one  may  ratify  an  unauthor- 
ized contract  after  he  knows  that  it  is  to  his  own  advantage  to  do  so  and 
so  bind  the  other  party  to  his  apparent  disadvantage.  Further  reflection, 
however,  causes  this  apparent  unfairness  to  disappear.    The  other  party, 

105  44  N.  J.   Eq.  478. 

106  Boutwell  V.  Globe  &  Rutgers  Fire  Ins.  Co.,  193  N.  Y.;  323;  Todd  v.  German  Amer- 

ican Insurance  Co.,  2  Ga.  App.  789;  59  S.  E.  94;  Ferrar  v.  Western  Assurance 
Co.,  159  Pac.  609;  Miltenberger  v.  Beacon,  9  Pa.  St.  198,  arising  between  agent 
and  principal;  Marqusee  v.  Hartford  Fire  Ins.  Co.,  198  Fed,  475,  reversed  on  re- 
hearing on  different  point,  198  Fed.  1023;  Phoenix  Ins.  Co.  y,  Hancock,  123  CaL 
222;  Bauer  v.  Fireman's  Fund  Ins.  Co.,  N.  Y.  L.  J.  Feb.  2,  1906. 

107  19  Green  Bag,  93. 

108  Kline  Bros.  v.   Royal  In«,   Co.,  192  Fed.   378. 

109  Norwich  Union  Fire  Ins.  Co.  v.  Dalton,   175  S.  W.  459. 

194 


Cancellation  and  Substitution 

haying  agreed  to  be  bound  by  this  contract  and  not  having  withdra^fvn 
frdmjtJiaSLJio  ground  to  complain  if  compelled  to  perior-m,  the  original 
laclc  of  authority  having  been  cured. 

A  Single:  Act. 

For  obvious  reasons  the  question  of  the  ratification  by  the  in- 
sured of  a  cancellation  of  a  policy  in  his  behalf  does  not  frequently 
arise  except  when  coupled  with  a  ratification  of  the  simultaneoiis 
procurement  of  a  new  policy  in  a  difl^erent  company.  The  tendency 
of  the  courts  seems  to  be  to  consider  such  a  substitution  as  a  single 
act,  rather  than  two  separate  acts. 

RATlFlCATfON    OF    SUBSTITUTION. 

Before  examining  this  subject,  which  lies  at  the  bottom  of  all 
the  problems  growing  out  of  substitution  of  insurance,  it  is  well  to 
notice  what  is  necessary  to  the  ratification  of  the  procurement  of  a 
policy.  Where  the  broker  told  the  insured  of  receiving  a  notice  from 
the  cpnipany,  and  that  he  had  cancelled  the  policy  and  procured  a 
new  one  and  the  insured  then  said  ''it  didn't  make  any  difference  to 
him,  just  so  he  got  his  $2,500  of_insurance/'  the  substitution  waT" 
held  to  have  been  ratified.^^°  But  in  a  case  where  the  broker  repre- 
sented to  the  insured  that  he  was  protected  by  substituted  insurance 
when  in  fact,  the  substituted  insurance  was  invalid,  the  assent  of  the 
insured  given  in  reliance  upon  such  representations  was  held  not  to 
amount  to  a  ratification.^^^ 

Ratification  either  of  cancellation  or  of  the  procurement  of  a 
new  policy  need  not  be  express,  but,  as  is  the  case  with  an  ordinary 
agency,  may  be  inferred  from  the  behaviour  of  the  party.  How- 
ever, mere  making  of  proof  in  both  companies  in  the  case  of  a 
substitution  will  not  in  any  way  bind  the  insured  to  any  election 
and  is  commended  as  the  proper  and  prudent  practice.^^2  Although 
receiving  payment  of  the  loss  from  the  one  company  will  apparently 
debar  the  insured  from  securing  a  second  recovery  from  the  other 
company  ^^  nevertheless  if  the  right  against  the  second  company  be 
assigned  by  the  insured  to  the  company  paying  the  loss,  the  ques-" 
tion  of  their  respective  liabilities  may  be  successfully  tried."* 

110  Larscn  v.  Thuringia  American  Ins.  Co.,  208  111.   166. 

111  Yoshimi  v.  Fidelity  Fire  Ins.  Co.,  99  App.  Div.   69. 

112  Snyder  v.  Commercial  Union  Ins.  Co.  supra;  Martin  v.  Palatine  Ins.  Co.,  106  Teaa 

323:  Hartford  Fire  Ins.  Co.  v.  Tewes,  supra. 

113  Arnfeld  v.  Guardian  Assurance  Co.,  172  Pa,   St.  605. 
Excelsior  Fire  Ins.  Co.   v.   Royal  Ins.   Co.  of  LiTcrpool,   55  N.  Y.   343;   Snyder   v. 

Commercial  Union  Ins.  Co.  supra;  see  also  in  which  suits  were  brought  against 
both  companies;  Warren  r.  Franklin  Fire  Ins.  Co.,  145  N.  W.  554:  Joyner  ft 
Long  V.  Scottish  Fire  Ins.  Co.,  71  S.  E.  434;  155  N.  C  255;  Wygal  y.  Georria 
Home  Ins.  Co..  147  S.  W.  394;  148  Ky.  (>T -.  Martin  y.  Palatine  Ins    Co.  supra 

195 


14 


The  Fire  Insurance  Contract 

DouBi.i:  Ins/jranck. 

]f  the  broker  is  authorized  to  secure  insurance  and  that  ah'eady 
obtained  does  not  exhaust  his  authority,  no  I'eason  is  seen  why  in 
the  absence  of  any  provision  against  double  insurance  he  may  not 
procure  more  and  if  there  be  a  fire  while  both  are  in  force,  why  the 
insured  may  not  recover  pro  rata  upon  both  policies,  just  as  if  he 
himself  procured  both  policies."^  If,  however,  the  new  insurance 
would  bring  the  total  beyond  the  amount  for  which  the  broker  ha3_^ 
authority  to  insure,  authority  to  secure  it  would  imply  authority  to 
cancel  that  already  existing,^^^  or  if  the  broker  v/ere  agent  of  the 
cancelling  company  operate  as  a  waive;'  of  notice  of  cancellation^^^ 

In  such  case  the  insured  is  not  allowed  to  recover  ratably  upon 
both  policies.  It  would  seem,  however,  that  where  the  broker  is 
not  agent  for  the  cancelling  company  and  the  fire  happens  within 
five  days  of  the  notice  to  the  broker,  the  insured  ought  to  be  at- 
lowed  to  recover  upon  both. 

Where  the  act  of  the  agent  in  substituting  insurance  was  orig- 
inally unauthorized,  it  would  seem  that  the  insured  ought  to  be  able 
to  ratify  the  procurement  of  the  new  policy  but  reject  the  cancella- 
tion of  the  old.  No  distinction  appears  on  this  point  between  the 
case  where  the  broker  is  also  agent  for  the  cancelling  comp?ny  and 
where  he  is  not.  Such  a  partial  ratification  and  a  ratable  recovery 
against  both  companies  was  allowed  in  a  New  York  case.^^*^  Other 
courts  refuse  the  insured  a  recovery  against  both  companies  and 
hold  that  substitution  is  all  one  act  and  that  "the  ratification  must 
he  complete  and  of  the  w^hole  transaction  and  the  ratification  of  the 
contract  for  the  substituted  policy  would  necessarily  carry  with  it 
a  ratification  of  the  cancellation  of  the  old  policy."  ^^^ 

Agknt  01^  Company  as  Agent  eor  Insured. 

Up  to  this  point  we  have  been  mainly  concerned  with  brokers 
and  their  authority.  We  are  now  briefly  to  consider  the  extent  to 
which  the  company's  agent  may  be  the  agent  of  the  insured. 

The  statement  is  frequently  made  that  an  agent  for  an  insur- 
ance company  may  be  agent  also  for  the  insured  and  have  authority 

115  Scheel  v.  German  American  Ins.  Co.,  76  Atl.  507;  228  Pa.  44. 

116  White  V.  Ins.  Co.  of  N.  Y.,  93  Fed.   161. 

117  Warren  v.    Franklin   Fire   Ins.    Co.,    143   N.    W.    554    (la.).      What    was   said   in   this 

case  on  the  question  of  double  insurance  seems  to  be  beside  the  point.     The  pol- 
icy sued  upon  was  apparently  issued  by  Johnson  and  not  O'Hara. 

118  National  Conduit  &  Cable  Co.  v.  Commercial  Union  Assur.  Co.,  135   App.   Div.  130; 

affd.  203  N.  Y.  580. 

119  Snyder  v.   Commercial  Union   Assur.   Co.,  supra;  White  v.   Assurance   Co.,  93   Fed. 

61;    Lee  v.   New  Hampshire   Fire  Ins.    Co.,    70   S.    E.    819;    Finlay   v.    New   Bruns- 
wick   Fire   Ins.   Co..    193  P>d.   195. 

196 


Cancellation  and  Substitution 

'*to  keep  and  care  for,"  the  policies,  "with  plenary  power  to  keep 
the  property  insured  in  accordance  with  general  directions  of  the 
insured  and  attend  to  all  renewal,  cancellation  and  replacement  of 
insurance  without  consulting  the  assured  in  respects  to  particular 
policies  or  other  details."  ^^  This  is  a  hard  doctrine  and  leads  to 
much  difficulty.  Such  a  double  agency  is  to  be  discouraged.^^^  Yet 
the  validity  of  policies  .secured  thereunder  is  established  at  least  in 
Michigan  ^^^  and  Minnesota."^ 

Such  general  authority  must  be  expressly  conferred  upon  the  in- 
surance agent  and  before  the  fire.  It  seems  to  be  generally  held  that 
ratification  of  a  substitution  of  companies  by  a  broker  who  is  agent 
for  both  companies  if  made  after  the  fire  is  invalid.^^^  With  this 
doctrine  those  jurisdictions  which  hold  all  ratification  after  a  fire 
invalid  have  of  course  no  quarrel. 

It  is  submitted  that  the  anomalous  character  of  the  relation- 
ship and  the  refusal  of  the  courts  to  extend  to  it  all  the  conse- 
quences of  agency  point  to  the  incdrectness  of  the  recognition  of 
this  double  agency  in  any  case.  Where  one  goes  to  an  agent  for 
several  insurance  companies  and  asks  for  insurance,  leaving  the 
selection  of  the  company  to  the  agent,  it  has  been  affirmed  ^^^  and 
denie.cj^-^  that  a  case  of  double  agency  arises.  In  such  cases  the 
validity  of  the  insurance  is  generally  sustained  but  it  is  believed 
that  they  are  distinguished  from  the  foregoing. 

The  subject  has  not  been  presented  perhaps  in  a  popular  form, 
but  it  hardly  admits  of  that  kind  of  treatment  and,  whatever  may 
he  the  rule  in  medicine,  enantiopathy  and  not  homeopathy  is  the  bet- 
ter practice  when  accurate  treatment  of  a  difficult  and  technical 
subject  is  desired. 

120  Kerr  v.  Milwaukee  Mech.  Ins.  Co.,  117  Fed.  442;  see  Johnson  v.  North  Br.  &  Merc 

Ins.  Co..  63  N.  E.  610;  66  Ohio  St.  6. 

121  "Reynolds  by   employing  him   in   this   double  and   anomalous   capacity,    directly  con- 

tributed to  producing  the  complication.  The  whole  arrangement  whereby  Kirch- 
hofer  procured  the  insurances  by^  extra  inducements  to  Reynolds  in  the  way  of 
sharing  the  commissions  on  premiums  had  a  tendency  to  lessen  his  vigilance  in 
guarding  the  company's  interests  and  taking  doubtful  risks  and  the  credit  arrange- 
ments were  in  the  same  direction."  Campbell,  J.,  in  Hartford  Fire  Ins.  Co.  v. 
Reynolds,  36  Mich.  502  at  508. 

122  Dibble  v.  Northern  Assurance  Co.  of  London,  37  N.  W.   704;    14  Am.   St.   Rep.  470; 

70  Mich.  1. 

123  Hamm  Realty  Co.  v.  N.  H.  Fire  Ins.  Co.,  80  Minn.  139;  83  N.  W.  41. 

124  Stebbins  v.  Lancashire  Co.,  60  N.  H.  65;  Massasoit  Steam  Mills  v.  Western  Assur- 

ance Co.,  125  Mass.  116;  Wilson  v.  N.  H.  Fire  Assurance  Co.,  140  Mass.  210; 
Hartford  Fire  Ins.  Co.  v.  McKenzie,  70  111.  App.  615;  Commercial  Union  Assur- 
ance Co.  V.  Urbansky,  113  Ky.  624,  24  Ky.  Fed.  Rep.  462;  68  S.  W.  653;  Gark 
V.  Ins.  Co.,  89  Me.  26;  35  Atl.  1008;  35  L.  R.  A.  276;  Nabors  v.  Commercial 
Union  Assn.  Co.,  51  So.  429;  125  La.  378;  nothing  has  been  found  in  the  report 
of  Larsen  v.  Thuringia  American  Ins.  Co.,  208  111.  166  (cited  by  Mr.  Richards 
as  contra  the  above  doctrine),  to  show  that  the  broker  Bennett  was  also  agent  for 
the  North  Br.  &  Merc.  Ins.   Co.,  the  substituted  company  in  that  case. 

125  Norwich  Union  Fire  Ins.  Soc.  v.   Dalton   (Tex.)   175   S.  W.  459. 

126  Br.  Am.   Assurance   Co.   v.   Cooper,   58  Pac.   592;    Mich.    Pipe   Co.   v.    Mich.    Fire   & 

Marine  Ins.  Co.   (Mich.)   20  L.   R.  A.  277. 

197 


The  Fire  Insurance  Contract 

In  conclusion,  I  express  my  thanks  to  my  associate,  Mr.  Henry 
T.  Hall,  for  the  painstaking  research,  without  which  this  paper 
would  not  have  been  possible,  and  to  Mr.  W.  J.  Nichols  of  the  North 
British  &  Mercantile,  and  Mr.  W.  N.  Bament  of  the  Home,  for 
their  helpful  suggestions  as  to  topics  to  be  treated. 

REFERENCES 

Cooky's  Briefs.  Richard  on  Ins.  Clement's  Digests.  Cases  cited  in  the  text 
and    Court    decisions    there    referred    to;    Legislative    Enactments. 

NOTE 

O'Neil  V.  Franklin  Fire  Ins.  Co.,  will  be  argued  in  the  N.  Y.  State  Court  of 
Appeals   in    October,    1915. 

The  case  of  Equitable  reformation  cited  has  since  been  reversed  by  the  Court  of' 
Appeals  in  Solomon  v.  North  British  &  Fire  Ins.  Co.,  N.  Y.  Court  of  Appeals  June, 
1915. 

On  the  question  of  co-insurance  the  Supreme  Court  Appellate  Division  Second 
Department  the  cast  of  Hartwig  v.  American  Insurance  Company,  N.  J.,  has  just  de- 
cided that  the  mortgagee  is  bound  by  the  co-insurance  clause  to  the  same  extent  as 
the    assured   owner. 


198 


:uo^ 


XI 

THE  INTEEEST  OF  A  MORTGAGEE  UNDER  A 
POLICY  OF  FIRE  INSURA'NOE 

W.  N".  Bament 
General  Adjuster,  The  Home  Insurance  Company 

When  it  is  considered  that  fully  sixty  per  cent  of  all  the_real 
estate  in  this  country  is  encumbered  to  a  greater  or  less  extent  by 
rnortgage,  and  that  the  lenders  of  money  thereon  almost  JuYBriably 
insist  upon  having  the  improvements  covered  by  policies  of  fire  ii:i- 
surance  payable  to  them  as  collateral  security,  it  is  at  once  appar- 
ent that  the  subject  of  this  address  is  one  of  exceedingly  great  in- 
terest to  the  vast  number  of  corporations  and  individuals  who  loan 
money  on  real  estate,  and  of  scarcely  less  interest  to  the  under- 
writers who  issue  policies  thereon. 

It  has  been  the  aim  of  insurance  companies  to^eet  the  peculiar 
requirements  of  these  mortgagees  in  respect  of  insurance,  by  iky- 
ing them  special  forms  of  contract,  exceedingly  liberal  in  their 
t^rms,  and  in  so  doing  they  have  in  some  instances  gone  to  unrea- 
sonable lengths,  and  far  beyond  what  was  originally  contemplated, 
in  protecting  said  interests.  And  in  the  light  of  the  interpretations 
which  have  been  placed  upon  the  provisions  in  favor  of  the  mortga- 
gee,'it  will  be  perfectly  safe  to  say  that  if  there  i^  a  more  highly 
favored  party  to  any  contract  than  a  mortgagee  under  a  policy  of 
fire  insurance,  he  has  not  yet  been  discovered.  Whenever  he  has 
asked  he  has  received,  whenever  he  has  sought  he  has  found,  and 
whenever  he  has  knocked  it  has  been  opened  unto  him  either  by  the 
insurers  themselves  or  by  the  courts,  for  what  the  former  have 
omitted,  the  latter  have  supplied. 

In  Maine,  Massachusetts,  Mississippi  and  North  Carolina,  the 
mortgagee  has,  by  statute,  under  certain  conditions,  a  lien  against 
the  insurance  money  due  the  mortgagor.  In  Louisiana  a  clause  is 
used  making  loss  if  any  payable  to  the  holder  or  holders  of  the 
mortgage  notes.  In  Ne\yJVo£k_city  the  lo_ssJs  made  payable  tojthe. 
original  mortgagee,  or  the  owner  of  the  mortgage  at  the  time  of 
the  fire,  the  former,  however,  .agreeing,  upon  request  to  inform  the 
insurer  of  the  name  and  address  of  the  party  to  whom  it  may  have 
been  assigned.  In.  New  England  the  loss  is.jna.de_4iayahle  lQ_llie 
mortgagee  as  his  interest,  may  appear  under  present  and  all  future 

199 


The  Fire  Insurance  Contract 

mortgages  covering  the  premises.  In  the  West  the  loss  is  made 
payable  to  the  mortgagee  or  his  assigns.  In  Canada  the  policy  is 
continued  in  force  for  the  benefit  of  the  mortgagee  after  expiration, 
and  until  the  mortgagee  or  the  insurer  serves  notice  of  cancella- 
tion; the  mortgagee,  however,  being  liable  for  the  premium  for  the 
extended  period.  In  Mississippi  the  standard  mortgagee  clause  is 
written  into  the  policy  by  operation  of  law.  Sec.  2596  of  Code — 
Bacot  V.  Phenix  Ins.  Co.  96  Miss.  223,  50  So.  Rep.  729. 

If  a  mortgage  contains  an  agreement  that  the  mortgagor  shall 
keep  the  mortgaged  property  covered  by  insurance  for  the  benefit 
of  the  mortgagee,  and  for  any  reason  he  fails  to  have  the  loss  made 
payable  to  him,  the  mortgagee  has  an  equitable  lien  against  any  in- 
surance that  the  mortgagor  may  have,  and  if  the  insurer  receives 
notice  of  such  lien  before  making  payment,  he  will  ignore  it  at  his 
peril.  Wheeler  v.  Insurance  Co.  101  U.  S.  439,  Aetna  Ins.  Co.  v. 
Thompson  68  N.  H.  20.  40  Atl.  396,  Swearingen  v.  Hartford  Fire 
Ins.  Co.  52  S.  C.  309,  29  S.  E.  722,  56  S.  C.  355,  34  S.  E.  449. 

In  several  states  it  has  been  held  that  the  short  form  "loss  pay- 
able" clause  is  nothing  more  nor  less  than  an  unconditipnal  agree- 
ment to  pay  the  mortgagee  in  event  of  loss,  and  if  there  are  any 
privileges  and  advantages  he  does  not  possess,  it  is  either  because 
he  has  not  yet  thought  of  them  or  has  not  demanded  them.  And 
more  remarkable  still  is  the  fact  that  for  all  this  the  mortgagee  pa\\s 
nothing  whatever.  He  gets  without  money  and  without  price  a 
contract  which  the  mortgagor  or  owner  of  the  best  risk  in  the  land 
cannot  buy  at  any  price. 

The  mortgagee,  however,  is  entitled  to  absolute  protection  from 
acts  and  conditions  outside  his  knowledge  and  beyond  his  control, 
and  if  the  insurer  is  willing  to  grant  this  protection  without  extra 
premium,  no  criticism  can  attach  to  the  mortgagee  if  he  gracefully 
accepts  the  benefits  thus  generously  bestowed.  In  fact,  the  writer 
entertains  the  hope,  perhaps  a  forlorn  one,  that  some  time  he  him- 
self may  emerge  from  his  normal  condition  of  mortgagor  and  be- 
come a  member  of  the  mortgagee  class  with  its  attendant  benefits. 

In  the  year  1858  the  large  insurance  companies  and  other  loan- 
ing institutions,  received  quite  a  severe  shock  and  rather  a  rude 
awakening  by  two  decisions  which  were  handed  down  by  the  Court 
of  Appeals  of  New  York.  Prior  to  that  timxC,  by  reason  of  de- 
cisions rendered  in  1832  and  1851,  it  had  been  their  custom  to  ac- 
cept fire  insurance  policies  as  collateral  security  with  the  short  form 
clause  ^'Ivoss,  if  any,  payable  to mortgagees  as  their  interest 

200 


Interest  of  Mortgagee — Bament 

may  appear,"  or  to  have  the  poHcies  assigned  to  them  for  collateral 
purposes  with  the  consent  of  the  insurers,  in  the  belief  that  their  in- 
terests could  not  be  adversely  affected  by  any  act  or  neglect  on  the 
part  of  the  mortgagor  or  owner. 

The  decisions  referred  to  are  Grosvenor  v.  Atlantic  Fire  In- 
surance Co.  (17  N.  Y.  391)  and  Buffalo  Steam  Engine  Works  vs., 
Sun  Mutual  Insurance  Co.  (17  N.  Y.  401).  The  former  was  a 
case  involving  the  'loss  payable"  clause,  and  the  latter  one  involving 
an  assignment  of  the  policy  to  the  mortgagee,  the  court  in  both  in- 
stances holding  that  the_rnortgagee  was  merely  the  appointee  oLiha 
party  insured,  to  receive  the  money  which  might  become  due  hinu 
fromjt^hej[nsur.^rs^upoh  the  contract:  that  the  ''loss  payable"  pro- 
vision in  the  policy  in  favor  of  the  mortgagee  had  no  more  effect 
upon  the^  contract  than  it  w^ould  if  it  had  provided  that  the  loss  for 
which  the  insurer  should  become  liable  should  be  deposited  in  a 
specified  bank  lo  the  credit  of  the  party  insured.  The  rule  of  con- 
struction thus  adopted  by  the  New  York  Court  was  followed  in 
other  jurisdictions*  and  naturally  spread  consternation  among  the 
large  lenders  of  money  on  real  estate,  because  the  security,  which 
they  had  hitherto  regarded  as  absolute,  was  by  these  sweeping  de- 
cisions found  to  depend  upon  conditions  of  which  they  had  no 
knowledge  and  over  which  they  had  no  control.  This  situation  was 
of  course  intolerable,  and  it  became  necessary  for  mortgagees  either 
to  take  out  special  policies  of  insurance  covering  their  mortgage 
interests  or  secure  some  special  form  of  contract  in  their  favor  to 
attach  to  the  policies  of  the  property  owners.  The  outcome  was 
the  adoption  of  a  special  mortgagee  agreement^  substantially  the 
same  as  the  present  standard  mortgagee  clause,  which  however,  did_ 
not  come  into  general  use  until  some  years  later. 

In  the  year  1886  the  New  York  Standard  Fire  Insurance  policy 
was  adopted  by  the  legislature  of  that  state,  together  with  a  num- 
ber of  permissible  riders,  among  which  were  three  mortgagee  agree- 
ments, one  known  as  the  "New  York  Standard  Mortgagee  Clause 
without  Contribution,"  another  the  "New  York  Standard  Mortga- 
gee Clause  with  Full  Contribution"  and  a  third  the  "New  York 
Standard  Mortgagee  Clause  when  owner  has  no  interest  in  the  in- 
surance." The  first  two  are  exactly  the  same  in  phraseology,  ex- 
cept that  one  contains  the  contribution  clause  which  reads  as  fol- 
lows : 

In  case  of  any  other  insurance  upon  the  within  described  property, 
this  Company  shall  not  be  liable  under  this  policy  for  a  greater  propor- 
tion (i  any  loss  or  damagre  sustained  than  the  sum  hereby  insured  bears 

201 


The  Fire  Insurance  Contract 

to  the  whole  amount  of  insurance  on  said  properTy,  issued  to  or  held  by 
any  party  or  parties  having  an  insurable  interest  therein,  whether  as 
owner,  mortgagee  or  otherwise. 

This  contribution  clause  has  been  the  subject  of  two  leading 
cases  of  absorbing  interest  in  insurance  litigation,  to  which  atten- 
tion will  be  directed  later. 

Two  of  these  mortgagee  clauses  provide  that  the  interest  of 
the  mortgagee  shall  not  be  invalidated  by  any  act  or  neglect  of  the 
mortgagor  or  owner,  nor  by  foreclosure  proceedings,  change  of  title 
or  ownership,  or  increase  of  hazard,  provided  the  mortgagee  notifies 
the  company  of  such  changes  or  increase  in  hazard  which  may 
come  to  his  knowledge,  and  pays  premium  therefor,  and  provided 
also  that  the  mortgagee  shall  pay  the  premium  in  event  of  default 
by  the  owner;  also  for  cancellation,  and  for  subrogation  in  event  of 
non-liability  to  the  mortgagor  or  owner. 

The  third  mortgagee  clause  is  intended  for  use  where  the  pol- 
icy is  issued^clirect  10  Ih^  mollgagee  covering  his  interest  only,  and 
contains  a  provision  for  subrogation.  This  latter  clause  is  seldom 
used,  but  if  a  policy  is  issued  direct  to  the  mortgagee,  he  is  "the  in- 
sured" and  is  bound  by  all  the  terms  and  conditions  of  the  policy. 
""^  The  New  York  Standard  Policy  and  its  collateral  agreements 
have  been  formally  adopted  by  a  number  of  other  states  either 
verb^im  or  with  slight  modifications,  while  others  have  adopted 
standard  forms  differing  materially  therefrom,  but  it  is  safe  to  say 
that  in  all  the  United  States,  aside  from  those  which  have  standard 
policies  of  their  own,  fully  seventy-five  percent 'of  the  policies  is- 
sued are  the  New  York  Standard.  It  would  seem  that  this  ap- 
proach to  uniformity  in  contract  should  be  attended  with  something 
approaching  uniformity  in  court  decisions,  but  such  is  not  the  case, 
because  the  courts  of  the  various  states  differ  with  each  other  on 
many  points  and  the  federal  courts  have  differed  radically  with  the 
New  York  Court  of  Appeals  in  the  interpretation  of  several  very 
important  conditions,  one  of  which  bears  directly  upon  the  interest 
of  the  mortgagee. 

The  storm  center  of  most  of  the  litigation  which  has  taken 

place  in  connection  with  the  interest  of  the  mortgagee  is  to  be 

found  in  lines  56  to  59  of  the  policy,  which  read  as  follows  : 

If,  with  the  consent  of  this  company,  an  interest  under  this  policy 
shall  exist  in  favor  of  a  mortgagee  or  of  any  person  or  corporation  hav- 
ing an  interest  in  the  subject  of  insurance  other  than  the  interest  of  the 
insured  as  described  herein,  the  conditions  hereijibefore  contained  shall 
apply  in  the  manner  expressed  in  such  provisions  and  conditions  of  in- 
surance relating"  to  such  interest  as  shall  be  written  upon,  attached  or  ap- 
f>f  n^i^H  Hereto^        ~        " 

202 


f  Interest  of  Mortgagee — Bament 

This  paragraph  has  been  to  some  courts  a  stumbling  block  and 
the  subject  of  considerable  criticism  on  account  of  its  ambiguity, 
and  if  it  were  not  in  the  policy,  or  if  the  intention  of  its  authors 
had  been  more  clearly  expressed,  much  of  the  litigation  which  has 
taken  place  would  have  been  avoided. 

There  are  three  leading  cases  involving  the  question  of  con- 
tribution under  the  mortgagee  clause,  two  by  the  New  York  Court 
of  Appeals  and  one  by  the  United  States  Circuit  Court  of  Appeals. 

The  first  is  that  of  Hastings  v.  Westchester  {7Z  N.  Y.  141) 
decided  by  the  New  York  Court  in  1878.  One  policy,  the  West- 
chester, was  issued  to  the  owner  with  loss  payable  to  the  mortgagee  ; 
the  other,  the  Lycoming,  was  issued  to  the  insured  with  loss  pay- 
able to  himself.  The  mortgagee  clause  itself  did  not  contain  any 
provision  for  contribution,  and  the  company  relied  upon  the  con- 
tribution clause  in  the  printed  conditions  of  the  policy.  Suit  was 
brought  against  the  Westchester  by  the  mortgagee,  who  claimed 
the  full  amount  of  loss  ffom  that  company.  The  court  held  that 
jy  reason  of  the  mortgagee  clause,  the  policy  operated  as  an  inde- 
pen3ent-inam:ance  of  the  mortgagee's  interest  and  that  the  West- 
chester was  liable  for  the^fuU  am^ount  of  the  loss,  but  was  entitled 
to  subrogation,  for  what  it  might  be  worth,  to  the  extent  of  the 
excess  which  it  was  compelled  to  pay  over  and  above  its  pro  rata 
liability  to  the  insured.  Whether  the  Westchester  by  reason  af  its 
subrogation  rights,  could,  for  its  indemnity,  have  any  recourse 
against  the  proceeds  of  the  policy  in  the  Lycoming  Insurance  Com- 
pany was  a  question  which  the  court  did  not  feel  called  upon  to 
decide,  and  no  court  has  attempted  to  do  so  since.  The  question 
did  not  come  up  again  for  sixteen  years,  but  in  the  same  month  of 
the  same  year,  to  wit ;  October,  1894,  the  New  York  Court  of  Ap- 
peals decided  the  case  of  Eddy  v.  London  Assurance  Corporation 
et  al.  (143  N.  Y.  311)  and  the  United  States  Circuit  Court  of  Ap- 
peals rendered  its  decision  in  the  case  of  Williams,  Trustee  v. 
Hartford  Fire  Insurance  Co.  (63  Fed.  925),  both  involving  the 
question  of  contribution  under  the  mortgagee  clause. 

It  will  be  remembered  that  in  the  case  of  Hastings  v.  West- 
chester the  mortgagee  agreement  did  not  contain  the  contribution 
cJau^~~Tn  the  Eddy  pase  some  policies  contained  the^^ortgagee 
clause  with  fujl  c^iiti^ition  and  some  contained  the~cTauie*'w^h^ 
out  contribution,  while  others  were  payable  direct  to  the  insured 
In  the  Williams  case  the  policy  contained  the  mortgagee  clause  with 
full  rontribution  so  that,  with  respect  to  the  clause  with  full  con- 

203 


The  Fire  Insurance  Contract 

tribution,  theHwo  cases  were  on  all  fours  with  each  other,  yet  these 
two  courts  of  last  resort  reached  diametrically  opposite  conclusions, 
neither  knowing  the  views  of  the  other,  ^^^ay^^'C^^^'^^^'^. 

The  lines  of  reasoning  adopted  by  these  eminent  tribunals  in 
reaching  their  respective  decisions  w^ll  be  found  interesting.  The 
New  York  Court  said  that  the  words  "the  interest  of  the  mortgagee 
shall  not  be  invalidated"  should  not  be  given  a  narrow,  but  on  the 
contrary,  a  broad  interpretation,  and  meant  that  the  interest  of  the 
mortgagee  should  not  be  injuriously  impaired  or  afifected  by  the  act 
or  neglect  of  the  owner;  that  in  order  to  constitute  double  insur- 
ance, the  policies  musl  cover  the  same  interest  in  the  same  property 
or  some  part  thereof;  that  although  the  contribution  provision  was 
inserted  as  a  part  of  the  mortgagee  clause,  and  called  for  contribu- 
tion from  the  whole  insurance  on  the  property  held  by  any  party 
or  parties  having  an  insurable  interest  therein,  whether  as  owner, 
mortgagee  or  otherwise,  this  provision  was  inconsistent  with  the 
primary  promise  that  the  interest  of  the  mortgagee  should  not  be 
impaired  by  the  act  or  neglect  of  the  owner,  and  that  the  primary 
promise  must  prevail.  The  court  admitted  that  this  view  might 
not  give  full  effect  to  the  strict  language  of  the  contribution  clause, 
but  held  that  taking  the  contract  as  a  whole,  it  was  unreasonable  to 
suppose  that  the  parties  intended  to  permit  the  interest  of  the  mort- 
gagee to  be  adversely  aft'ected  by  the  secret  act  of  a  third  party, 
and  that  the  cmilribution  clause  must  be.  limited  in  its  operations 


to  the  insurance  held  by  or  consented  to  by  the  rnortgagge. 

TKe^edei  al  Court  m  its  decision  said  that  the  particular  lan- 
guage employed  in  the  mortgagee  clause  respecting  contribution, 
seems  to  have  been  inserted  for  the  express  purpose  of  making  it 
clear  that  the  mortgagee's  policv  was  entitled  to  pro  rate  with  all 
policies  covering  the  property  which  at  the  time  of  the  loss  might 
be  held  by  any  person  whomsoever  had  an  insurable  interest  in  the 
property ;  that  in  the  absence  of  the  words  "issued  to  or  held  by  any 
party  or  parties  having  an  insurable  interest  therein,"  it  might  no 
doubt  be  fairly  argued  that  it  was  simply  the  intention  of  the  par- 
ties to  reserve  the  right  to  pro  rate  with  other  policies  procured 
by  the  mortgagee  for  the  protection  of  his  interest,  but  the  use  of 
the  words  quoted  rendered  that  construction  inadmissable ;  that 
those  words  appear  to  have  been  added  out  of  abundant  caution 
that  there  might  not  be  any  room  for  doubt  on  the  subject.  The 
court  further  said  that  it  w^ould  not  be  justified  in  ignoring  an  agree- 
ment in  one  part  of  the  instrument,  which  is  as  clearly  expressed 

204 


Interest  of  Mortgagee — Bament 

as  langu^e  could  well  express  it,  merely  because  it  limits  to  some 
extent  the  scope  of  general  language  employed  in  another  part  of 
the  instrument.  It  further  surmised  what  is  undoubtedly  true,  that 
the  contribution  clause  was  phrased  precisely  as  it  is,  and  inserted 
as  a  part  of  the  mortgagee  clause  itself  for  the  purpose  of  remedy- 
ing the  defect  brought  out  in  the  case  of  Hastings  vs.  Westchester, 
and  for  the  sole  purpose  of  securing  the  contribution  which  was 
deniedjm  thatraQp. 

Two  courts  of  such  prominence  having  differed  with  each 
other,  the  question  which  naturally  presents  itself  is,  which  is  the 
better  law?  Although  the  mortgagee  should  have  absolute  protec- 
tion in  the  matter  of  his  insurance,  unaffected  by  the  acts  of  omis- 
sion or  commission  on  the  part  of  third  persons,  and  while  it  is 
true  that  under  the  interpretation  placed  upon  the  contribution 
clause  by  the  Federal  Court,  his  interest  might  in  certain  circum- 
stances be  very  materially  impaired,  yet,  to  use  a  favorite  expres- 
sion of  the  judiciary,  it  is  the  province  of  courts  to  construe  con- 
tracts, not  to  make  them.  It  seems,  however,  that  the  New  York' 
Court  of  Appeals  in  the  Eddy  case  went  out  of  its  way  to  amend  the 
existing  contract  by  virtually  eliminating  therefrom  the  words  "is- 
sued to  any  party  or  parties  having  an  insurable  interest  therein." 
THere  is  no  ambiguity,  no  language  could  be  plainer  and  it  is  im- 
possible to  conceive  of  any  object  that  the  parties  could  have  had 
in  ilsing  those  words  other  than  to  avoid  the  very  construction  of 
the  clause  which  the  Court  of  Appeals  adopted. 

^"The  Federal  decision  was  legally  sound,  but  the  contribution, 
provision  contained  in  the  standai'd  mortg^a^ee  rlanse  is  not   f^jf 


to^^thejiLQilgagee,  and  it  should  be  amended  so  as  to  permit  con 
tribution  from  those  policies  only,^vv]iich'are  payable  to,  held  by  or/ 
consented  to  by  the  mortgagee;  tor  otherwise  he  will  not^  in  many/ 
instances,  have  the. sexwrity  to  which  he  is  justly  entitled.  I 

See  also  Hardy  v.  Lancashire  Ins.  Co.  (1896),  166  Mass.  210, 
33  L.  R.  A.  21,  44  N.  E.  209;  Sun  Ins.  Co.  v.  Varble  (1898),  103 
Ky.  758,  27  Ins.  Law  Journal  798;  Germania  Fire  Ins.  Co.  v.  Bally 
(1918),  173  Pac.  1052. 

A  short  time  after  the  standard  policy  went  into  general  use, 
the  insurance  companies  and  the  framers  thereof  received  about 
as  great  a  shock  as  the  mortgagees  had  received  years  before,  the 
occasion  being  a  remarkable  decision  rendered  by  the  Supreme 
Court  of  Nebra^ka^in  the  case  of  Oakland" Home"  Insy  Co.  v.  Bank 
of  Corninerce  (47  Neb.  717),  in  which  it  was  held  that  under  the 

205 


w 


The  Fire  Insurance  Contract 

short  form  '^loss  payable"  clause,  the  mortgagee  is  not  bqund_b}^_aTiy 
of  the  conditions  of  the  policy  whatsoever-  According  to  the  in- 
terpretation placed  by  the  court  upon  lines  56  to  59,  if  the  com- 
pany desired  any  of  the  policy  conditions  to  apply  to  the  interest  of 
the  mortgagee,  it  would  be  necessary  for  those  conditions  to  be 
specially  written  upon,  attached  or  appended  to  the  rider,  and  inas- 
much as  no  conditions  were  so  appended,  or  included  in  the  "loss 
i  payable"  clause,  either  by  reference  or  otherwise,  the  mortgagee 
virtually  possessed  an  unconditional  contract,  and  in,  the  absence 
of  fraud  on  his  part,  the  company  had  no  alternative  but__JxL-Qay 
tfi?lDss.  The  court  commenting  upon  lines  56  to  59  used  the  fol- 
lowing language: 

And  even  if  there  be  doubt  as  to  the  correctness  of  this  construction, 
there  is  some  satisfaction  in  the  fact  that  an  insurer^jsdia  put&_.suck_a 
nondescript  provision  into  his  policy  should  hardly  be  heard  to  pbiect  to. 
any  kind  of  construction  which  any  one  chooses  to  give  it. 

Six  other  states,  to  wit;  Mississippi,  Iowa,  Washington,  Mis- 
souri, California  and  Ohio  have  rendered  similar  decisions.  Sev- 
era-l  judges  dissented  and  Mr.  Freeman,  the  learned  annotater  says 
that  these  cases  go  to  the  extreme,  if  not  questionable  limit,  in  up- 
holding the  rights  of  the  mortgagee,  where  there  is  no  clause  in  the 
policy  securing  the  mortgagee  against  any  act  or  neglect  of  the 
mortgagor — East  v.  New  Orleans  Ins.  Ass'n.  76  Miss.  697,  26  So. 
Rep.  691;  Christenson  v.  Fidelity  Ins.  Co.  117  Iowa  77,  90  N.  W. 
495,  94  Am.  St.  Rep.  286;  Boyd  v.  Thuringia  Ins.  Co.  25  Wash. 
447,  65  Pac.  785,  55  L.  R.  A.  165 ;  Senor  et  al.  v.  Western  Millers 
Mut.  F.  Ins.  Co.  181  Mo.  104,  79  S.  W.  685,  33  Ins.  Law  Journal 
455;  Welch  v.  British  America  Assur.  Co.  (Cal.)  82  Pac.  964; 
Farmers  Natl.  Bank  v.  Delaware  Ins.  Co.  (Ohio)  83  O.  S.  309; 
40  Ins.  Law  Journal  1248. 

According  to  these  decisions  it  is  quite  evident  that  in  those 
states  the  short  "loss  payable"  clause  is  much  more  favorable  to 
the  mortgrgee  than  the  standard  mortgagee  clause  itself,  for  the 
latter  does  reserve  some  few  rights  to  the  insurer,  while  the  for- 
mer reserves  none. 

Various  suggestions  have  been  made  as  to  how  th^^'loss  pay- 
able" clause  should  be  amended~scras  to  meet  the  conditions  brought 
about  by  these  decisions,  and  in  this  connection  it  is  important  to 
note  that  in  none  of  the  cases  referred  to  did  the  clause  contain 
any  reference  to  the  conditions  of  the  policy. 

The  following  has  been  suggested : 

Z06 


Interest  of  Mortgagee — Bament 

Loss,  if  any,  payable  to mortgagee,  as  interest  may  ap- 
pear, subject,  nevertheless,  to  all  the  conditions  of  this  policy. 

but  this  has  been  objected  to  on  the  ground  that  on  its  very  face  it 
creates  a  distinct  contract  with  the  payee,  which  it  is  desirable  to 
avoid,  but  the  answer  to  this  criticism  is  that  the  several  courts, 
whose  opinions  we  have  been  considering,  have  practically  decided 
that  lines  56  to  59  of  the  policy  have  that  effect  as  soon  as  a  "loss 
payable"  clause  is  placed  on  the  policy.  And,  although  a  mortgagee 
under  the  "loss  payable"  clause  is  not  an  "insured,"  yet  the  New 
York  Court  of  Appeals  has  ruled  that  he  is  bound  by  all  the  policy 
conditions  prior  to  line  56,  but  is  not  bound  by  those  after  line  60. 
MacDowell  v.  St.  Paul  F.  &  M.  Insurance  Company,  207  N.  Y. 
472.  And  all  courts  without  exception  which  have  passed  on  the 
question  (and  they  are  numerous)  have  held  that  the  mortgagee 
payee  is  entitled  to  notice  of  cancellation.  Another  objection  is 
that  by  making  the  policy  subject  to  all  the  conditions  of  the  poUcy, 
we  simply  re-afifinn  lines  56  to  59,  which  brings  us  back  to  where 
we  started  from. 

Another  suggestion  is : 

Any  loss  which  may  be  ascertained  to  be  due  the  assured  under  this 

?oHcy,  shall  be  held  payable  to ^. .  .as  interest  may  appear, 
t  being  understood  and  agreed  that  there  is   no   contract   under   this 

clause  or  policy  with except  as  relating  to  the  payment 

of  money  due  the  assured 

And  still  another  is: 

Loss,  if  any,  payable  to as  interest  may  appear. 

This  endorsement  shall  be  held  to  vest  in  said  payee  no  right  or  in- 
terest in  this  insurance  save  as  the  appointee  to  receive  the  amount,  if 
any,  which  may  become  due  the  assured  hereunder,  in  the  event  of  loss, 
any  condition  of  the  policy  to  the  contrary  notwithstanding. 

The  latest  suggestion  is  as  follows : 

It  is  hereby  agreed  that  such  loss  or  damage  as  shall  have  been  as- 
certained and  proved  to  be  due  under  all  the  conditions  of  the  within 

policy  to (which  conditions  are  hereby  by 

reference  incorporated  into,  and  made  applicable  to  the  payee  herein 
named  as  a  part  of  this  agreement  as  fully  as  though  written  at  length 
herein),  shall  be  held  payable  to 

In  this  connection  it  is  interesting  to  note  that  on  December  7th, 

1918,  the  Supreme  Court  of  Kansas  rendered  a  decision  in  the  case 

of  Bums  V.  Alliance  Co-operative  Insurance  Company,   176  Pac. 

Rep.  985,  Vol.  33  Ins.  Law  Journal  229,  and  held  that  the  words — 

"Subject,  however,  to  all  the  terms  and  conditions  of  this  policy  and 

the  by-laws  of  this  Company,"  were  sufficient  to  relieve  the  Jn- 

surers  from  liability  to  the  mortgagee-payee  when  the  policy  was 

void  as  to  the  owner.    The  court  quoted  from  the  decision  of  the( 

207 


The  Fire  Insurance  Contract 

Supreme  Court  of  California  in  the  case  of  Welch  v.  British  Amer- 
ica Assurance  Company,  148  Cal.  227,  on  this  point  as  follows : 

It  would  not  be  necessary  to  write  them  out  in  full  upon  the  policy, 
which  would  be  practically  impossible.  A  fe^y  words,  making  the  provi- 
sions, or  certain  of  them,  as  was  desired,  applicable  to  the  other  interest, 
could  read'.ly  be  inserted  in  the  slip  containing  what  is  called  the  "loss 
payable"  cUuse'  attached  to  the  policy.  / 

The  State  of  California  has  solved  the  difficulty  quite  effect- 
ually in  its  standard  policy  by  leaving  out  the  paragraph  contained 
In  lines  56  to  59  of  the  New  York  Standard  policy  and  this  is  prob- 
ably the  simplest  and  most  effective  way  of  remedying  the  defect. 
It  has  alsoobeen  left  out  of  the  new  standard  policies  in  the  States 
of  Pennsyhvania,  North  Carolina,  South  Carolina,  and  New  York. 
This,  of  CQnarse,  cannot  be  done  except  in  non-standard  policy  states. 

In  striking  contrast  to  the  foregoing  decisions  may  be  men- 
tioned the  case  of  Atlas  Reduction  Co.  v.-  New  Zealand  Insurance 
Co.,  decided  by  the  United  States  Circuit  Court  of  Appeals,  Eighth 
Circuit,  April  24,  1905.  The  policy  covered  both  the  realty  and 
personalty  and  contained  the  following  clause:  ''Subject  to  all  the 
conditions  df  this-  policy,  loss,  if  any,  payable  to  G.  B.  Dodge  and 
A.  M.  Stevenson,  as  their  interest  may  appear,"  two  mortgages, 
one  of  the  realty  and  the  other  of  the  chattels  having  been  executed 
by  the  Reduction  Company.  It  was  held  that  the  endorsement  is 
a  common  method  df  furnishing  security  to  a  creditor,  but  does 
not  make  a  new  contract  with  the  payee,  or  waive  any  policy  con- 
dition; that  the  payees  were  the  simple  appointees  of  insured  to 
receive  any  payment  that  might  be  due  to  the  extent  of  this  in- 
terest ;  that  the  endorsement  did  not  give  consent  to  a  chattel  mort- 
gage to  D.  and  S.  contrary  to  a  provision  in  the  policy  that  it  should 
be  void  in  case  of  such  mortgage;  that  oral  testimony  was  not  ad 
missible  to  show  that  the  agent  intended  the  endorsement  as  a  con- 
sent to  such  mortgage;  that  where  the  entire  policy,  by  its  terms, 
was  void  in  case  of  such  mortgage,  there  could  be  no  recovery.  Vol. 
34,  Ins.  Law  Journal,  page  805,  121  Fed.  929. 

It  will  be  noticed  that  the  clause  in  this  case  contained  the 
words  "subject  to  all  the  conditions  of  the  policy,"  whereas  in  the 
other  cases  referred  to,  they  were  omitted.  The  prevailing  opinion 
of  Justice  Van  Devanter  and  the  dissenting  opinion  of  Justice  Hook, 
with  the  authorities  cited,  are  well  worth  a  careful  study. 

One  of  the  most  interestmg  questions  connected  with  this  sub- 
ject is  whether  a  mortgagee  under  the  mortgagee  clause  is  bound 
by  the  conditions  of  the  average  or  coinsurance  clause.     If  he  is, 

208 


Interest  of  Mortgagee — Bament 

the  adverse  result  to  the  insurers  on  account  of  their  inabiHty  to 
apply  the  contribution  clause  to  the  mortgagee's  interest,  would,  by 
reason  of  the  general  use  of  average  or  coinsurance  conditions,  be 
in  a  large  measure  neutralized. 

One  leading  authority  has  expressed  the  opinion  taat  the  in- 
terest of  the  mortgagee  cannot  be  affected  by  a  co-insurance  clause 
unless  it  is  made  to  appear  in  clear  and  explicit  terms  that  the 
mortgagee  agrees  to  be  bound  by  the  provisions  of  the  clause  as  a 
part  of  his  contract  with  the  company.  While  apparently  admit- 
ting that  it  is  a  close  question,  this  authority  is  led  t  >  the  above 
conclusion  partly  on  account  of  the  attitude  of  the  C  iirt  of  Ap- 
peals in  the  case  of  Farmers  Feed  Co.  v.  Scottish  Unijn  and  Na- 
tional Insurance  Co.  (173  N.  Y.  241).  It  is  not  cor/^ended  that 
the  questions  are  on  all  fours  \\  ith  each  other,  but  in  v^iew  of  the 
trend  of  the  judicial  mind  as. set  forth  in  the  Farmers  Feed  Com- 
pany and  other  cases,  it  is  thought  that  the  court  would  treat  the 
interest  of  the  mortgagee  under  the  mortgagee  clause  as  free  from 
co-insurance  limitations. 

Another  eminent  authority  has  expressed  the  opinion  that  the 
mortgagee  would  not  be  bound  by  the  co-insurance  clause  as  applied 
to  the  value  of  the  property,  and  if  applicable  at  all,  it  would  apply 
only  to  the  value  of  the  mortgagee's  interest,  just  as. the  co-insur- 
ance clause,  under  an  excess  floating  policy  in  practice  is  made  to 
apply  only  to  the  excess  value,  and  under  a  rent  policy  or  use  and 
occupancy  policy  to  the  value  of  the  interest  insured;  in  sh^rt,  that 
the  words  *'value  of  property"  would  be  construed  to  mean  "value 
of  interest." 

According,  to  still  another  authority,  we  are  not  warranted  in 
assuming  or  admitting  that  the  mortgagee  is  exempt  from  co-insur- 
ance conditions  as  applied  to  the  value  of  the  property.  He  says 
that  the  short  payee  clause  by  itself  has  been  passed  upon  many 
times  by  the  courts  and  for  over  fifty  years  it  has  been  held  in  New 
York,  and  many  other  states,  that  under  such  a  clause,  although  it 
contained  the  phrase  "as  interest  may  appear,"  the  mortgagee  can 
recover  only  what  the  mortgagor  would  be  entitled  to  "under  the 
policy."  This  payee  clause  does  not  purport  to  define  the  amount 
payable  to  a  mortgagee  other  than  by  reference  to  the  policy  itself, 
and  further  to  declare  that  it  shall  not  exceed  the  amount  of  the 
mortgagee's  interest.  The  mortgagee  clause  gives  the  plainest  sort 
of  notice  that  it  is  only  "loss  under  the  policy,"  that  is  to  say,  loss 
subject  to  the  term?  and  provisions  of  the  policy,  that  is  payable  to 

209 


The  Fire  Insurance  Contract 

the  mortgagee,  with  the  single  exception  that  certain  classes  of 
forfeiture  are  not  to  be  exacted  as  against  the  mortgagee. 

A  recent  decision  by  the  highest  court  in  New  York  holds  that 
the  mortgagee  is  not  bound  by  those  conditions  of  the  policy  affect- 
ing the  situation  after  a  loss  (lines  60  to  112),  but  imply  that  he 
is  bound  by  the  preceding  conditions  (lines  1  to  55)  except  as 
modified  by  the  mortgage  clause.  Heilbrunn  v.  German  Alliance 
Ins.  Co.,  202  N.  Y.  610,  95  N.  E.  823,  (infra.)  The  average^jor  co- 
insurance clause,  however,  is  a  part  of  the  contract  and  when  the 
mortgagee  accepts  the  policy  with  such  a  clause  therein,  it  is  his  own 
voluntary  act.  He  should  be  as  much  bound  by  it  as  by  the  amount 
of  the  policy,  date  of  expiration  and  description  of  the  property. 
This  imposes  no  hardship  upon  him ;  his  interests  are  not  placed  at 
the  mercy  of  third  parties  and  the  arguments  which  have  been  ad- 
vanced against  the  operation  of  the  contribution  clause  do  not  ap- 
ply. He  can  insist  upon  insurance  payable  to  himself  being  taken 
out  equal  to  the  stated  percentage  of  the  value  of  the  property  and 
thereby  secure  absolute  protection,  and  it  is  the  rule  with  certain 
large  loaning  institutions  to  insist  upon  this  in  order  to  meet  the 
necessities  of  each  case,  unVess  they  regard  their  security  as  ample 
without  it.  One  exception,  however,  should  be  noted.  If  extra- 
ordinary improvements  and  repairs  are  made  to  the  building  a,fter 
a  policy  is  issued,  without  the  knowledge  of  the  mortgagee,  thereby 
materially  increasing  the  value  of  the  property,  this  would  be  ap 
act  of  the  ownfer  by  which  the  mortgagee  would  not  be  bound. 

We  have  here  three  different  views  on  this  subject  expressed 
by  high  legal  and  lay  authorities,  but  in  July,  1915,  the  Appellate 
Division,  Second  Department  of  the  Supreme  Court  of  New  York 
in  the  case  of  Ffi^^^ir  ^'  A^^^^^^"  Tngnra^^np-fVf  of  Newark,  154 
N.  Y.  Supp.  801,  46  Ins.  Law  Journal  455,  handed  down  a  unan- 
imgus  decision  holding  that  the  average  or  co-insurance  limit  of 
liability  is  binding  on  the  mortgagee  and  used  many  of  the  argu- 
ments advanced  in  the  view  last  expressed.  The  court  held  that 
the  mortgagee  clause  does  not  contain  the  whole  contract  made 
with  the  mortgagee;  that  the  amount  of  insurance  agreed  to  be 
paid  by  the  insurer  is  not  a  condition  but  an  integral  part  of  the 
policy,  limiting  its  liability,  as  to  any  one,  to  the  proportion  of  the 
loss  it  undertakes  and  agrees  to  pay.  It  further  held  that  the  legal 
effect  of  the  standard  average  clause  is  to  make  the  liability  of  the 
insurer  the  same  as  if  the  words  in  the  policy  "to  an  amount  not 
exceeding  $1,500.00"  together  with  the  80  per  cent  average  clause, 

210 


Interest  of  Mortgagee — Bament 

had  been  omitted  from  the  policy,  and  in  lieu  thereof  had  been 
written  the  words  *'to  an  amount  not  exceeding  the  sum  of  $1,500, 
if  such  direct  loss  or  damage  equals  80  per  cent  of  the  actual  cash 
value  of  the  property  insured  at  the  time  such  loss  shall  happen, 
and,  if  not,  such  proportion  of  any  loss  or  damage  to  the  property 
described  herein  as  such  sum  of  $1,500.00  bears  to  80  per  cent  of 
the  actual  cash  value  of  said  property  at  the  time  of  such  loss." 
This  case  was  not  appealed. 

A  similar  decision  was  rendered  in  April,  1919,  by  the  United 
States  District  Court  of  Eastern  District  Pennsylvania  in  the  case 
of  Pennsylvania  Company  for  Insurance  on  Lives  and  Granting  An- 
nuities V.  Aachen  &  Munich  Fire  Ins.  Co.,  257  Fed.  Rep.  189,  Sept., 
1919.    Ins.  Law  Journal,  p.  291. 

In  the  City  of  New  York,  probably  on  account  of  the  decision 
in  the  Eddy  case,  (supra),  the  use  of  the  mortgagee  clause  with 
full  contribution  seems  to  have  fallen  into  disuse  and  to  have  been 
superseded  by  the  clause  without  contribution.  The  question,  there- 
fore arises  whether  in  the  state  of  New  York,  in  view  of  the  de- 
cision of  the  Court  of  Appeals,  the  contribution  clause  possesses 
any  virtue  whatever  and  whether,  as  a  practical  proposition,  it 
makes  any  difference  which  of  the  two  clauses  is  used.  Seventy- 
five  years  ago  the  contribution  provision  now  contained  in  the 
printed  conditions  of  all  fire  insurance  policies,  had  not  come  into 
general  use,  and  in  event  of  partial  loss,  a  claimant  could,  if  he 
desired,  collect  the  entire  amount  of  his  loss  from  any  one  of  his 
insurers,  not  exceeding  of  course  the  amount  of  its  policy,  and  that 
company  would  look  to  the  other  companies  for  their  pro  rata  pr(>^ 
portion  of  the  claim.  We  have  seen  that  in  the  Hastings. case  the 
mortgagee  is  not  bound  by  the  conti:ibutiQii__clause  in  ..the  policy, 
and  in  the  Eddy  case  that  the  contribution  clause  in  mortgagee  agree- 
ment applies  only  to  policies  payable  to  the  mortgagee,  or  consented 
to  by  him.  In  the  Heilbrunn  case  (infra),  we  find  that  the  contract, 
so  far  as  the  mortgage  is  concerned,  stops  at  line  59  and  that  the 
succeeding  conditions,  among  which  the  contribution  clause  ap- 
pears, is  not  binding  upon  him.  If,  therefore,  there  be  no  contribu- 
tion provision  in  the  mortgagee  clause,  and  the  mortgagee  should 
desire  to  collect  the  entire  amount  of  his  loss  from  any  one  of  his 
insurers,  there  would  seem  to  be  nothing  to  prevent  his  doing  so, 
although  he  would  hardly  care  to  exercise  this  right  unless  some 
of. his  insurers  should,  hy  reason  of  a  severe  conflagration  or  other- 

211 


The  Fire  Insurance  Contract 

wise,  become  insolvent.  This  is  a  somewhat  remote  contingency, 
ahhough  large  conflagrations  are  occurring  with  too  great  fre- 
quency, and  it  is  simply  mentioned  as  one  of  the  possibiUties  under 
the  mortgagee  clause  which  does  not  contain  the  contribution  pro- 
vision. 

That  the  interest  of  the  mortgagee  is  quite  a  live  question  is 
evidenced  by  the  fact  that  the  September,  1911,  issue  of  the  "In- 
surance Law  Journal"  reported  three  cases  and  the  October  issue 
one  case,  touching  various  phases  of  the  subject,  but  by  far  the  most 
interesting  and  most  important  was  that  of  Heilbrunn  vs.  German 
'Alliance  Insurance  Co.,  decided  by  the  New  York  Court  of  Appeals, 
to  which  reference  has  been  made,  affirming  the  majority  opinion 
of  the  Appellate  Division,  202  N.  Y.  610,  95,  N.  E.  823.  The  court 
decided  that  the  mortgagee's  interest  is  not  affected  by  any  of  the 
policy  conditions  following  line  59,  which  relate  to  conditions  after 
a  fire,  and  as  most  of  the  conditions  preceding  line  59  are  either 
modified  or  nullified  by  the  mortgagee  clause,  he  comes  pretty  close 
/to  having  a  conditionless  contract.  It  follows  from  this  that  in 
the  St,ate  of  New -York  a  mortgagee  is  under  no  obligation  to  give 
the  company  any  notice  of  loss,  nor  furnish  proof  of  loss,  nor  sub- 
mit to  appraisal  or  examination  of  any  kind.  He  is  i^t  bound  by. 
the  conditions  of  the  contribution  clause  and  can  bring  suit  at  any 
time  within  the  statutory  limit  of  six  years.  The  court  admitted 
that  insurance  companies  ought  to  have  more  protection  in  tlie 
matter  of  time  within  which  actions  upon  their  policies  must  be 
brought  and  possibly  in  other  respects,  but  that  relief  must  come, 
if  at  all,  from  the  legislature  through  modification  of  the  standard 
policy.  The  dissenting  opinion  of  Justice  McLaughlin  in  the  Ap- 
pellate Division  is  a  masterly  effort  and  presents  the  most  rational 
construction  of  the  standard  policy  that  has  yet  appeared.  The 
Supreme  Courtof  Ohio,  in  the  case  of  Erie  Brewing  Co.  v.  Ohio 
Farmers  Insurance  Co.  (Ohio,  1909),  89  N.  E.  1065,  Vol.  39  Ins. 
Law  Journal  200,  rendered  an  opinion  similar  to  that  of  Justice 
McLaughlin,  and  swung  the  pendulum  so  far  in  the  other  direction 
as  to  hold  that  the  mortgagee  under  the  mortgagee  clause  was  bound 
by  an  award  of  appraisers  to  which  he  was  not  a  party  and  of  which 
he  had  no  notice.  The  New  York  Court  of  Appeals  has  held  to  the 
contrary  on  this  point  even  under  the  "loss  payable  clause."  Hath- 
away V.  Orient  Ins.  Co.  134  N.  Y.  409,  (infra.)  The  Court  of 
Appeals  in  its  decision  in  the  Heilbrunn  case  (supra)  said: 

But  the  difficulty  is  that  the  language  of  those  stipulations  or  condi- 

212 


Interest  of  Mortgagee — Bament 

tions  of  the  policy  which  relate  to  the  proceedings  after  the  liability  of 
the  company  has  accrued  through  the  fire,  does  not  enable  us  to  apply 
them  to  the  mortgagee  in  such  part  only  as  may  be  practical  or  expedi- 
ent. We  must  hold  (unless  our  decision  be  wholly  arbitrary)  that  all 
those  stipulations  which  in  terms  relate  to  the  mortgagor  only,  apply 
equally  to  the  mortgagor  and  mortgagee,  or  we  must  hold  that  none  of 
them  do.  The  former  dictates  that  which  is  impossible  and  the  order 
of  the  Appellate  Division  in  this  case  should  therefore  be  affirmed. 

After  reading  this  decision  in  connection  with  that  of  the  Ap- 
pellate Division  which  it  affirms,  and  the  strong  dissenting  opinion 
of  Justice  McLaughlin,  one  cannot  help  wondering  whether,  if  the 
interests  of  the  mortgagee  rather  than  those  of  the  insurance  com- 
pany had  been  adversely  afifected,  the  situation  might  not  in  some 
manner  have  been  saved  from  the  realm  of  the  impossible.  The 
court  in  the  Eddy  case  experienced  no  difficulty  whatever  in  ac- 
tually striking  out  of  the  contriljution  clause  a  certain  inconvenient 
phrase  which  was  as  plain  as  language  could  make  it,  on  the  ground 
that  the  only  meaning  wMch-COuld  reasonably  be  given  it  could  not. 
possibly  have  been  intended.  That  the  legislature  intended,  for 
obvious  reasons  to  grant  to  the  mortgagee  a  somewhat  more  liberal 
contract  than  to  the  property  owner,  cannot  be  doubted,  but  that 
it  for  one  moment  intended  when  it  adopted  a  standard  statutory 
form  of  policy  which  the  title  to  the  act  shows  was  established  as 
a  "uniform  policy"  for  all  parties,  to  single  out  this  one  class,  to 
wit;  mortgagees,  and  exempt  them  from  all  the  usual  obligations 
which  all  other  insured  citizens  must  observe,  is  inconceivable. 

Line  58  indicates  very  clearly  that  it  is  only  "the  conditions 
hereiiibefore  contained''  that  can_ .  b^^inoiiij6.e.d  by  the  mortgagee 
clause  or  rider,  and  the  Supreme  Court  of  Ohio  in  its  well  con- 
sidered opinion  (supra)  says: 

It  would  appear  reasonable  that  in  respects  not  modified  or  limited 
by  the  express  language  of  the  mortgagee  clause,  the  plain  provisions  of 
the  policy  must  prevail  and  be  observed. 

This  is  a  reasonable  interpretation  of  the  contract  even  if  no 
consideration  be  given  to  the  intention  of  the  legislature,  but  in  New 
York  the  court  of  last  resort  has  spoken  and  the  law  in  that  state 
has  therefore  been  determined.  In  the  Eddy  case  the  court  found 
it  possible  to  arbitrarily  decide  contrary  to  the  manifest  intention; 
in  the  Heilbrunn  case  it  found  it  impossible  to  arbitrarily  decide 
according  to  the  undoubted  intention. 

After  rendering  the  sound  decision  to  which  reference  has 
been  made,  the  personnel  of  the  Supreme  Court  of  Ohio  underwent 
a  change  and  in  a  very  crude  and  ill-advised  opinion,  held  that  the 
mortgagee  could  recover,  even  though  the  policy  might  be  void  as 

213 
8 


The  Fire  Insurance  Contract 

to  the  mortgagor,  and  this  too  under  the  ordinary  '^loss  payable" 
clause.  Farmers  National  Bank  v.  Delaware  Insurance  Co.  (83 
O.  S.  309),  40  Ins.  Law  Journal  1248.  This  is  the  seventh  state 
which  has  placed  this  interpretation  upon  lines  56  to  59. 

It  has  been  seen  that  under  the  forms  of  policy  in  use  prior 
to  the  adoption  of  the  New  York  Standard,  the  plain  "loss  payable" 
provision,  in  the  absence  of  the  mortgagee  clause,  did  not  import 
an  agreement  to  pay  the  mortgagee  independent  of  that  to  pay  the 
"insured"  or  the  mortgagor;  that  is,  if  the  policy  had  been  rendered 
void  as  to  the  mortgagor  or  owner,  it  became  void  as  to  the  mort- 
gagee also.  The  rule  is  the  same  in  the  case  of  the  standard  form, 
Moore  v.  Hanover  Fire  Ins.  Co.  141  N.  Y.  219,  36  N.  E.  191,  but, 
the  words  "first  payable"  and  "as  his  interest  may  appear"  import 
that  the  interest  of  the  mortgagee  is  greater  than  the  interest  of  a 
mere  naked  appointee,  Pitney  v.  Glens  Falls  Ins.  Co.,  65  N.  Y.  6. 
He  would  be  a  necessary  party  to  an  action  on  the  policy  brought 
by  the  mortgagor.  Lewis  v.  Guardian  Fire  &  Life  Assurance  Co. 
181  N.  Y.  392,  74  N.  E.  224,  106  Am.  St.  Rep.  557.  He  is  not 
bound  by  a  settlement  of  a  claim  to  which  he  has  not  assented. 
Hathaway  v.  Orient  Ins.  Co.,  134  N.  Y.  409,  32  N.  E.  40,  17  L. 
R.  A.  514. 

The  rights  of  the  mortgagee  under  the  plain  "loss  payable 
clause"  are  clearly  set  forth  in  the  unanim.ous  opinion  of  the  Court 
of  Appeals  of  New  York  in  the  case  of  McDowell  v.  St.  Paul  F. 
&  M.  Ins.  Co.,  207  N.  Y.  482,  Vol.  42  Ins.  Law  Journal  796,  where 
the  court  decided  that  the  mortgagee  is  not  precluded  from  recov- 
ery of  loss  incurred  because  the  mortgagor  refused  to  make  proof 
of  Joss  as  required.  The  court  said  that  it  was  reasonable  that  those 
conditions  which  affect  the  risk,  while  it  is  subsisting,  should  apply 
alike  to  mortgagor  and  mortgagee,  unless  the  parties  have  stip- 
ulated otherwise  by  attaching  a  mortgagee  clause,  but  that  it  was 
imreasonable  after  a  loss  had  occurred,  that  the  interest  of  the  mort- 
gagee should  be  subject  to  the  caprice  of  the  owner,  and  that  was 
equally  true  whether  there  was  a  mortgagee  clause  or  merely  a 
"loss  payable  endorsement."  The  natural  inference  to  be  drawn 
from  this  decision  and  that  of  Hathaway  v.  Orient  Ins.  Co.  (su- 
pra) is  that  under  the  "loss  payable"  clause,  as  well  as  under  the 
mortgagee  clause,  the  mortgagee  is  not  bound  by  any  of  the  policy 
conditions  after  line  60. 

In  Massachusetts,  the  courts,  prior  to  the  adoption  of  the 
present  standard  poHcy,  held  that  in  the  absence  of  a  subrogation 

214 


Interest  of  Mortgagee — Bament 

provision  in  the  policy,  the  mortgagee  could  collect  the  amount  of 
loss  and  also  retain  the  mortgage  notes,  Kings  vs.  Ins.  Co.,  Mass. 
7  Gushing  1.  This  is  the  only  state  which  has  so  held.  This  opin- 
ion has  been  severely  criticised  and  other  jurisdictions  have  ruled 
that  even  in  the  absence  of  an  agreement  for  subrogation  the  in- 
surer is  entitled  to  an  equitable  assignment  of  the  debt  from  the 
mortgagee. 

The  Supreme  Judicial  Court  of  Massachusetts  has  decided 
that  under  the  standard  policy  of  that  state,  if  the  title  becomes 
vested  in  the  mortgagee  by  foreclosure,  the  policy  is  void  unless  the 
sale  is  consented  to  by  the  insurer.  Boston  Co-operative  Bank  v. 
American  Central  Ins.  Co.,  87  N.  E.  594,  38  Ins.  Law  Journal,  599. 
It  has  also  been  held  that  the  mortgagee  must  file  notice  and  proofs 
of  loss  if  the  owner  does  not,  but  he  is  granted  a  reasonable  time 
and  is  not  held  to  such  a  strict  accountability  as  the  insured  in  the 
matter  of  time ;  Union  Institution  for  Savings  v.  Phoenix  Ins.  Co., 
37  Ins.  Law  Journal  43. 

In  Connecticut  it  has  been  held  that  under  the  short  form  "loss 
payable"  clause  the  mortgagee  has  no  right  to  a  voice  In  the  ap- 
praisal, while  under  the  mortgagee  clause  he  has.  Collinsville  Sav- 
ings Society  v.  Boston  Insurance  Co.  31  Ins.  Law  Journal,  1031. 
This  seems  to  be  in  direct  conflict  with  the  rule  in  New  York  as 
approved  in  the  case  of  Hathaway  v.  Orient  Ins.  Co.,  (supra.) 

The  words  "act  or  neglect"  used  in  the,  mortgagee  clause  have 
been  held  to  refer  to  any  act  or  omission  on  the  part  of  the  mort- 
gagor, whether  before  or  after  the  issue  of  the  rider  or  policy.    On  i 
the  other  hand,  it  has  been  held  that  the  clause  is  effective  only  as. 
to  subsequent  acts  or  neglect  of  the  mortgagor;  also  that  if  a  con- 
dition of  the  policy  has  already  been  violated  so  as  to  afford  a  ground 
for  forfeiture,  it  cannot  be  revived  by  attaching  thereto  the  mort- 
gagee clause  unless  a  new   consideration  is  paid  therefor.     Mis- 
representations of  which  the  mortgagee  has  knowledge  will  be  at-' 
tributable  to  him  and  he  will  also  be  bound  by  his  own  misstate- 
ments.    Generally  speaking,  the  better  opinion  seems  to  be  that  no 
act  or  neglect  of  the  mortgagor  unknown  to  the  mortgagee,  whether  \ 
prior^i^ubsequent  to  the  date  of  the  contract  will  avoid  it  as  to  his 
interest.    The  latest  decision  on  this  point  is  that  of  Reed,  et  al.  v.  / 
Firemen's  Insurance  Co.,  of  New  Jersey,  40  Ins.  Law  Journal,  1711, 
81  N.  J.  L.  523,  89  Atl.  462. 

The  mortgagee  clause  gives  the  mortgagee  the  right  to  com- 
mence foreclosure  proceedings  but  makes  it  incumbent  upon  him 

215 


The  Fire  Insurance  Contract 

to  notify  the  company  of  any  change  in  the  title  or  ownership  of 
the  property  which  shall  come  to  his  knowledge.  It  has  been  held 
in  at  least  four  states  (Kansas,  Minnesota,  Iowa  and  Rhode  Island) 
that  this  has  reference  to  a  change  or  transfer  of  title  to  a  third 
person  and  not  to  one  from  the  mortgagor  to  the  mortgagee  by  fore- 
closure. The  argument  is  that  the  insurer  must  have  known  when 
attaching  the  clause  that  it  might  be  necessary  for  the  mortgagee, 
in  order  to  protect  his  interest  under  the  mortgage,  to  commence 
foreclosure  proceedings;  that  this  would  not  have  a  tendency  to 
diminish  the  interest  of  iJie  mortgagee  in  the  property,  but  rather  to 
increase  it,  and  it  has  been  held  that  an  increase  in  the  interest 
of  the  insured  is  no  ground  for  forfeiture  of  the  policy.  Pioneer 
Savings  &  Loan  Co.  v.  St.  Paul  F.  &  M.  Ins.  Co.  Minn.  S.  C.  26 
Ins.  Law  Journal  826,  68  Minn.  170;  Lancashire  Ins.  Co.  v.  Board- 
man  58  Kan.  339,  27  Ins.  Law  Journal  1898;  Bailey  v.  American 
Central  Ins.  Co.  (Iowa)  C.  C.  13  Fed.  Rep.  250;  Continental  Ins. 
Co.  V.  Wood  50  Kan.  346,  31  Pac.  1079;  Heaton  v.  Manhattan 
Fire  Ins.  Co.  7  R.  I.  502 ;  Esch  v.  Home  Ins.  Co.  78  Iowa  334,  43 
N.  W.  229,  16  Am.  St.  Rep.  443 ;  Dodge  v.  Hamburg,  Bremen  F. 
Ins.  Co.  4  Kan.  App.  415,  46  Pac.  25;  Washburn  Mill  Co.  v.  Fire 
Ass'n.  60  Minn.  170,  61  N.  W.  828,  51  Am.  St.  Rep.  500. 

In  the  case  last  cited  it  was  held  that  the  subsequent  acquisition 
of  the  title  to  the  mortgaged  property  by  the  mortgagee  will  not 
affect  the  right  of  the  insurance  company  to  the  subrogation  as  stip- 
ulated. 
^         On  the  other  hand,  if.  at  th^.tin?P.-Oi.-th£assue.of  the  pplic^jor 
'  the  attaching  of  the  mortgagee  clause,  the  mortgagee  has  knowl.- 
:    edge  of  foctswhicll, render  the,_p,Qlicy  void  as  to  Jhe  insured,  it  is 
'    void  also  as  to  the  mortgagee,  as  he  is  bound  by  every  consideration 
of  good  faith  to  disclose  to  the  insurer  the  information  he  pos- 
sesses.    Genessee  Savings  &  Loan  Ass'n.  v.  U.  S.  Fire  Ins.  Co., 
'    16  App.  Div.  587  N.  Y. 

If  a  mortgagee,  after  a  fire,  assigns  the  mortgage,  without 
transferring  any  interest  in  the  policy  or  right  of  action  for  the  loss 
caused  by  fire,  there  can  be  no  recovery  by  the  assignee  of  the 
mortgage.  KupfersmitJi  v.  Delaware  Ins.  Co.  80  N.  J.  L.  191,  84 
N.  J.  L.  271. 

If  foreclosure  proceedings  be  commenced  and  before  they  pro- 
ceed so  far  as  a  judgment,  a  fire  occurs,  the  mortgagee  has  a  right 
to  proceed  with  the  foreclosure  and  to  a  sale  of  the  premises,  and 
the  value  of  the  subrogation  rights  of  the  insurance  company  will 

216 


Interest  of  Mortgagee — Bament 

depend  upon  whether  or  not  anything  beyond  the  mortgage  debt 
is  realized  through  the  proceedings.  Eddy  v.  London  Assurance 
Co.  (Supra.) 

An  assignment  of  the  mortgage  accompanied  by  an  assign- 
ment of  interest  in  the  policy  by  the  mortgagee  will  render  the 
mortgagee  agreement  void  and  would  be  without  legal  support 
against  the  insurer  unless  consented  to.  Kase  v.  Hartford  Ins.  Co., 
58  N.  J.  34. 

A  mortgagee,  who  has  sold  his  mortgage  and  has  either  guar- 
anteed payment  of  the  mortgage  debt  or  endorsed  the  mortgage 
notes  without  taking  the  precaution  to 'add  the  words  ^'without  re- 
course" has  an  insurable  interest  in  the  property  which  he  should 
not  lose  sight  of,  for  if  an  insurance  company  pays  a  loss  to  the 
assignee  of  the  mortgage,  for  which  it  is  not  liable  to  the  mortgagor 
or  owner,  the  company  in  the  exercise  of  its  subrogation  rights  can 
call  upon  the  original  mortgagee  as  guarantor  or  endorser  for  re- 
imbursement. 

It  is  the  prevailing  custom  in  New  York  City,  and  possibly 
elsewhere,  to  make  the  following  endorsement  on  policies  no  mat- 
ter by  whom  presented: 

The  interest  of mortgagee  herein  having 

ceased,  loss,  if  any,  is  now  payable  to mortgagee. 

without  securing  anything  whatever  in  the  shape  of  a  release  from 
the  original  payee.  Considering  the  number  of  such  endorsements 
which  are  made  each  year,  it  is  really  remarkable  that  so  little  trou- 
ble has  arisen.  There  was  a  decision  bearing  on  this  point  many 
years  ago,  in  case  of  Reid  v.  McCrum,  91  N.  Y.  412.  Policies  on 
the  buildings  were  endorsed  'Xoss,  if  any,  payable  to  John  Reid, 
mortgagee."  Subsequently  McCrum  induced  the  insurers  to  cancel 
the  endorsement  and  write  on  the  policies  as  follows :  "The  mort- 
gagee's interest  having  ceased,  the  loss,  if  any,  is  now  payable  to 
Hugh  McCrum  as  owner."  The  mortgagee's  interest  had  not 
ceased,  and  after  the  buildings  were  destroyed  by  fire,  the  mort- 
gagee brought  an  action  to  foreclose  his  security,  making  McCrum 
and  the  insurers  parties  defendant.  It  was  quite  properly  held  that 
the  policies  could  not  be  legally  changed  without  the  assent  of  the 
mortgagee  and  that  he  was  entitled  to  recover  the  loss  from  the 
insurers. 

The  question  is  frequently  asked  whether  any  liability  accrues 
to  a  second  mortgagee  unless  his  security  has  been  impaired  by  the 
fire,  or  whether  under  the  mortgagee  clause  he  can  collect  by  rea- 

217 


^  The  Fire  Insurance  Contract 

son  of  the  mere  fact  that  a  loss  or  damage  by  fire  has  occurred  to 
the  property  described  in  the  policy;  in  short  whether  it  is  loss  to 
the  second  mortgagee's  interest  or  loss  to  the  property  itself  that 
determines  the  liability  of  the  insurer. 

It  has  been  uniformly  held  that  a  first  mortgagee,  under  the 
mortgagee  clause  can  collect  the  amount  of  loss  to  the  property  not 
exceeding  his  interest,  notwithstanding  the  fact  that  the  value  re- 
maining may  be  many  times  the  amount  of  the  mortgage  debt  and 
even  though  it  is  self  evident  that  the  first  mortgagee  has  not  and 
will  not  sustain  any  loss  by  reason  of  the  fire.  But  the  fact  re- 
mains "IKaTTiis"  security  is  actually  reduced  and  consequently  im- 
tl^ired  to  the~exfent  of  tfie~~amount  of  loss  by  fire.  He  can  there- 
fore demand  payment  from  his  insurer,  who  will  in  turn  be  sub- 
rogated to  the  extent  of  the  amount  paid,  provided  the  policy  is 
void  as  to  the  mortgagor  or  owner. 

The  foregoing  reasoning  appears  to  be  perfectly  logical  as 
respects  the  interest  of  a  first  mortgagee,  but  the  situation  is  not  so 
clear  in  connection  with  the  interest  of  a  second  m.ortgagee,  for 
under  certain  conditions  the  security  of  the  latter  may  not  be  at  all 
impaired  by  the  fire.  Can  he  in  such  circumstances  collect  from 
his  insurer?  In  answer  to  this  question  two  diametrically  opposite 
opinions  have  been  expressed.  One  authority  theorizes  as  follows, 
to  wit : 

If  a  second  mortgagee  has  a  separate  policy  protecting  his  interest, 
he  has  a  right  to  look  to  it  for  indemnity.  Whether  or  not  he  sustains  a 
loss  depends  upon  conditions.  There  are  circumstances  under  which  a 
second  mortgagee's  interest  may  not  be  affected  by  a  fire,  and,  if  not,  he 
cannot  collect  anything  under  a  policy  made  payable  to  him.  For  in- 
stance, if  property  should  be  sold  and  the  new  owner  should  take  out  a 
new  policy  with  loss,  if  any,  payable  to  the  first  mortgagee  under  a  mort- 
gagee clause,  and  the  second  mortgagee  should  hold  a  policy  in  the  name 
of  the  former  owner,  with  loss,  if  any,  payable  to  the  second  mortgagee, 
the  old  policy  would  be  void  as  respects  the  new  owner.  Then  if  the 
company  which  insured  the  new  owner  should  pay  the  full  amount  of 
the  loss  to  the  first  mortgagee,  the  interest  of  the  second  mortgagee 
would  not  be  affected,  because  the  amount  of  the  first  mortgage  would 
have  been  reduced  to  the  same  extent  that  the  property  had  been  dam- 
aged, leaving  the  second  mortgagee's  interest  relatively  the  same  as  it 
was  and  therefore  sustaining  no  loss  by  the  fire. 

If  two  policies  should  be  issued  to  the  same  owner,  one  payable  to 
the  first  and  the  other  payable  to  the  second  mortgagee,  and  a  valid  claim 
should  arise  under  both,  the  first  mortgagee  could  demand  the  full 
amount  of  the  loss  from  his  own  insurer,  in  which  event  said  insurer 
would  be  subrogated  to  the  extent  of  the  amount  paid  in  excess  of  its 
pro  rata  liability  to  the  owner.  The  first  mortgage  under  these  circum- 
stances would  be  reduced  only  to  the  extent  of  said  pro  rata  liability, 
and  the  second  mortgagee  could  collect  from  his  insurer  its  pro  rata  pro- 
portion of  the  loss,  but  no  more. 

By  such  a  construction  the  second  mortgagee  gets  all  the  benefit 

2\% 


Interest  of  Mortgagee — Bament 

from  his  insurance  that  he  is  entitled  to,  namely,  that  his  interest  shall 
not  suffer  by  any  loss  or  damage  by  fire  to  the  property. 

Another  authority  advances  the  following  argument,  to  wit : 

While  it  is  true  that  policies  taken  out  in  favor  of  mortgagee  are  in, 
most  of  the  states  to  be  regarded  as  contracts  of  indemnity,  they  pro- 
vide very  explicitly  how  that  indemnity  shall  be  paid.  It  must  be  paid 
either  in  cash  or  by  a  reinstatement  of  the  property  itself;  that  is,  in  the 
case  of  a  burned  building,  by  a  rebuilding.  The  insurance  company  in 
such  cases  cannot  escape  payment  by  showing  that  in  reality  the  insured 
has  suffered  no  actual  loss.  The  insurance  contract  with  the  mortgagee 
is  not  in  substance  a  guarantee  of  his  debt  or  a  guarantee  that  his  col- 
lateral security  shall  continue  of  a  certain  value,  but,  on  the  other  hand, 
is  to  be  construed  as  an  insurance  on  property  against  fire  loss  to  that 
property;  and  if  a  fire  loss  to  that  property  ©ccurs,  then  the  insurer  must 
either  rebuild  the  property  itself  or  pay  the  full  amount  of  the  fire  loss 
to  the  second  mortgagee  or  to  any  other  mortgagee,  but  not  exceeding, 
of  course,  the  amount  of  his  interest,  that  is,  the  amount  of  his  lebt.  In 
principle,  it  matters  not  at  all  whether  the  mortgage  is  a  first  or  a  sec- 
ond mortgage. 

An  insurance  company  has  no  authority  to  guarantee  the  payment 
of  a  debt.  Its  power  is  limited  to  insuring  against  such  loss  or  damage 
as  happens  by  fire  to  property.  In  insuring  a  mortgage  interest  it  does 
not  insure  the  debt,  but  the  interest  of  the  mortgagee  in  the  property, 
upon  the  safety  of  which  depends  his  security. 

There  does  not  appear  to  be  any  American  decision  bearing 
directly  on  the  interest  of  a  second  mortgagee,  but  there  is  an  Eng- 
lish decision  which  apparently  supports  the  latter  view.  (West- 
minster Fire  Offices  v.  Glasgow^  Provident  Investment  Society 
(1888)  13  App.  Cas.,  699).  That  case  had  to  do  with  two  series 
of  mortgage  bondholders,  the  suit  being  brought  by  the  second  mort- 
gage bondholders.  The  insurance  companies  defended  on  the  ground 
that  the  entire  amount  of  loss  had  been  paid  by  the  insurers  of  the 
first  mortgage  bondholders.  But  the  English  Court  of  Appeals  de- 
cided that  this  was  no  ground  of  defense  in  whole  or  in  part.  But 
^here  is  a  dictum  from  one  of  the  judges  to  the  effect  that  if  the 
money  so  paid  had  been  actually  employed  to  reinstate  the  premises 
then  the  decision  might  have  been  different  on  the  theory  that  in 
that  event  the  second  mortgagee  bondholders  would  have  sustained 
no  loss.  This  dictum  seems  to  lean  to  some  extent  at  least  toward 
the  first  of  the  foregoing  opinions. 

If  the  latter  view  be  the  correct  one,  and  if  a  second  mortga- 
gee can  callect  the  amounFof  his  mortgage  from^tHe^ompamesln- 
suring  his  interest  irrespective  of  whether  or  not  his  'securfty  has 
been  impaired  by  the  fire,  it  follows  that  in  many  instances,  espe- 
cially in  times  of  real  estate  depression,  a  fire  would  be  a  veritable 
godsend  to  the  mortgagee,  for  his  hitherto  absolutely  dead  interest 
would   instantaneously  assume  unexpectedly  valuable  proportions 

219 


The  Fire  Insurance  Contract 

and  the  insurersjximld  be  compelledlQ  |)ay,  a  loss  which  had  already 
accrued  from  ..causes. Qtber.lhaELiirje. 

This  possibility  directs  attention  very  forcibly  to  the  fact  that 
from  the  insurer's  standpoint,  separate  policies  containing  the  mort- 
gagee clause  should  not  be  issued  in  favor  of  a  second  mortgagee, 
but  when  it  is  desired  to  protect  said  interest  under  a  mortgagee 
clause,  the  form  should  read  substantially  as  follows,  viz. : 

Loss,  if  any,  under  this  policy  shall  be  first  payable  to 

first  mortgagee,  as  his  interest  may  appear;  after  the  debt 

and  interest  secured  by  first  mortgage  shall  be  fully  satisfied,  the  remain- 
ing loss,  if  any,  shall  be  payable  to ^ second  mort- 
gagee, as  his  interest  may  appear,  subject  to  mortgagee  clause  hereto 
attached. 

Too  great  care  cannot  be  exercised  in  seeing  that  such  a  clause 
is  properly  phrased.  Agents  sometimes  through  ignorance  issue 
policies  with  a  mortgagee  clause  payable  to  the  first  mortgagee  and 
with  a  separate  mortgagee  clause  payable  to  a  second  mortgagee, 
and  in  view  of  the  fact  that  the  c^^gj^gjiave  quite  uniformly  held 
that  the  mortgaggg.  clause  is- in  effect  a  separate  and  distinct  cpn- 
4jact  with  the  mortgagee,  it  can  readily  be  seen  that  if  two  separate 
clauses  are  attached  to  a  policy  the  insurer  is  quite  liable  to  be  con- 
fronted with  independent  claims  from  each  of  the  mortgagees,  ex- 
cept in  those  states  where  by  statute  mortgagees  can  claim  only  in 
the  order  of  their  priority.  There  is  not  to  the  writer's  knowledge 
any  decision  bearing  on  this  point  but  a  policy  so  issued  presents 
g^eat  possibilities  for  trouble  in  case  of  loss. 

In  connection  with  the  *'loss  payable"  or  mortgagee  clause,  an 
interesting  question  arises  which  has  received  but  little  attention  at 
the  hands  either  of  text  writers  or  the  courts,  and  that  is  whether 
the  words  "as  interest  may  appear"  or  "as  interest  shall  appear" 
are  descriptive  of  the  interest  existing  at  the  time  of  the  issuance 
of  the  policy  or  at  the  time  of  the  .fire.  The  Supreme  Judicial  Court 
of  Massachusetts  when  called  upon  to  decide  the  question,  held  that 
the  words  referred  to  the  interest  of  the  mortgagee  as  it  existed 
at  the  time  of  the  issuance  of  the  policy,  thus  giving  to  the  words 
a  restricted  rather  than  a  comprehensive  interpretation.  This  view 
has  the  effect  of  preserving  to  the  insurance  company  the  subroga- 
tion rights  which  were  within  its  contemplation  at  the  inception  of 
the  contract. 

In  the  case  of  Attleborough  Savings  Bank  v.  Security  Ins. 
Co.,  168  Mass.  147,  the  plaintiff,  subsequent  to  the  issuance  of  the 
policy,  had  taken  a  second  and  third  mortgage  on  the  property  in 

220 


Interest  of  Mortgagee — Bament 

addition  to  the  one  it  already  had,  and  contended  that  it  was  en- 
titled to  collect  the  amount  due  on  all  three  mortgages  by  reason 
of  the  unrestricted  nature  of  the  phraseology  descriptive  of  its  in- 
terest, but  the  court  held  that  the  words  used  contemplated  a  pos- 
sible decrease  rather  than  an  increase  of  the  extent  of  the  mort-' 
gagee's  interest.  It  is  no  doubt  on  account  of  this  decision  that  in 
Massachusetts  the  mortgagee  clause  is  so  phrased  as  to  include  the 
mortgagee's  interest  under  present  and  all  future  mortgages  cover- 
ing the  premises. 

It  would  certainly  seem  that  in  the  absence  of  an  express  agree?-, 
rnent,  the  mortgagee  should  not  be  permitted  to  increase  his  interest  j 
at  will  and  as  a  result  possibly  render  valueless  the  insurer's  sub- ' 
rogation  right,  but  notwithstanding  the  high  authority  above  re- 
ferred to  which  has  passed  on  the  question,  it  is  by  no  means  certain 
that  its  decision  will  be  followed  in  other  jurisdictions,  and  it  is  not 
at  all  improbable  that  other  tribunals  equally  distinguished  may 
rule  that  in  the  absence  of  restrictive  words  in  the  mortgagee  clause, 
it  is  the  interest  of  the  mortgagee  at  the  time  of  the  fire  that  is  in- 
tended to  be  covered.    If  so  this  would  furnish  an  additional  reason 
for  the  desire  on  the  part  of  a  junior  encumbrancer  to  safeguard  his 
interest  by  insurance  entirely  independent  of  that  existing  in  favor 
of  the  senior  mortgagee. 

The  belief  used  to  be  quite  general  among  insurance  companies 
that  in  event  of  neglect  on  the  part  of  the  mortgagor  or  owner  to  pay 
any  premium  due  under  the  policy  the  mortgagee  would  be  legally 
liable  therefor,  but  even  as  to  this  the  courts  are  divided  in  their 
opinions.  The  Appellate  Division  of  the  Supreme  Court  of  New 
York,  Third  Department,  at  the  March,  1914,  term  in  the  case  of 
Coykendall  v.  Blackmer,  (146  N.  Y.  Supp  631)  held  that  the  words 
"provided  that  in  case  the  mortgagor  or  owner  shall  neglect  to  pay 
any  premium  due  under  this  policy,  the  mortgagee  (or  trustee)  shall 
on  demand  pay  the  same"  is  not  a  covenant  but  only  a  condition,  and 
tliat  tV|fi  nnly  ffff^t  pf  failure  on  the  part  of  the  mortgagee  to  pay 
le  premium  is  to  deprive  him  of  the  special  privileges  accorded 
him  m  the  mortgagee  agreement,  and  that  hg.  jg  *^^^  IJRhlf  for  the 
preitiium.  One  justice  dissented  from  the  principles  enunciated  but 
decided  against  the  plaintiff  because  he  had  not  made  the  demand  on 
the  mortgagee  within  a  reasonable  time.  This  case  did  not  come  be- 
fore the  Court  of  Appeals.  On  the  contrary  the  highest  courts  in 
North  Dakota  and  Kansas  have  decided  that  the  mortgagee  is  liable 
for  the  premium  in  case  of  default  on  the  part  of  the  mortgagor. 

221 


The  Fire  Insurance  Contract 

The  North  Dakota  Court  said,  "The  clause  provides  that  no  neglect 
or  act  of  the  mortgagor,  nor  shall  the  vacancy  of  the  premises  in- 
validate the  policy.  If  defendant's  contention  is  sound,  this  pro- 
vision would  be  nugatory  if  the  mortgagor  should  pay  the  premium 
on  time;  for  it  is  only  in  case  of  the  mortgagor's  default  that  the 
mortgagee  can  perform  this  condition  of  payment,  and  defendant 
insists  that  it  is  only  on  performance  of  such  condition  by  him  that 
he  can  have  any  rights  under  the  mortgagee  clause.  This  construc- 
tion would  destroy  its  effect  in  many  cases.  It  would  often  deprive 
the  mortgagee  of  any  benefit  from  the  provision  that  he  should  not 
be  prejudiced  by  any  act  or  neglect  of  the  mortgagor  by  reason  of 
vacancy,  etc.,  of  the  premises.  The  mortgagee  clause  gave  the  mort- 
gagee immunity  from  certain  forfeitures  resulting  under  the  policy 
from  the  mortgagor's  acts  or  omissions,  and  the  mortgagee  in  terms 
agreed  to  pay  for  this  immunity  the  premium  in  case  of  the  mort- 
gagor's default.  This  is  the  clear  import  of  the  agreement."  The 
Kansas  Court  said  'While  the  word  'provided'  ordinarily  indicates 
that  a  condition  Jollows,  there  is  no  magic  in  the  term  but  the 
clause  is  to  be  construed  from  the  words  employed  and  from  the 
purpose  of  the  parties  gathered  from  the  whole  instrument."  St. 
Paul  F.  &  M.  Ins.  Co.  v.  Upton,  2  N.  D.  229,  53  Pac.  472;  Boston 
Safe  Deposit  &  Trust  Co.  v.  Thomas,  59  Kan.  470,  53  Pac.  472. 

The  company  reserves  the  right  to  cancel  the  policy  at  any  time 
as  provided  by  its  terms,  but  in  such  case  the  policy  shall  continue 
in  force  for  the  benefit  only  of  the  mortgagee  for  ten  days  after 
notice  to  the  mortgagee  of  such  cancellation  and  shall  then  cease, 
and  the  Company  shall  have  the  right  on  like  notice  to  cancel  the 
mortgagee  agreement.  It  will  be  noticed  that  there  are  two  ways 
of  getting  rid  of  liability  to  the  mortgagee,  one  by  cancelling  the 
policy  and  the  other  by  cancelling  the  mortgagee  agreement.  The 
policy  cannot  be  legally  cancelled  in  less  than  five  days,  unless  by 
waiver  on  part  of  the  insured;  hence  "ten  days  after  notice  to  the 
mortgagee  of  such  cancellation"  may  mean  fifteen  days  and  perhaps 
more  from  date  of  original  notice  to  the  insured.  But  the  mortgagee 
agreement,  the  vital  principal  as  regards  the  mortgagee's  interest, 
can  be  cancelled  by  ten  days'  notice,  and  too  much  care  cannot  be 
taken  to  see  that  notices  are  properly  worded.  The  following  is 
suggested  as  a  legal  form  of  notice  to  the  mortgagee : 

We  elect  to  cancel  the  mortgage  agreement  attached  to  and  made 

a  part  of  our  Policy  No '. issued  to 

through  our  agency  at on ,  19 , 

covering  on at and  made  pay- 

222 


Interest  of  Mortgagee — Bament 

able  to  you  as  mortgagee  (or  trustee),  in  event  of  loss,  and  hereby  give 
you  ten  days'  notice  thereof,  as  provided  by  the  terms  of  said  mortgagee 
clause. 

Take  notice  that  on  the day  of 19 

at  twelve  o'clock  noon,  or,  if  that  date  is  not  ten  days  from  the  receipt 
hereof,  then  at  the  expination  of  ten  days  from  its  receipt,  the  said  agree- 
ment will  terminate  and  cease  to  be  in  force. 

Although,  except  in  the  seven  States  previously  referred  to,  a 
mortgagee  under  the  plain  ''loss  payable"  clause  cannot  collect  if  the 
policy  is  void  as  to  the  mortgagor  or  owner,  he  being  bound  by  all 
the  policy  conditions  preceding  line  59,  all  the  <56urts  which  have 
passed  directly  upon  the  question  have  held  that  a  policy  cannot  be 
cancelled  as  to  the  mortgagee,  without  notice.  But  the  cancellation 
provision  is  in  line  51,  and  notwithstanding  the  seeming  inconsis- 
tency in  holding  that  the  mortgagee  is  bound  by  some  of  the  provi- 
sions preceding  line  56  and  not  by  others,  it  is  quite  evident  that 
under  the  various  "loss  payable"  clauses  in  current  use,  the  courts 
are  inclined  to  distinguish  between  forfeiture  and  cancellation  and 
to  hold  that  in  order  to  effect  legal  cancellation  as  to  the  mortgagee's 
interest  he  must  receive  notice.  A  clause  could  no  doubt  be  pre- 
pared which  would  relieve  the  insurer  of  this  necessity,  but  a  policy 
containing  such  a  provision  would  lose  much,  if  not  all,  of  its  value 
for  collateral  purposes  and  be  manifestly  unfair  to  the  mortgagee. 
As  a  matter  of  prudence  notice  should  be  given  both  to  the  insured 
and  the  payee  regardless  of  whether  the  cancellation  is  by  the  in- 
sured or  the  company. 

It  has  been  held  in  many  well  considered  cases  (although  there 
are  some  views  to  the  contrary)  that  a  covenant  by  a  mortgagor  to 
keep  the  buildings  upon  the  mortgaged  premises  covered  by  insur- 
ance for  benefit  of  the  mortgagee,  and  in  event  of  default  thereof 
authorizing  the  mortgagee  to  effect  such  insurance  at  the  expense  of 
the  mortgagor,  is  only  a  personal  covenant  of  the  mortgagor  ob- 
ligatory upon  him  alone,  and  is  not  a  covenant  that  "runs  with  the 
land"  or  which  follows  the  title ;  and  hence  does  not  bind  a  subse- 
quent grantee  of  the  mortgagor  to  keep  insurance  for  the  benefit  of 
the  mortgagee,  nor  can  premiums  paid  therefor  be  recovered  of  such 
grantee,  nor  tacked  to  the  mortgage,  even  though  his  deed  may 
have  been  made  subject  thereto;  nor  is  the  record  of  the  mortgage 
sufficient  legal  notice  to  bind  either  the  grantee  or  subsequent  mort- 
gagee. Dunlop  V.  Avery,  89  N.  Y.  592;  Reid  v.  McCrum,  91  N.  Y. 
412;  Farmers  Loan  &  Trust  Go.  v.  Penn.  Glass  Co.,  186  U.  S.  434. 

The  closing  paragraph  of  the  mortgagee  clause  has  reference 
to  subrogation  when  there  is  no  liability  to  the  mortgagor  or  owner, 

223 


The  Fire  Insurance  Contract 

it  being  very  properly  stipulated  that  no  subrogation  shall  impair 
the  right  of  the  mortgagee  (or  trustee)  to  recover  the  full  amount 
of  his  claim.  This  right  of  subrogation  is  about  the  only  considera- 
tion for  the  mortgagee  agreement  and  affords  the  only  excuse  for 
such  a  contract  being  entered  into. 

When  the  policy  is  in  favor  of  a  first  mortgagee  on  property 
where  land  values  are  high,  subrogation  is  a  valuable  right,  but 
when  the  policy  is  in  favor  of  a  second  or  third  mortgagee  its  value 
approaches  and  frequently  i:^,rhes  the  vanishing -point,  and  it  is  on 
this  account  that  some  companies  decline  as  a  matter  of  general 
practice  to  issue  a  mortgagee  clause  in  favor  of  a  second  or  third 
mortgagee. 

The  agreement  provides  that  whenever  the  insurance  company 
shall  pay  the  mortgagee  (or  trustee)  any  sum  for  loss  or  damage 
under  the  policy  and  shall  claim  that,  as  to  the  mortgagor  or  owner, 
no  liability  therefor  existed,  the  company  shall  to  the  extent  of  such 
payment,  be  thereupon  legally  subrogated  to  all  the  rights  of  the 
party  to  whom  such  payment  shall  be  made,  or  may  at  its  option, 
pay  to  the  mortgagee  (or  trustee)  the  whole  principal  due  or  to 
grow  due  on  the  mortgage  and  shall  thereupon  receive  a  full  assign- 
ment and  transfer  of  the  mortgage  and  such  other  securities.  This 
would  seem  to  be  about  as  clear  as  it  is  possible  for  language  to  make 
it,  and  would  indicate  to  the  lay  mind  that  the  insurer  would  have  a 
perfect  right  even  arbitrarily  to  deny  liability  to  the  mortgagor  and 
insist  upon  the  mortgagee  complying  with  the  conditions  of  the 
agreement,  and  leave  the  mortgagor  to  pursue  his  remedy  under  the 
policy  in  the  courts  if  he  so  desired;  but  the  courts  say  that  the 
clause  shall  not  be  construed  to  vest  in  the  insurance  company  the 
right  to  subrogation  upon  the  mere  assertion  of  claim  unfounded  in 
fact;  that  the  claim  which  it  may  assert  must  be  valid  and  well 
founded.  The  Supreme  Court  of  Canada  has  held  that  the  insur- 
ance company  is  not  justified  in  paying  the  mortgagee  and  claiming 
subrogation  without  first  contesting  its  liability  to  the  mortgagor  and 
establishing  its  immunity  from  liability  to  him,  and  this  is  prac- 
tically the  position  of  those  courts  in  this  country  which  have  passed 
on  the  question.  In  short,  the  mortgagee,  if  he  desires,  may  decline 
to  accept  payment  of  the  loss  (although  he  seldom  does)  and  insist 
upon  a  decision  from  the  court  of  last  resort  as  to  whether  there  is 
a  liability  to  the  mortgagor  or  owner,  before  he  will  be  compelled 
to  comply  with  the  subrogation  provision.  The  latest  decision  is 
that  of  O'Neil  v.  Franklin  Fire  Ins.  Co.  in  which  the  Court  of  Ap-' 

224 


Interest  of  Mortgagee — Bament 

peals  of  New  York  affirmed  without  opinion  the  decision  rendered 
by  the  Appellate  Division,  159  App.  Div.  313,  216  N.  Y.  692,  43  Ins. 
Law  Journal  388.  See  also  Traders  Ins.  Co.  v.  Race  142  111,  338, 
31  N.  E.  392;  Anderson  v.  Saugeen  Mut.  F.  Ins.  Co.  18  Ont.  Rep. 
355 ;  Bull  v.  North  British  Canadian  Investment  Co.  &  Imperial  Fire 
Ins.  Co.  15  Ont.  Rep.  421,  affirmed  18  Canadian  Supreme  Reports, 
697  Loewenstein  v.  Queen  Ins.  Co.  (Mo.  S.  C.)  39  Ins.  Law  Journal, 
877. 

To  the  mind  of  the  present  writer  the  dissenting  views  which 
were  expressed  in  some  of  these  cases  are  much  more  reasonable, 
logical  and  convincing  than  the  prevailing  opinions  and  the  follow- 
ing quotation  from  the  dissenting  opinion  of  Justice  Kruse  in  the 
O'Neil  case  (supra)  undoubtedly  sets  forth  the  intention  of  the 
framers  of  the  mortgagee  agreement. 

I  think  the  insurance  company  was-  entitled  to  an  assignment  of  the 
mortgage.  As  between  the  mortgagee  and  the  insurance  company,  it 
was  not  necessary  for  the  insurance  company  to  show  that  it  was  not  lia- 
ble to  the  mortgagor  and  ownor  upon  the  policy.  The  insurance  com- 
pany made  that  claim  and  offered  to  pay  the  mortgagee  the  whole  prin- 
cipal due  or  to  grow  due,  with  the  interest,  and  demanded  an  assignment 
of  the  mortgage.  Whether  or  not  the  insurance  shall  be  applied  as  a 
payment  upon  the  mortgage  is  a  question  between  the  mortgagor  and 
the  insurance  company,  in  which  the  mortgagee  has  no  interest.  I  think 
the  mortgagee  has  no  standing  to  contest  that  question  with  the  insur- 
ance company. 

Several  years  ago  the  Chancery  Court  in  New  Jersey  in  the  case 
of  Florence  E.  Palmer  v.  John  A.  McFadden,  Guardian,  and  Niag- 
ara  Fire  Insurance  Company,  handed  down  a  remarkable  decision. 
The  Niagara,  whose  policy  was  the  only  one  of  three  which  was 
payable  to  the  mortgagee  under  a  mortgagee  clause  without  con- 
tribution, paid  the  mortgagee  $3,416.67  and«took  an  assignment  of 
the  bond  and  mortgage,  but  its  pro  rata  liability  to  the  insured  was 
only  $1,388.16,  or  $2,028.51  less  than  the  amount  paid.  The  court 
ruled  that' because  the  mortgagee  clause  did  not  contain  the  contribu- 
tion provision,  and  because  the  insurer  admitted  some  liability  to 
the  insured,  as  distinguished  from  no  liability,  the  insured  was  en- 
titled to  have  the  bond,  mortgage  and  decree  of  foreclosure  sur- 
rendered for  cancellation.  In  short,  the  lower  Court  virtually 
handed  the  insured  $2,028.51,  and  if  the  judgment  had  been  affirmed, 
she  would  have  made  just  that  much  clear  profit  by  the  fire.  The 
decision,  however,  was  reversed  by  the  Court  of  Errors  and  Appeals, 
49  Insurance  Law  Journal  570,  100  Atl.  Rep.  225. 

In  the  absence  of  an  agreement,  express  or  implied,  or  of  a 
clause  inlhe  poircy-  making  the  loss  payable  to  the  mortgagee,  or  of 

225 


The  Fire  Insurance  Contract 

an  assignment  to  the  mortgagee,  the  mortgagee  has  no  interest  in  a 
policy  taken  out  by  the  mortgagor  upon  his  own  interest,  and  con- 
versely a  mortgagor  has  no  interest  in  the  proceeds  of  a  policy  taken 
out  in  the  name  of  the  mortgagee  for  the  purpose  of  protecting  his 
interest  only. 

Where  a  policy  is  made  payable  to  a  mortgagee  "as  his  interest 
may  appear,"  there  is  a  conflict  of  authority  as  to  whether  the  mort- 
gagee is  entitled  to  the  proceeds  arising  from  the  destruction  of 
property  included  in  the  policy,  but  not  covered  by  the  mortgage^^ 
Cooley's  Briefs,  3702. 

In  Massachusetts,  Minnesota,  Mississippi  and  North  Carolina, 
by  statute,  if  by  an  agreement  with  the  insured  or  by  the  terms  of 
a  policy  taken  out  by  a  mortgagor,  the  whole  or  any  part  of  the 
loss  is  to  be  paid  to  mortgagees,  the  company  may  pay  the  mort- 
gagees in  the  order  of  their  priority  of  claim  and  that  payment  shall 
be,  to  the  extent  thereof,  payment  and  satisfaction  of  the  liability  of 
the  company.  In  Maine,  by  statute,  the  mortgagee  of  real  estate  has 
a  lien  upon  any  policy  of  insurance  against  loss  by  fire  procured 
thereon  by  the  mortgagor,  to  take  effect,  if  the  loss  has  not  been 
paid,  after  filing  of  a  written  notice  with  the  Company.  Cooley's 
Briefs,  3703-3704. 

A  senior  mortgagee  whose  mortgage  provides  for  insurance  has 
no  lien  on  the  proceeds  of  a  policy  which  by  the  terms  of  the  policy 
is  made  payable  to  a  junior  mortgagee,  except  to  the  extent  of  the 
excess,  if  any.    Dunlop  v.  Avery,  89,  N.  Y.  592. 

If  a  mortgagor  complies  with  the  mortgage  agreement  and  takes 
out  insurance  for  the  benefit  of  the  mortgagee  and  the  insurance 
company  becomes  insolvent,  the  mortgagee  has  no  lien  against  in- 
surance taken  out  by  the  mortgagor  to  protect  his  own  interest. 
Nordyke  &  Marmon  Co.  v.  Gery,  112,  Ind.  535,  13  N.  E.  683,  2  Am. 
St.  Rep.  219. 

The  interest  of  a  mortgagee  under  the  mortgagee  clause  or  "loss 
payable"  clause  takes  precedence  over  that  of  an  assignee  or  trustee 
in  bankruptcy,  an  assignee  of  claim  or  an  attaching  creditor.  The 
equitable  interest  gained  by  an  assignment  of  a  policy  as  collateral 
security  will  prevail  over  the  claim  of  an  unsecured  creditor  gar- 
nisheeing  the  company.  Wakefield  v.  Martin,  3  Mass.  558.  The 
lien  of  a  mortgagee  who  has  been  promised  insurance,  is  superior 
to  that  of  an  assignee  of  the  policy  after  loss  who  takes  with  knowl- 
edge of  the  equity  of  the  mortgagee,  (Nichols  v.  Baxter,  5,  R.  I. 
4-91)  or  whose  assignment  is  supported  only  by  a  precedent  debt. 

226 


Interest  of  Mortgagee — Bament 

An  assignee  of  a  mortgage  containing  a  covenant  to  insure  was  held 
entitled  to  priority  as  to  a  policy  taken  out  by  the  mortgagor,  over 
an  assignee  in  insolvency  of  the  mortgagee.  Branch  v.  Milford  Sav. 
Bk--,  51  Kan.  App.,  246,  47  Pac.  555.  The  right  of  an  attaching 
creditor  has  also  been  held  subordinate  to  this  lien;  Providence 
County  Bank  v.  Benson,  24  Pick  (Mass.)  204.  But  where  the  claim 
under  the  policy  has  been  assigned  after  a  loss  to  an  innocent  pur- 
chaser for  value,  it  has  been  held  that  his  equity  was  superior  to 
that  of  the  mortgagee;  Swearingen  v.  Hartford  Fire  Ins.  Co.,  56 
S.  C.  355 ;  34  S.  E.  449.  The  lien  of  an  assignee  of  a  mortgage, 
who  has  been  promised  insurance  by  his  assignor,  is  enforceable  as 
to  insurance  taken  out  by  his  assignor  after  the  purchase  by  such 
assignor  of  the  mortgaged  property.  Hyde  v.  Hartford  Fire  Ins. 
Co.  (Neb.)  97  N.  W.  629.    Cooley's  Briefs,  3706. 

It  will  be  freely  conceded  that  those  who  loan  money  on  real 
estate  are  entitled  to  fire  insurance  protection  unaffected  by  the 
acts  or  neglect  of  parties  other  than  themselves.  The  contracts  in 
their  favor  must  necessarily  be  less  restrictive  in  their  terms  than 
those  in  favor  of  the  property  owners,  but  the  propriety  of  granting 
incfemnity  to  a  mortgagee  under  a  special  contract  almost  entirely 
free  from  conditions  without  some  special  consideration  is,  to  say 
the  least,  a  matter  of  grave  doubt,  especially  as  the  right  of  subroga- 
tion in  many  instances  may  be  of  no  value  whatever. 

A  new  mortgagee  clause  is  now  being  considered  by  various 
underwriting  organizations,  and  no  doubt  will  soon  be  promulgated 
for  use  in  states  where  the  present  standard  form  is  not  required  by 
law. 


227 


XII 

THE  INTEREST  OF  A  MORTGAGEE  UNDER  A 
POLICY  OF  FIRE  INSURANCE 

Leo  Levy,  Lawyer 

In  the  discussion  of  the  provision  found  at  lines  56^9  of  the 
Standard  Policy  we  deal  with  a  subject-matter  of  great  interest  to 
the  insuring  public  by  reason  of  the  sums  representing  investments 
in  mortgage  loans.  Statistics  of  this  class  of  capital  indicate  that  at 
least  60  percent  of  all  permanent  realty  improvements  represent 
borrowings  secured  by  mortgage.  Such  investmpnts  leave  with  the 
debtor  the  control  of  the  property  subject  to  the  lien  or  encumbrance. 

It  is  historically  interesting  to  trace  the  gradual  development 
of  the  means  taken  to  indemnify  such  investments  against  fire  loss. 
Suffice  it  to  say  for  the  purpose  of  this  chapter  that  many  years 
ago  the  mortgagee  interest  took  out  its  own  insurance  embraced  in 
a  separate  and  distinct  contract  with  the  insurers ;  thereafter  and  at 
an  uncertain  period  the  indemnity  to  the  mortgagee  began  to  be 
furnished  in  the  form  of  simple  loss  payable  clauses  written  on  the 
policy  and  reading  to  a  named  mortgagee,  or  by  the  attaching  of 
riders  in  the  form  of  mortgagee  clauses. 

Mortgages  are  a  serious  business  to  the  holder,  somewhat  more 
so  for  the  unfortunate  debtor;  but  as  to  the  insurance  company 
writing  the  business  there  is  not  a  word  that  can  describe  or  define 
it.  In  fact,  the  insurance  man  who  might  find  it  necessary  in  a 
given  instance  to  declare  what  rights  or  remedies  his  company  has 
would  be  at  a  loss  where  to  begin  or  end,  and  the  lawyer  who  wants 
to  tell  the  insurance  man  what  to  do  finds  a  labyrinth  of  legal  prec- 
edent, text  book  declarations  and  practical  demonstrations  wholly 
at  variance  with  the  language  employed  in  the  contract. 

In  this  situation  what  can  be  said  to  clearly  lay  down  the  prob- 
lems arising  from  the  contract  forms  as  viewed  in  the  light  of  Court 
decision? 

If  this  chapter  serves  no  other  purpose  than  to  point  out  the 
dangers  to  the  company  I  think  its  usefulness  will  have  been  proven 
even  though  it  does  not  decisively  declare  what  will  hereafter  prove 
to  be  the  law  since  it  must  be  borne  in  mind  that  so  long  as  Courts 
exist  there  will  arise  questions  between  mortgagor,  mortgagee  and 
insurer  calling  for  reversal  of  that  which  we  now  accept  or  regard 
as  settled. 

228 


Interest  of  Mortgagee — Levy 

There  are  forty-eight  States  each  having  intermediate  Courts 
and  Courts  of  last  resort  where  from  time  to  time  definition  of  the 
rights  of  the  parties  concerned  has  been  attempted.  Also,  we  have 
the  Federal  Courts  which  from  time  to  time  have  struggled  with 
the  problems  mentioned.  Some  of  these  States  by  Legislative  enact- 
ment have  ^made  the  language  of  jhfi.  contracts  compulsory,  others 
have  in  the  same  way^declar^d  the -right  of  mortgagees-upon  insijj:: 
ance  moneys  without  the  formality  of  contractual  privity. 

The  varying  conditions  of  the  statutory  forms  of  policy  are 
shown  by  a  comparison  of  the  Massachusetts,  New  Hampshire, 
New  York  and  (for  recent  example)  the  California  Standard  poli- 
cies. True  it  is  that  the  New  York  form  is  that  most  commonly 
used  and  there  we  deal  with  the  lines  reading: 

If  with  the  consent  of  this  company  an  interest  under  this  policy 
shall  exist  in  favor  of  a  mortgagee  or  of  any  person  or  corporation  hav- 
ing an  interest  in  the  subject  of  insurance  other  than  the  interest  of  the 
insured  as  described  herein,  the  conditions  hereinbefore  contained  shall 
apply  in  the  manner  expressed  in  such  provisions  and  conditions  of  in- 
surance relating  to  such  insurance  as  shall  be  written  upon,  attached  or 
appended  hereto. 

California  has  expressly  omitted  these  words.  It  \\as  discov- 
ered that  they  did  not  mean  to  the  Courts  what  was  plainly  intended. 

How  do  these  quoted  conditions  control,  agree  with  or  modify 
the  simple  loss  payable  clause  so-called  or  the  full  mortgagee  clause 
with  or  without  contribution  and  what  has  been  judicially  declared 
to  be  the  rights  and  remedies  arising  from  such  forms  ?  In  attempt- 
ing to  answer  this  question  I  shall  not  discuss  the  forms  of  Court 
procedure  both  in  law  and  in  equity  as  they  are  laid  down  and  de- 
clared in  the  different  States  and  Federal  Courts.  They  directly 
affect  the  protection  and  enforcement  of  the  insurers'  rights  but  are 
too  technical  in  character  and  scope  to  be  of  much  assistance  except 
to  the  practicing  lawyer.  These  differing  forms  of  legal  procedure 
will  often  be  found  to  be  of  great,  if  not  controlling,  importance  in 
the  practical  solution  of  the  questions  constantly  arisifig,  as  are,  also, 
the  manner  and  means  of  effecting  cancellation  of  the  contract  so 
as  to  remove  the  mortgagee  interest  and  enforce  the  right  of  sub- 
rogation under  any  of  the  forms  mentioned. 

I  shall  not  refer  at  length  to  these  subjects  of  cancellation  and 
subrogation  for  the  reason  that  during  the  course  of  lectures  out- 
lined by  the  Society  they  will  be  embodied  in  papers  directly  and 
fully  dealing  therewith. 

229 


The  Fire  Insurance  Contract 

LlABIUTY  OF  Ad^ORTGAGEi:  FOR   PrEJMIUM. 

The  policy  having  been  written  at  the  instance  and  upon  the 
credit  of  the  mortgagee  the  premium  liability  will,  of  course,  fall 
upon  such  interest.  However,  where  the  mortgagor-owner  has 
secured  the  insurance  in  the  first  instance  the  obligation  of  paying 
therefor  falls  upon  such  owner  and  the  mortgagee  will  not  be  liable 
until  after  reasonable  notice  from  the  company  of  default  by  the 
owner  and  then  only  if  the  mortgagee  has  retained  the  policy.  vSuch 
premium  liability  will  necessarily  be  limited  to  the  term  of  the  insur- 
ance following  such  retention. 

Cance:i.lation. 

As  to  the  mortgagee  protected  by  the  simple  loss  payable 
'(  clause,  the  provisions  for  cancellation  found  in  the  policy  undoubt- 
edly apply  and  the  usual  and  customary  method  would  have  to  be 
followed.  This  is  actual  notice  of  cancellation  in  definite  language 
with,  the  added  precaution  of  a  lawful  tender  of  unearned  premium 
even  though  the  premium  may  have  been  paid  by  the  mortgagor- 
insured. 

Where  cancellation  of  the  policy  is  sought  as  to  the  interest  of 
a  mortgagee  named  in  the  mortgagee  clause  attached  we  have  a 
diffi-cult  and  complex  situation  to  deal  with  due  to  the  variance  of 
language  found  in  the  policy  and  in  the  mortgagee  clause.  The 
policy  reads  five  days  notice;  the  clause  reserves  the  right  of  can- 
cellation upon  the  policy  terms  but  provides  that  even  though  it  be^ 
cancelled  as  to  the  assured  it  continues  in  force  ior^Jtlie  benefit  of 
the  mortgagee  subject  to  separate  cancellation  notice  of  ten  days  to 
be  given  to  the  mortgagee.  Whether  or  not  this  means  ten  days 
additional  to  the  five  is  uncertain  because  there  immediately  follows 
language  indicating  that  five  days  separate  notice  shall  be  given. 
Evidently  the  intent  was  to  cancel  the  entire  insurance  interests 
both  of  the  mortgagee  and  insured  upon  five  days  notice  to  each, 
or  the  interest  of  the  insured  upon  five  days  notice,  and  that  as  to 
the  mortgagee  interest  cancellation  without  notice  was  effectual  but 
the  insurance  was  to  cease  after  an  automatic  ten  days  grace  had 
been  granted. 

Such  notice  of  cancellation  to  the  insured  without  actual  notice 
to  the  mortgagee  is,  undobutedly,  a  nullity  since  the  neglect  of  the 
insured  under  the  mortgagee  clause  could  not  affect  such  interest. 
Again  there  may  arise  the  question  as  to  voluntary  surrender  for 
cancellation  by  either  mortgagor  or  mortgagee  and  how  far  the 

230 


Interest  of  Mortgagee — ^Levy 

other  party  would  be  affected  thereby.  It  should  be  borne  in  mind 
that  the  rights  of  neither  party  i.  e.  mortgagor  or  mortgagee,  can 
be  adversely  affected  in  the  absence  of  notice  in  fact  or  ratification 
or  estoppel  after  such  notice. 

It  might  be  proper  to  suggest  that  in  practice,  if  cancellation  is 
sought,  actual  notice  should  be  gi\[en  to  aU  parties  ;7 am ^cj_  and  tender 
of  unearned  premium  should  be  made  to  all ;  and  if  surrender  be 
attempted  by  any,  notice  should  be  given  to  all  parties  of  accept- 
ance of  such  surrender. 

Subrogation. 

The  subrogation  clause  of  the  mortgagee  rider,  irrespective 
of  the  policy  condition,  is  to  be  regarded  as  a  controlling  element 
of  the  indemnity  to  the  mortgagee  and  since  the  discussion  of  the 
subject  of  subrogation  is  limited  it  should  be  said  that  the  claim  of 
theright  of  subrogation  is  based  upon  something  more  substantial 
than  the  rnere  assertion  of  invalidity  of  the  policy  contract  as  to  the 
insured  (see  O'Neil  v.  Franklin  Ins.  Co.,  159  App.  Div.  314,  which 
case  will  hereafter  be  referred  to.  That  case  is  most  interesting  as 
a  clear  exposition  of  the  difficulties  arising  on  account  of  the  forms 
of  legal  procedure  heretofore  referred  to). 

It  might  be  plainly  stated  that  if  the  mortgagee  with  knowledge 
of  the  facts  does  anything  to  deprive  the  company  of  Its  rights  of 
subrogation  there  is  lost  to  the  mortgagee  the  enforcement  of  the  col- 
lection of  indemnity ;  however,  this  does  not  relieve  the  insurer  of 
the  obligation  of  giving  seasonable  and  reasonable  demand  for  sul)- 
rogation. 

Th^  Right  to  Indemnity. 

Under  the  clauses  considered  the  right  to  indemnity  Implies  a 
real  money  loss.  It  has  been  held  that  where  the  premises  insured 
were  restored  to  the  condition  In  which  they  were  before  the  fire 
or  damage  or  loss  without  expense  or  obligation  on  the  part  of  any 
party  to  the  policy,  the  insurer  would  not  be  liable  (Friemansdorf  v. 
Ins.  Co.,  1  Fed.  Rep.  68).  By  way  of  contrast  we  find  the  case  of 
King  V.  Ins.  Co.,  (Mass.  7  Cushing,  1)  to  the  effect  that  even  though 
the  mortgagee  suffers  no  monetary  damage  or  loss  to  the  security 
and  if  in  fact  there  was  a  damage  the  company  would  have  to  pay. 

This  brings  up  for  discussion  the  provisions  of  the  simple  loss 
payable  clause  and  the  mortgagee  riders: 

Loss,  if  any,  payable  to morto-at^^ee 

or  the  added  words 

as  interest  may  appear. 

231 


The  Fire  Insurance  Contract 

As  to  the  words  "as  interest  may  appear"  these  words  in  the 
light  of  the  cases  hereinafter  discus se^7"in~n^y  opinion,  add  neither 
weight  nor  substance  to  the  effect  legally  to  be  given  to  the  simple 
loss  payable  clause.  For  m^ny  years  it  was  the  settled  law  of  the 
State  of  New  York  that  the  designation  by  the  simple  loss  payable 
clause  of  an  appointee  mortgagee  to  receive  money  payment  gave 
such  mortgagee  no  right  other  than  being  in  a  receptive  mood  and 
that  after  all  matters  had  been  threshed  out  between  the  insured  and 
the  company  (and  only  if  the  policy  was  valid  and  the  company 
ready  to  pay)  could  such  mortgagee  require  payment. 

There  has  recently  been  decided  in  New  York  State  the  case 
of  MacDowell  v.  St.  Paul  Fire  &  Marine  Ins.  Co.,  found  in  207  N. 
Y.,  p.  482,  March,  1913,  Term.  The  Court  .in  effect  held  that. the 
words 

T.nss,  ff  gnv.  fiyst  payable  to  Tohn  MacDowell,  mortgagee,  as  his  in- 
terest may  sfiiifiar^ 

without  anjj^  mortgagee  clause  or  rider  attached  meant  that  it  jyas 
the  intention  of  the  parties  that  the  plaintiff  as  mortgagee  should 
have  an  interest  in- the  insurance  superior  to  that  of  the  owner;  and 
where  such  owner  declined  and  refused  to  make  proofs  of  loss  that 
did  not  deprive  MacDowell,  the  mortgagee,  of  his  right  of  recovery 
und^  the  contracT  I'he  Court  said  that  Ihe  contention  that  the 
interest  of  the  mortgagee  would  be  defeated  by  the  wilfull  failure 
or  neglect  of  the  mortgagor  to  perform  conditions  precedent  to  the 
contract  was  not  sound  and  the  very  object  and  purpose  of  the  pro- 
visions of  the  contract  with  respect  to  the  insurance  company  as- 
senting to  the  insurance  of  an  interest  other  than  that  of  the  owner 
and  the  use  of  the  words  "loss  payable  to  a  mortgagee,  as  interest 
may  appear"  meant  more  than  the  declaration  of  a  mere  naked  ap- 
pointee and  that  the  plaintiff-mortgagee  had  a  vested  legal  interest 
in  the  contract  and  a  settlement  of  the  loss  made  between  the  mort- 
gagor-owner and  the  defendant  insurance  company  without  the 
knowledge  or  consent  of  the  mortgagee  would  not  have  been  a  bar 
to  a  recovery  by  the  mortgagee  and  the  latter  was  a  necessary  party 
to  the  action  brought  by  the  mortgagor. 

The  opinion  of  Mr.  Justice  Miller  in  this  case  reviews  most, 
if  not  all,  of  the  recent  cases  in  New  York  State  construing  the 
lines  56  to  59  of  the  policy  and  the  Court  decided  that  the  construc- 
tion of  the  contract  contended  for  (that  is,  that  the  payee-mortgagee 
was  merely  a  designated  appointee-payee  of  a  sum  to  be  ascertained 
under  all  of  the  conditions  of  the  policy)  defeats  the  purpose  in- 

232 


Interest  of  Mortgagee — Levy 

tended  by  lines  56  to  59  and  that  the  arbitrary  refusal  of  the  owner  to 
make  proofs  of  loss  could  not  affect  or  destroy  the  interest  of  a 
mortgagee.  The  Coiu't_saud.JhaLit_  was  unreasonable  after  a  loss 
had  occurred  that  the  interest  of  the  mortgagee  designated  in  the 
manner  indicated  to  receive  payment  should  be  subject  to  the  caprice 
of  the  owner  and  that  was  equally  true  whether  there  was  a  mort- 
gagee clause  or  merely  the  endorsement  quoted  and  that  there  were 
two  constructions  which  were  possible ;  the  first,  that  the  mortgagee^ 
designated  merely  by  loss  payable  clause^  was  the  insured  and  hence 
required  to  piake  proofs  of  loss;  or,  secondly,  that  every  mortgagee, 
however  described,  whether  by  merely  the  simple  loss  payable  clause 
or  the  full  mortgagee  clause,  was  not  an  insured  and  that  the  word 
'^insured"  used  in  the  contract  applied  only  to  the  owner,  the  one  to 
whom  the  poHcy  was  issued;  and  that  the  latter  construction  did 
not  do  violence  to  any  language  of  the  contract  but  tended  rather  to 
give  some  effect  to  all  of  its  provisions  and  at  the  same  time  to  carry 
out  its  primary  purpose.  (The  Court  was  unanimous  in  its  de- 
cision). 

We  next  come  to  the  questions  arising  under  the  policies  having 
attached  thereto  the  full  Standard  Mortgagee  Clause  without  con- 
tribution :  ~" 

The  interest  of  the  mortgagee  shall  not  be  invalidated  by  any  act  or 
neglect  of  the  mortgagor  or  owner  nor  by  foreclosure  or  other  proceed- 
ings nor  by  change  in  the  title  or  ownership  nor  by  occupation  of  the 
premises  for  purpose  more  hazardous  than  are  permitted  by  the  policy, 
and  provided  that  in  case  the  mortgagor  or  owner  shall  neglect  to  pay 
the  premium  the  mortgagee  on  demand  shall  pay  the  same,  provided, 
also,  that  any  change  of  ownership,  occupancy  or  increase  of  hazard 
coming  to  the  knowledge  of  the  mortgagee,  trustee,  etc.,  shall  be  notified 
to  the  company  and  unless  permitted  by  the  policy  it  shall  be  noted 
thereon  and  the  mortgagee  on  demand  shall  pay  the  premium  for  such 
increased  hazard  for  the  term  of  the  use  thereof. 

As.farback  as  the  year  1878  in  the  well  known  case  of  Hastings 
V.  Westchester  Fire  Ins.  Co.,  73  N.  Y.,  the  settled  and  declared' 
policy  of  the  Courts  of  the  State  of  New  York  was  to  the  effect  that 
the  attaching  of  the  mortgagee  clause  to  the  policy  insuring  a  desig- 
nated mortgagee,  trustee  or  third  party  having  an  insurable  interest, 
was  the  creation  of  a  separate  contrai:!  of  insurance  by  which  the 
interesilorthe^^party  named  in  the  mortgagee  clause  would  remain 
unaffected  by  any  act  of  the  owner-mortgagor  or  insured,  and  that 
the  separate  contract  rights  thus  established  were  to  be  determined 
within  the  corners  of  the  mortgagee  clause.  The  lines  56-59  of  the 
Standard  Form  policy  although  adopted  in  1886  were  not  called  up 
for  judicial  construction  in  this  State  until  the  decision  of  the  Court 

233 


The  Fire  Insurance  Contract 

of  Appeals  in  the  case  of  Hellbrunn  v.  German  Alliance  Ins.  Co., 
which  I  shall  designate  as  the  first  Heilbrunn  case  or  Heilbrunn  No. 
1  (year  1911,  140  App.  Div.,  557,  aff'd  202  Is[.  Y.,  610).  In  that 
case  the  Court  of  Appeals  unanimously  held  that  the  Standard 
Policy  having  attached  to  it  a  mortgagee  clause  in  the  form  author- 
ized by  law,  In  so  far  as  the  interest  of  the  mortgagee  was  con- 
cerned, stopped  with  the  period  mark  after  line  59  and  that  all  of 
the  conditions  which  I  might  term  ''conditions  precedent"  required 
to  be  performed  of  an  asstu-ed  after  a  loss  had  no  application  to 
such  mortgagee  interest,  not  even  including  the  short  Statute  of 
Limitations,  to  wit:  twelve  months,  but  that  a  mortgagee  having  a 
mortgage  interest  at  the  time  of  the  loss  which  interest  continued 
cojuld  wait  the  full  period  of  six  years  without  doing  anything  at  all 
in  the  meantime  except  sleep  on  the  rights  given  by  the  mortgagee 
clause  and  then  serve  the  summons  and  complaint  demanding  pay- 
ment of  the  loss ;  that  no  matter  'what  happened  between  that  time, 
to  wit :  the  day  of  the  fire  and  the  bringing  of  the  action,  the  right 
of  the  mortgagee  was  in  no  wise  impaired  or  harmed.  This  was  an 
eye-opener  although  decisions  to  the  same  effect  and  to  the  contrary 
had  been  rendered  by  the  Courts  of  other  States,  (it  means  as  I 
interpret  the  Court's  declaration,  that  no  matter  what  happens  as 
between  the  company  and  the  owner  after  a  loss,  unless  the  mort- 
gagee interest  was  a  direct  party  thereto  and  chargeable  as  a  rnatter 
of  fact  with  notice,  the  mortgagee  interest  remains  unaffected.'.  Of 
course,  this  carried  away  the  supposed  necessity  on  the  part  of  the 
mortgagee  of  giving  notice  of  loss,  making  proofs  of  loss,  submitting 
to  appraisal,  ascertainment  of  loss,  furnishing  any  documentary 
proof  or  doing  any  of  the  things  which  we  lawyers  call  "conditions 
precedent."  The  remedy,  the  Court  said  In  Its  most  illuminating 
utterance,  lay  In  application  to  the  Legislature  for  change  In  form  of 
the  policy  and  that  the  word  ''hereinbefore"  found  in  lines  56  to  59 
meant  that  the  conditions  before  that  numerical  definition  were  the 
only  ones  binding  upon  the  mortgagee  Interest. 

It  cannot  be  gainsaid  or  disputed  that  the  law  is  that  if  at  the 
/  inception  of  the  contract,  whether  of  policy  or  mortgagee  clause, 
the  mortgagee  has  knowledge  of  facts  which  render  void  as  to  the 
insured  the  entire  policy,  the  interest  of  the  mortgagee  is  directly 
and  adversely  affected  thereby.  .  This  has  been  declared  In  a  case 
never  overruled  or  modified  either  by  inference  or  direct  reference, 
known  as  the  case  of  the  Genessee  Saving  &  Loan  Assn.  v.  U.  S. 
Fire  Ins.  Co.,  16  App.  Div.  587.     In  that  case  the  policy  condition 

234 


Interest  of  Mortgagee — ^Levy 

with  respect  to  sole  and  unconditional  ownership  had  been  violated 
at  the  inception  of  the  contract  by  the  fact  that  the  assured  and  his 
wife  were  the  owners  by  the  entirety  of  the  property  although  the 
policy  read  to  the  husband  as  sole  and  unconditional  owner,  and  the 
Court  said  that  the  plaintiff  Building  &  Loan  Association  named  as 
mortgagee  under  full  mortgagee  clause 

must  have  known  when  they  took  the  mortgage  that  M.,  the  in- 
sured, was  not  the  sole  and  unconditional  owner  of  the  property  described 
in  the  policy,  and  yet  with  this  knowledge  they  failed  to  notify  the  in- 
surance company  of  the  real  condition  of  the  title  or  to  take  any  meas- 
ures for  the  correction  of  the  policy  in  respect  thereto.  Inasmuch  as  the 
insurance  was  for  the  exclusive  benefit  of  the  plaintiff  Loan  Association 
whose  officers  appeared  to  have  assumed  direction  and  control  of  the 
matter,  it  would  seem  that  if  the  plaintiff  was  to  be  furnished  any  indem- 
nity thereby  its  officers  were  bound  by  every  consideration  of  good  faith 
to  disclose  to  the  insurance  company  defendant  information  they  pos- 
sessed respecting  the  mortgagor's  title.  This  they  omitted  to  do  and 
such  omission  made  the  act  or  neglect  complained  of  that  of  the  plaintiff 
mortgagee  instead  of  the  mortgagor. 

Also  if  the  company  can  show  that  the  mortgagee  had  knowl- 
edge of  increase  of  hazard  and  did  not  communicate  such  knowl- 
edge to  the  company  recovery  can  not  be  had  by  the  mortgagee. 

This  brings  us  to  consider  the  clauses  with  respect  to  contribu- 
tion. The  contribution  clause  of  the  Standard  New  York  policy 
reads  as  follows : 

This  company  shall  not  be  liable  under  this  policy  for  greater  pro- 
portion of  any  loss  on  the  described  property  *  *  *  than  the  amount 
hereby  insured  shall  bear  to  the  whole  insurance,  whether  valid  or  not, 
or  by  solvent  or  insolvent  insurers,  covering  such  property,  and  the  ex- 
tent of  the  application  of  the  insurance  under  this  policy  or  of  the  con- 
tribution to  be  made  by  this  company  in  case  of  loss,  may  be  provided 
for  by  agreement  or  condition  written  hereon  or  attached  or  appended 
hereto.     (Lines  96  to  101.) 

The  mortgagee  rider  has  the  following  language : 

In  case  of  any  other  insurance  upon  the  within  described  property 
this  company  shall  not  be  liable  under  this  policy  for  a  greater  propor- 
tion of  any  loss  or  damage  sustained  than  the  sum  hereby  insured  bears 
to  the  whole  amount  of  insurance  on  said  property,  issued  to  or  held 
by  any  party  or  parties  having  an  insurable  interest  therein,  whether  as 
owner,  mortgagee  or  otherwise. 

We  find  a  direct  conflict  of  law  on  the  construction  to  be  placed 
upon  this  language  in  the  mortgagee  clause  and  the  effect  of  the 
language  in  the  policy  as  applied  to  mortgagees. 

In  the  well  known  cases  of  Hartford  Fire  Ins.  Co.  v.  Williams, 
Vol.  63  of  the  Federal  Reporter,  page  925  (U.  S.  Circuit  Court  of 
Appeals)  and  Eddy  v.  London  Assurance  Co.,  143  N.  Y.,  page  311 
(New  York  Court  of  Appeals)  such  conflict  is  found,  the  United 
States  Court  deciding  that  the  words  of  the  contribution  clause  in 
the  mortgagee  rider  meant  exactly  what  they  said.   The  lower  Court 

235 


The  Fire  Insurance  Contract 

first  held  that  the  contribution  clause  was  not  effective  and  could 

not  defeat  a  full  recovery  against  the  Hartford  Fire  Ins.  Co.    This 

the  Appellate  Court  declared  was  unsound,  saying: 

We  can  conceive  of  no  other  object  that  the  parties  could  have  had 
in  using  the  words  "issued  to  or  held  by  any  party  or  parties  having  in- 
surable interest  therein"  unless  it  was  to  avoid  the  very  construction  of 
the  clause  which  the  Circuit  Court  appears  to  have  adopted.  As  before 
remarked,  the  concluding  words  of  the  paragraphs  seem  to  have  been 
added  out  of  abundant  caution  that  there  might  be  no  ground  upon  which 
to  insist  that  the  right  to  pro  rate  was  limited  to  policies  held  by  the 
mortgagee  or  for  kis  benefit  *  *  *.  In  construing  a  contract  like  the 
one  now  in  hand  it  is  our  duty  to  look  to  all  the  provisions  of  the  agree- 
ment and  to  give  effect  to  what  seems  to  have  been  the  obvious  intent 
and  meaning  of  the  parties.  We  would  not  be  justified  in  ignoring  an 
agreement  in  one  part  of  the  instrument  which  is  as  clearly  expressed 
as  language  could  well  express  it  merely  because  it  limits  to  some  extent 
the  scope  of  general  language  employed  in  another  part  of  the  instru- 
ment. 

The  Court  decreed  that  the  plaintiff  in  error,  the  insurance 
company,  was  entitled  to  have  a  construction  of  the  contribution 
clause  which  limited  its  contribution  to  the  loss  to  the  company's 
pro  rata  sum  apportioned  amongst  all  the  insurance. 

To  the  contrary  was  the  New  York  decision. 

The  Eddy  decision  was  handed  down  by  the  State  Court  of 
Appeals  almost  simultaneously  with  that  of  the  U.  S.  Court  in  the 
Williams  case  and  it  may  be  of  interest  to  read  from  the  decision 
of  Mr.  Justice  Peckham,  concurred  in  by  the  rest  of  the  bench : 

By  taking  the  insurance  in  the  manner  the  mortgagee  herein  did, 
instead  of  taking  out  a  separate  policy,  all  the  provisions  in  the  policy, 
which  from  their  nature  would  properly  apply  to  the  case  of  an  in- 
surance of  the  mortgagee's  interest,  would  be  regarded  as  forming  part 
of  the  contract  with  him,  while  those  provisions  which  antagonize  or 
impair  the  force  of  the  particular  and  specific  provisions  contained 
in  the  clause  providing  for  the  insurance  of  the  mortgagee,  must  be 
regarded  as  ineflfective  and  inapplicable  to  the  case  of  the  mortgagee. 
vSo  when  the  agreement  in  regard  to  contribution,  contained  in  the 
body  of  the  policy  issued  to  the  owner,  is  compared  with  the  specific 
statement  in  the  mortgage  clause,  that  his  insurance  shall  not  be  in- 
validated  by  any  act  or  neglect  of  the  owner^  \ve  can  only  give  TK"e 
latter  due  lorce  by  nommg  that  the  insuranceof  the  nf^tgagee  is  not, 
in  effect  or  substance,  to  be  even  partially  invalidated,  i.  e.,  reduced  in 
amount,  and  to  that  extent  impaired  and  weakened  by  any  act  of  the 
owner  unknown  to  the  mortgagee.^  In  such  case  the  general  agree- 
ment in  the  body  of  the  policy  as  to  contribution  does  not,  and  was 
not,  intended  to  apply.  If  it  did,  then  the  special  and  particular  con- 
tract in  the  mortgagee  clause  would  be  of  no  effect.  If  the  two  are 
inconsistent,  the  special  contract  particularly  relating  to  the  mortgagee's 
insurance,  must  take  precedence  over  the  general  language  used  in  the 
policy  issued  to  the  owner.  For  these  reasons  the  claims  of  the  in- 
surers  for  a  deduction  in  the  amount  of  their  lial7ility  cannot  be  allowed. 

>c        4t       ♦        *        4( 

*  ♦  *  \Ye  think  the  true  meaning  to  be  extracted  from  the 
whole  instrument  is  that  the  insurance  which  shall  diminish  or  impair 
the  right  of  the  morlgag,ee-jLQ_.re^Wef~for  JiTs  Joss,  is  one  jwhich  shall 

236 


Interest  of  Mortgagee — ^Levy 

have  been  issued  upon  his  interest  in  the  property,  or  when  he  shall 
havj"  consented   to   the   other  insurance  upon   the   owner's  interest. 

This  decision  in  certain  aspects  properly  comes  under  the  head 
of  ''Subrogation";  at  the  same  time  it  also  declares  the  law  of  the 
State  to  be  that  since  the  right  to  indemnity  was  dependent  upon  a 
money  loss  actually  accruing  to  the  mortgagee,  if  the  mortgagee 
suffered  no  such  loss  because  the  debt  was  fully  paid  and  the  secur- 
ity discharged,  to-wit :  the  mortgage  cancelled,  there  existed  no  right 
against  the  insurer  under  the  mortgagee  clause.  In  this  connection 
it  is  also  necessary  to  call  to  your  attention  the  case  of  O'Neil  v. 
Franklin  Fire  Ins.  Co.,  heretofore  mentioned  as  decided  by  the  Su- 
preme Court,  Appellate  Division  of  the  Fourth  Department  in  No- 
vember, 1913,  Vol.  159  App.  Div.,  p.  314,  and  there  the  Court  held, 
after  fully  discussing  all  of  the  old  and  recent  decisions  construing 
the  mortgagee  clause,  that  the  period  of  limitation  (that  is,  the 
twelve  months)  did  not  apply.  That  case  is,  of  course,  more  on  the 
direct  point  of  subrogation  and  form  of  Court  procedure  than  on 
the  other  propositions  arising  under  the  mortgagee  clause,  but  its 
effect  is  to  broaden  the  scope  of  the  first  Heilbrunn  case.  (The 
O'Neil  case  has  not  yet  been  decided  by  the  Court  of  Appeals  but 
will  be  so  decided  probably  within  a  month  or  two). 

On  the  question  of  the  continuation  of  the  interest  of  the  mort- 
gagee as  being  necessary  to  sustain  an  action  under  the  mortgagee 
clause  and  the  incapacity  of  the  mortgagee's  assignee  after  satisfac- 
tion of  the  mortgage  to  acquire  any  right,  I  call  to  your  attention 
(in  addition  to  the  second  Heilbrunn  case)  the  decision  of  the  Court 
of  Errors  and  Appeals  of  New  Jersey  in  the  case  entitled  Kupfer- 
smith  V.  Delaware  Ins.  Co.  In  that  case  at  the  time  of  the  fire  there 
were  several  policies  issued  to  the  assured  and  to  a  mortgagee 
named.  After  the  fire  the  mortgagee  assigned  the  mortgage  and  the 
bond  but  did  not  transfer  any  interest  in  the  policy  or  right  of  action 
for  the  loss  caused  by  the  fire.  Thereafter  the  first  assignee  of  the 
mortgage  assigned  the  mortgage  by  mesne  assignments  to  a  subse- 
quent or  second  mortgagee  who  afterwards  secured  or  attempted  to 
secure  from  the  original  mortgagee  an  assignment  of  the  right  of 
action  under  the  policy.  The  Court  held  that  the  last  mentioned  ^ 
assignment  of  the  right  of  action  was  made  after  the  original  mort-  \ 
gagee  had  parted  with  any  right,  that  the  right  of  action  was  purely 
and  wholly  personal  to  the  original  mortgagee  and  that  the  right  of 
recovery  under  the  mortgagee  clause  was  limited  to  the  original 
mortgagee  and  that  when  he  assigned  the  mortgage  without  assign- 

237 


The  Fire  Insurance  Contract 

ing  the  rights  under  the  policy  he  parted  with  his  entire  interest  in 

the  property  and  in  the  policy  and  thereafter  had  no  interest  in  the 

property  insured  or  rights  under  his  mortgagee  clause.    The  Court 

said: 

What  he  was  then  undertaking  to  do  (that  is,  after  he  had  parted 
with  the  mortgage)  was  to  assign  a  chose  in  action  when  he  had  nothing 
to  assign,  for  manifestly  he  could  not  have  recovered  anything  from  the 
defendant  insurance  company  after  the  transfer  of  his  mortgage,  even  if 
he  had  that  right  before,  because  he  then  had  no  debt  or  security  there- 
for which  he  could  enforce  against  the  defendant  company.  The  holder 
of  a  mortgage  protected  by  a  mortgagee  clause  is  not  bound  to  collect 
from  an  insurance  company  the  amount  of  the  loss  insured  against,  for 
the  remainder  of  the  property  ma^  be  a  sufficient  security  for  his  mort- 
gage. He  may  call  upon  the  insurer  to  make  him  good  or  he  may  rely 
upon  the  diminished  value  of  the  property  as  a  security  for  his  mortgage 
and  when  he  disposes  of  his  mortgage  he  has  no  interest  which  he  may 
call  upon  the  insurer  to  make  good.  He  becomes  a  stranger  to  the  mat- 
ter without  any  rights  to  subsequently  assign. 

As  a  rather  startling  example  of  the  extremes  to  which  the 
Court  will  go  and  do  go  in  protection  of  a  mortgagee  or  third  party 
interest  under  a  Standard  Form  of  policy  and  mortgagee  riders  I 
call  your  attention  to  the  following  case :  in  New  York  State  a  com- 
pany issued  its  policy  (with  full  mortgagee  clause  attached)  insuring 
the  premises  therein  designated  and  mortgagee  named  in  the  clause ; 
the  mortgagee  transferred  his  interest;  the  insured  named  trans- 
ferred his  interest;  the  new  owner  of  the  mortgage  (that  is,  the 
new  mortgagee)  applied  through  his  agents  for  a  change  of  nota- 
tion of  interest  to  be  made  to  him  as  the  new  ozvner.  The  insurance 
company  did  exactly  as  it  was  requested  to  do — endorsed  the  policy 
continuing  the  mortgagee  clause  to  the  old  mortgagee  and 
complied  with  the  request  to  change  the  interest  of  the  new 
mortgagee  to  that  of  owner.  So  far  as  the  records  of  the  company 
were  concerned  there  had  been  transfer  of  interest  from  one  owner 
to  the  other ;  in  fact,  there  had  been  a  transfer  of  interest  from  one 
mortgagee  to  another.  The  policy  was  void  in  fact  as  to  the  owner. 
The  mortgagee  received  the  policy  in  its  endorsSfform  from  his 
own  agents  accompanied  by  a  letter  calling  his  attention  to  the  fact 
that  he  was  named  as  owner  in  the  policy  and  that  the  company  had 
done  exactly  as  it  had  been  directed  to  do  by  the  mortgagee  and  his 
agents  and  for  over  two  years  he  never  looked  at  the  policy;  about 
a  year  after  the  notation  of  change  of  interest  the  premises  were 
damaged  by  fire.  In  an  action  brought  for  reformation  three  years 
thereafter  the  Court  decreed  that  the  reformation  should  be  had 
by  changing  the  interest  from  the  insured  named  as  owner  to  that 
of  mortgagee,  with  no  greater  equity  as  the  foundation  for  such 

238 


Interest  of  Mortgagee — ^Levy 

decree  than  the  mortgagee's  own  negligence.  Up  to  the  present  time 
the  number  of  Judges  who  have  written  opinions  is  evenly  divided. 
The  case  very  shortly  will  come  up  for  decision  in  the  Court  of 
Appeals  but  the  finding  is  directly  contrary  to  that  in  the  case  of 
Gillett  V.  Liverpool  &  London  &  Globe  Ins.  Co.,  in  the  73  Wis.  Re- 
ports, page  203,  and  to  all  of  the  cases  bearing  upon  the  remedy  of 
reformation.  If  held  good  law  by  the  Court  of  Appeals  its  effect 
will  be  to  take  from  the  companies  the  right  of  selecting  the  person 
who  shall  be  covered  by  the  mortgagee  clause.* 

It  may  be  stated  that  the  Courts  in  view  of  the  lack  of  con- 
troj^over  the  subject-matter  of  insurance  will  afford  to  the  mort- 
gagee interest  every  possible  manner  of  protection  so  long  as  that 
interest  exists  and  the  companies  should  not  be  too  critical  of  their 
judicial  utterances  in  that  respect  as  it  must  be  borne  in  mind  that 
security  holders  in  all  instances  in  good  faith  rely  fully  upon  the 
promise  of  indemnity  found  in  the  contract,  having  neither  posses- 
sion nor  ownership  of  the  property  which  is  subject  to  their  lien  and 
the  subject-matter  of  the  risk,  and  that  the  fact  that  there  is  poten- 
tiality for  fraud,  collusion  and  evil  practice  under  the  mortgagee 
clause  does  not  alone  require  a  narrow  construction  of  the  rights 
of  the  third  parties  under  the  provisions  of  the  Standard  policy  and 
mortgagee  clause. 

In  conclusion  I  might  repeat  what  has  been  so  forcibly  said  by 
an  able  and  eminent  authority  upon  insurance : 

If  there  are  any  rights  or  advantages  which  the  mortgagee  does  not 
possess,  it  is  either  because  he  has  not  yet  discovered  them  or  has  not 
gone  after  them,  and  more  remarkable  still  is  the  fact  that  for  all  this 
the  mortgagee  pays  nothing  whatever.  He  gets  without  money  and 
without  price  a  contract  which  the  mortgagor  or  owner  of  the  best  risk 
in  the  land  cannot  buy  at  any  price. 

•Salonion  v.  Ins.  Co.,  215  N.  T.  241.  Court  of  Appeals  dismissed  the  action 
for  icformation  as  without  equity. 


239 


XIII 
ABANDONMENT,  PROTECTION  AND  REMOVAIi 

Frederick  B.  Campbell 

Of  Butler,  WycJcoff  &  Campbell,  Attorneys 

Abandonment. 

The  subject  of  abandonment  has  logically  no  real  association 
with  those  of  protection  and  removal.  The  provision  of  the  Stand- 
ard Policy  relating  to  abandonment  is  found  in  lines  4  to  6  and  reads 
as  follows :  "It  shall  be  optional,  however,  with  this  company  to  take 
all,  or  any  part,  of  the  articles,  at  such  ascertained  or  appraised 
value,  and  also  to  repair,  rebuild  or  replace  the  property  lost  or 
damaged  with  other  of  like  kind  and  quality  within  a  reasonable 
time,  on  giving  notice  within  thirty  days  after  the  receipt  of  the 
proof  herein  required  of  its  intention  so  to  do ;  hut  there  can  he  no 
abandonment  to  this  company  of  the  property  described!  The  mean- 
ing of  these  words  "there  can  be  no  abandonment  to  this  company 
of  the  property  described,"  is  simply  that  the  policyholder  has  no 
right  at  his  option  to  transfer  to  the  insurer  the  property  affected 
by  the  fire,  and  be  indemnified  as  for  a  total  loss.  But  why  was  it 
necessary  or  desirable  to  provide  against  the  exercise  by  the  policy- 
holder of  any  such  option  ?    The  answer  is  in  part  historical. 

In  the  course  of  the  development  of  the  law  of  marine  insur- 
ance there  eventually  sprung  up  what  was  and  is  known  as  the  doc- 
trine of  technical  or  constructive  total  loss.  An  insurance  against 
the  perils  of  the  sea  as  in  case  of  an  insurance  against  fire  is  a  con- 
tract of  indemnity  only.  Owing,  however,  to  the  peculiar  nature  of 
the  marine  adventure  the  difficulties  attending  the  equitable  adjust- 
ment of  a  marine  loss  have  always  exceeded  those  of  an  adjustment 
of  a  loss  by  fire.  In  early  times  such  difficulties  were  immeasurably 
greater  than  at  the  present  time.  In  order  to  reduce  these  diffi- 
culties it  became  customary  to  insert  in  policies  of  marine  insur- 
ance stipulations  providing  that  in  certain  specified  contingencies 
the  policyholder,  instead  of  necessarily  assuming  the  burden  of  prov- 
ing the  particular  amount  of  a  partial  loss,  might,  by  a  notice  to 
the  underwriters  that  he  abandoned  to  them  all  his  interest  in  the 
adventure,  recover  as  for  total  loss.^^^  These  customary  stipulations 
in  marine  policies  in  time  were  crystallized  into  rules  of  law.     For 

(1)  Emerigon  Insurance  Chapter,  17,  Sec.  1.  Blackburn,  J.,  in  Rankin  r.  Potter, 
L,  R.  6  H.  L.  83,  125.  Brett  L.  J.,  in  Castellain  v.  Preston,  L.  R.  11  Q.  B.  L>. 
380.   387.     Kaltenbacb   v.   Mackenzie,   3   C.    P.   D.   467. 

240 


Abandonment,  Protection  and  Removal  ^ 

instance,  in  a  celebrated  French  code  of  marine  laws<^>  it  was  pro- 
vided that  "abandonment  may  be  made  only  in  case  of  capture, 
shipwreck,  breaking  up,  stranding,  arrest  of  princes  or  total  loss 
of  the  effects  insured."  Under  this  enactment  the  doctrines  of  con- 
structive total  loss  and  abandonment  were  developed  to  an  extra- 
ordinary extent.  It  was  established  that  upon  the  happening  of  any 
of  the  events  specified  in  the  provision  of  the  French  code  just 
quoted,  the  policyholder,  by  giving  notice  of  abandonment,  might 
recover  for  a  total  loss  though  the  thing  insured  was  quite  safe  and 
uninjured.  This  rule  was  justified  or  at  least  accounted  for  by 
saying  that  the  statute  created  a  presumption  that  where  any  of 
the  cases  just  mentioned  had  happened,  the  thing  was  lost.  This 
presumption  was  carried  so  far  that  where  a  ship  was  stranded  but 
got  off  without  injury  either  to  herself  or  cargo,  the  owners  of  the 
cargo  were  permitted  to  give  notice  of  abandonment  and  recover 
as  for  a  total  loss.  This  highly  artificial  conclusion  remained  in  the 
French  law  for  nearly  one  hundred  years.  ^^^ 

The  English  law  hesitated  to  encourage  or  extend  the  applica- 
tion of  such  a  doctrine, ^^^  one  great  English  judge  speaking  of  it  as 
"a  desperate  risk  cast  on  the  underwriter,  who  is  to  save  himself 
as  well  as  he  can."^^^  And  eventually  in  England  it  was  decided  that 
the  proper  principle  was  that  "if  a  prudent  man  not  insured  would 
decline  any  further  expense  in  prosecuting  an  adventure,  the  termi- 
nation of  which  will  probably  never  be  successfully  accomplished,  a 
party  insured  may,  for  his  own  benefit,  as  well  as  that  of  the  under- 
writer, treat  the  case  as  one  of  a  total  loss  and  demand  the  full 
sum  insured."  ^^^  In  this  country  the  law  has  been  more  specific,  the 
rule  being  that  a  damage  exceeding  fifty  percent  justifies  abandon- 
ment to  the  insurer  and  recovery  as  for  a  total  loss/^^ 

There  always  was  and  probably  still  is  room  for  debate  about 
the  wisdom  of  the  doctrine  of  constructive  total  loss  in  marine  in- 
surance. Those  who  argued  in  favor  of  its  application  said  that 
without  it  the  insurance  would  not  afford  fair  indemnity  and  that 
an  intolerable  burden  of  proving  the  amount  of  the  partial  loss 
would  be  cast  upon  the  policyholder ;  while  those  who  hold  the  other 
way  said  that  it  led  to  a  result  other  than  indemnity  and  tended  to 

(2      Ordonnance   de   la   Marine    of    1681. 

(3)  Emerigon  Chapt.  17,  Sec.  2.  Blackburn,  J.,  in  Rankin  v.  Potter,  L.  R.  6  H.  L. 
83.    126. 

(4)  See  opinions  Lord  Mansfield  in  Goss  v.  Withers,  2  Burr.  683;  Buller,  J.,  in 
Mitchell  V.  Edie,  1  Term  Rep.  608;  Lord  Ellenborough  in  Bainbridge  v.  Neilson 
10   East   329. 

(5)  Lord    Ellenborough   in    Bainbridge   v.    Neilson,    10    East   329. 

(6)  Roux   V.  'Salvador,   3    Bing.   N.    C   266.' 

(7)  Washburn  &  Moen  Mfg.  Co.  v.  Reliance  Marine  Ins.  Co.,  179  U.  S.  1  Orient 
Ins.  Co.  V.  Adams,  123  U.  S.  67.     Marcardier  v.  Chesapeake  Ins.  Co.,  8  Cranch  39. 

241 


The  Fire  Insurance  Contract 

encourage  fraud.  Probably  the  first  mentioned  were  formerly  right, 
but  with  modern  means  of  intelHgence  and  transportation  the  latter 
would  seem  to  have  the  better  of  the  argument,  and  in  any  event  if 
the  insurer  knows  just  what  the  risk  is  he  can  require  an  adequate 
compensation  for  the  hazard  which  is  assumed. 

In  connection  witli_fire.^insurance  the  principle  of  abandonment 
was  never  part  oi  the  law^  and  the  pro visToh"^"nlTie  standard  policy 
denying  to  Ihe  policyholder  the  right  of  abandonment,  is  declaratory 
only  of  what  the  law  would  have  been  without  it.^^^  This  is  equally 
true  in  view  of  the  prior  provision  giving  to  the  insurer  the  option 
of  taking  all  or  any  part  of  the  damaged  goods  at  their  appraised 
value.  Such  an  option  in  the  insurer  is  utterly  inconsistent  with  an 
option  to  abandon  in  the  policyholder.  The  provision  concerning 
abandonment  was  inserted,  I  take  it,  for  other  and  very  important 
reasoiTS^^  In  the  first  place  it  was  and  is  necessary  to  bring  home 
to  the  policyholder,  especially  at  the  time  of  a  loss,  that  the  con- 
tract is  one  of  indemnity  only,  that  by  no  combination  of  circum- 
stances could  he  make  a  profit  or,  as  the  result  of  a  fire,  in  substance 
effect  a  sale  to  the  insurer  of  any  part  of  tlie  property  covered  by 
the  policy.  Policyholders  have  been  heard  of  who  felt  that  their  de- 
stroyed or  damaged  property  was  worth  the  full  amount  of  the 
policy;  that  even  upon  the  happening  of  an  accidental  fire  they 
should  not  simply  come  out  whole  but  should  have  something  over 
to  cover,  besides  inconvenience,  some  return  for  the  premiums 
they  have  paid  in  past  years  when  they  have  had  no  fire.  And, 
furthermore,  times  have  been  known  when  the  policyholder  was  en- 
tirely willing  to  transfer  to  the  insurer,  even  at  fair  market  prices, 
the  insured  property  and  so  leave  the  policyholder  free  to  invest  the 
proceeds  in  other  fields  of  activity.  You  will  note  that  this  pro- 
vision as  to  abandonment  is  contained  in  the  same  sentence  giving 
the  insurer  the  options  to  become  the  owner  at  the  appraised  value 
of  such  of  the  goods  as  may  be  left  by  the  fire  or  to  repair,  rebuild 
or  replace  the  property  affected  by  the  fire.  The  insurer  does  not 
want  the  goods,  it  is  not  in  that  line  of  business;  neither  is  it  a 
general  repairer,  rebuilder  or  merchandiser  of  property.  What 
the  insurer  must  have  are  reasonable  checks  by  which  to  meet  an 
exaj^'"j^^erafed  claim  of  loss  and  to  avoid  becoming  an  involuntar_^| 
])nre1iascr  of  more  or  less  desirable  property.  And  so  we  find 
this~prohibition  as  to  abandonment  placed  in  this  sentence  composed 

(8)  Kankin  v.  Potter,  L.  R.  6  H.  L.  83.  Castellain  v.  Preston,  L.  R,  11  Q.  B,  D. 
^80.  403.  Kaltenbach  v.  Mackenzie,  3  C.  P.  D.  467,  471.  Detroit  v.  Grummond, 
121    Fed.    Rep.    963,    971.      Hoffman    v.    Western    Marine    &    Fire    Ins.    Co.,    1    La. 

Ann.    216. 

242 


Abandonment,  Protection  and  Removal 

of  what  I  may  call  cross  checks  upon  measurement  of  damage,  and 
the  whole  placed  within  the  first  six  numbered  lines  of  the  policy 
all  of  which  relate  to  the  measure  of  the  policyholder's  damage. 

In  addition  to  emphasizing  the  principle  that  the  policy  contract 
is  one  of  indemnity  only  and  of  providing  an  additional  check  by 
which  to  discourage  improper  claims,  there  was  an  additional  rea- 
son for  inserting  in  the  policy  this  provision  as  to  abandonment. 
The  gentlemen  who  framed  this  Standard  Policy  deemed  it  to  be 
tkeir  duty,  not  only  to  insert  in  the  policy  the  necessary  contractual 
stipulations,  but  to  state  in  plain  words  what  the  law  was;  to  codify, 
as  it  were,  the  law  so  that  the  policyholder  could  read  it  in  the  contract 
which  he  bought.  Those  gentlemen  undoubtedly  knew%  as  does 
every  fire  insurance  adjuster  now,  that  there  can  be  no  abandon- 
ment, but  without  these  words  the  policyholder  would  not  neces- 
sarily know  it  until  he  had  consulted  his  lawyer  after  the  fire. 

My  friends  who  are  adjusting  losses  tell  me  that  this  provision 
as  to  abandonment  serves  a  very  useful  purpose,  that  it  makes 
agreement  with  the  policyholder  more  possible,  and  in  any  proposed 
new  form  of  Standard  Policy  these  words  would  undoubtedly  re- 
main as  they  are. 

But  the  practical  and  real  abandonment — to  use  the  word  in  a 
non-technical  sense — w^th  which  the  insurer  has  .to  deal,  is  the 
failure  of  the  policyholder  to  protect  the  property  during  and  after 
a  fire.  ~ 

Prote:ction  of  Property  at  and  After  Fire. 

Passing  from  the  subject  of  abandonment  to  that  of  protection 
of  the  insured  property  at  and  after  the  fire,  we  find  the  provisions 
of  the  policy  upon  this  point  contained  in  two  portions  of  the  policy. 
The  first  provision  is  contained  in  that  portion  of  the  policy  relat- 
ing to  hazards  which  the  policy  does  not  cover,  lines  31  to  34;  the 
provisions  being  as  follows : 

This  Company  shall  not  be  liable  for  loss  caused  directly  or  indi- 
rectly.  by  neglect  of  the  insured  to  use  all  reasonable  means 

to  save  and  preserve  the  property  at  and  after  a  fire  or  when  the  prop- 
erty is  endangered  by  fire. 

The  second  provision  on  this  point  is  found  in  that  portion  of  the 

policy  relating  to  the  insured's  duty  in  case  of  loss,  lines  67  to  58 

where  it  is  provided  that  "if  a  fire  occur  the  insured  shall 

protect  the  property  from  further  damage." 

These  provisions  state  only  what  the  lav^r  w^ould  imply  in  the 

absence  of  any   such  provision  in  the  policy. <^^     They  were  un- 

(9)     Thornton    v.    Security   Ins.    Co.,    117    Fed.    Rep.    773.      Phoenix    Ins.    Co.    v.    Mills, 
77   111.    App.    546. 

243 


The  Fire  Insurance  Contract 

doubtedly  inserted  for  the  same  reason  that  the  provision  as  to 
abandonment  was  inserted,  namely,  as  informing  the  policyholder  of 
the  existing  law ;  the  theory  of  the  law  being  that  the  damage  oc- 
casioned by  the  failure  of  the  policyholder  to  protect  his  goods  was 
not  caused  proximately  by  the  fire  but  by  the  policyholder's  own 
want  of  care. 

If,  therefore,  the  policyholder  is  under  a  duty  to  protect  his 
property,  the  question  naturally  arises  as  to  the  standard  of  care 
which  he  must  take.  The  standard  of  care  in  the  nature  of  things 
cannot  be  definitely  fixed  either  by  explicit  provisions  of  law  or  by 
contractual  stipulations,  as  each  case  must  depend  upon  its  peculiar 
circumstances.  However,  it  may  be  said  generally  that  the  policy- 
holder is  under  a  duty  to  exercise  what  the  law  calls  reasonable  care, 
that  is  such  a  degree  of  care,  caution  and  effort  which  might  rea- 
sonably be  expected  of  an  ordinary  prudent  person  under  like  cir- 
cumstances and  conditions. <"^  The  duty  is  that  of  the  policy- 
holder and  may  not  be  delegated;  for  instance,  suppose  a  policy- 
holder had  with  all  due  care  hired  what  he  regarded  as  competent 
watchmen  to  look  after  his  property  and  those  watchmen  were 
guilty  of  negligence  or  lack  of  care  in  protecting  the  property  at 
the  time  of  the  fire.  Has  the  assured  discharged  his  full  duty  in 
the  premises?  It  would  seem  not.  The  policyholder  is  precisely 
as  responsible  for  the  lack  of  care  of  his  servants  in  protecting  the 
property  at  the  time  of  the  fire  as  an  individual  is  for  the  lack  of 
care  of  his  servants  or  agents  in  the  conduct  of  his  business  in  other 
respects.  The  insured,  therefore,  may  not  delegate  to  others  his 
duty  to  exercise  reasonable  care  in  the  protection  of  his  property 
at  the  time  of  or  after  the  fire. 

The  duty  of  the  policyholder  is  an  active  duty  and  not  simply 
a  passive  one.  He  may  not  sit  still  and  smoke  his  pipe  and  allow 
the  fire  to  burn.  This  duty  to  protect  includes  the  duty  to  remove 
when  such  removal  is  necessary  to  protectionr"Dbviously  he  may 
not  interfere  with  the  efforts  of  others  to  extinguish  the  fire  or  to 
save  his  property.  ^^^^  His  duty,  however,  to  take  reasonable  care 
to  protect  his  property  is  secondary  to  his  duty  of  caring  for  the 
members  of  his  family  or  to  save  life  and,  if  the  latter  duties  pre- 
vent attention  to  the  former,  the  policyholder  is  not  chargeable  with 
neglect.  ^^^^ 

(10)  Price  v.   Patrons'   Home   Protection   Co.,   11  Mo.   App.   236. 

(11)  Phoenix  Ins.   Co.  v.   Mills,  11  111.  App.   546.     Devlin  v.  Queen  Ins.   Co.,  46  U.   C. 
Q.   B.   611. 

(12)  Raymond  v.   Farmers  Ins.   Co.,    114   Mich.    386.     Gtizen's  Ins.    Co.    v.    Bland,   39 
S.  W.   Rep.  825. 

244 


Abandonment,  Protection  and  Removal 

After  the  fire  he  must  take  the  requisite  steps  to  prevent  the 
further  deterioration  of  llie  property ^^^^  but  this  duty  does  not  go 
to  the  extent  of  requiring  him  to  repair  or  to  restore  the  property 
to  Its  original  condition  before  the  fire/^'*^ 

The  burden  of  proving  a  failure  of  duty  on  the  part  of  the 
policyholder  in  protecting  his  property  is  upon  the  insurer  ^^^^  and    \ 
is  in  most  cases  a  question  for  the  jury  who  are  the  judges  of  what      ^ 
the  standard  of  reasonable  care  under  the  circumstances   would 
be/^«) 

When  the  policyholder  in  the  exercise  of  reasonable  care  to 
save  and  preserve  his  property,  whether  at  or  after  the  fire,  has  in-_ 
curred  expense  or  additional  loss,  the  insure^  Jsliable  up  to^  tl)e 

aiiMHint  oTlhe  policy  for  all  such  expenses- reasonably  incurred  QJL 
losses  unavoidably  sustained,  which  provision,  it  will  be  seen,  may 
operate   in   certain   cases  to  increase  rather  than  to  diminish  the 
damages  payable  by  the  insurer/"^ 

In  the  event  of  the  failure  of  the  policyholder  to  perform 
his_  duty  to  protect  the  property,  the  question  naturally  arises 
whether  the  consequences  of  such  failure  relate  merely  to  the 
measure  of  damages  to  be  recovered  or  whether,  in  certain  cases, 
such  failure  may  operate  to  avoid  the  policy  entir,^.  Clearly  by 
the  express  stipulation  of  the  parties  as  well  as  by  the  law  the 
policyholder  cannot  recover  for  such  portion  of  the  loss  as  was 
due  to  his  failure  of  duty  in  caring  for  the  property  insured  at  or 
after  the  fire.  If  the  stipulation  contained  in  lines  31  to  34  were  the 
only  provision  in  the  policy,  the  only  result  of  such  failure  of  duty 
would  be  that  the  consequences  of  such  failure  would  relate  merely 
to  the  measure  of  damages. ^^^^  The  stipulation,  however,  in  lines 
67  to  68  goes  further  than  to  limit  the  liability  of  the  QpmpanXs,  It 
imposes  a  direct  obligation  upon  the  assured  to  protect  the  property 
from  further  damage  as  well  as  to  separate  the  damaged  and  un- 
damaged property  and  put  it  in  order.  This  requirement  is  made 
rigid  by  the  subsequent  provision  in  lines  106  and  107  that  "no  suit, 
or  action  on  this  policy  for  the  recovery  of  any  claim  shall  be  sus- 
tainable in  any  court  of  law  or  equity  until  after  full  compliance 

[13)   Boak  Fish  Co.  v.   Manchester  Fire  Assur.    Co.,  84   Minn.   419.     Alter   v.   Home  Ins. 

Co.,   50   La.   Ann.    1316.     Lisk  v.   Citizen's  Ins.    Co.,    16   Ind.   App.    565. 
CI 4)   HoflFman    v.   Aetna   Fire   Ins.    Co.,    1    Robt.    501. 
(15)    Fletcher   v.    German    American   Ins.    Co.,    79    Minn.    337.      Aurora    Fire    Ins.    Co.    v. 

Johnson,    46    Ind.    315. 

(17)  White  V.  Republic  &  Relief  Ins.  Cos.,  57  Me.  91.  Case  v.  Hartford  Ins.  Co., 
13  111.  676.  Stanley  v.  Western  Ins.  Co.,  L.  R.  3  Ex.  71,  74.  Thompson  v. 
Montreal  Ins.  Co.,  6  U.  C.  Q.  B.  319.  McPherson  v.  Guardian  Ins.  Co.,  Newf. 
L.    R.    (1884-96)    768. 

(18)  Wolters  v.  Assurance  Co..  95  Wis.  265.  Thornton  v.  Security  Ins.  Co.,  117  Fed. 
Rep.    773. 

245 


The  Fire  Insurance  Contract 

by  the  insured  with  all  the  foregoing  requirements."  Under  this 
provtsTon  it  has  been  held  that  a  failure  on  the  part  of  the_policy- 
holder  to  separate  the  damaged  from  the  undamaged  property  and 
to  put  it  in  the  best  possible  order  works  a  forfeiture  of  the  policy 
and  is  a  complete  defense  tu  an  action  forThenrerT3VeT}rTrf-  any 
amount  thereunder.  <^^^  Likewise  it  has  been  held  that  where  there 
is  a  zvilfitl  failure  to  protect  the  property  from  further  damage  the 
assured  can  recover  nothing  under  the  £olicy.^^^  But  whether  the 
courts  would  go  so  far  as  to  say  that  simple  neglect  to  use  reason- 
able care  to  protect  without  fraud  or  wilful  default  would  avoid 
the  policy  may  be  seriously  doubted.  In  all  probability  the  courts 
would  not  so  decide. 

The  question  has  been  asked,  if  after  the  fire,  in  order  to  pre- 
vent further  deterioration,  the  insurer  can  compel  the  policyholder 
to  remove  the  goods  from  the  burned  premises  to  premises  indicated 
by  the  insurer,  such  as  those  of  a  salvage  association,  for  the  pur- 
pose of  preservation  and  separation,  provided  the  insurer  offers  to 
pay  all  expenses-  of  such  salvage  operation,  the  goods  meanwhile 
to  remain  the  property  of  the  policyholder?  I  venture  the  sugges- 
tion that  what  the  insurer  can  do  is  to  notify  the  policyholder  that 
the  insurer,  without  cost  to  the  policyholder,  is  willing  to  forthwith 
remove  the  goods  to  a  proper  place  and  separate  and  preserve  them ; 
that  if  the  policyholder  declines  to  permit  this  and  fails  to  immedi- 
ately remove  the  goods  to  some  other  appropriate  place  and  separate 
and  preserve  them,  then  the  insurer  will  not  only  decline  respon- 
sibility for  the  further  damage  so  caused  but  will  consider  such 
refusal  as  a  ground  for  forfeiture  of  the  policy.  A  court  and  jury, 
in  my  opinion,  would,  be  biased  against  any  policyholder  who  should 
so  refuse;  such  refusal  would  come  very  near  to  wilful  failure  to 
protect ;  and  a  case  or  two  of  this  kind,  'properly  substantiated  and 
contested,  would  cause  a  change  in  any  occasional  attitude  in  this 
respect. 

Rejmovai,. 

And  finally  we  come  to  the  subject  of  removal  and  the  liability 
of  the  insurer  with  reference  to  the  removal  of  property  endangered 
by  fire.  This  subject  may  well  be  divided  into  two  parts;  first,  the 
liability  of  the  company  for  the  expense  of  removal  and  for  losses 
occasioned  thereby  and,  second,  the  future  liability  of  the  company 
for  losses  arising  in  the  new  location. 

(19)  Thornton    v.    Security    Ins.    Co.,    117    Fed.    Rep.    773.      Oshkosh    Match    Works    v. 
Manchester   Fire   Assur.    Co.,   92   Wis.    510. 

(20)  Devlin   v.   Queen  Ins.    Co.,  46   U.   C.   Q.   D.   611. 

246 


Abandonment,  Protection  and  Removal 

As  to  the  first  of  the  above  subdivisions,  there  is  no  express 
provision  of  the  policy  which  is  directly  applicable.  The  provision 
in  lines  96  and  97  of  the  policy  to  the  effect  that  the  insurer  ''shall 
not  be  liable  under  this  policy  for  a  greater  proportion  of  *  *  *  loss 
by  and  expense  of  removal  from  premises  endangered  by  fire,  than 
the  amount  hereby  insured  shall  bear  to  the  whole  insurance"  is 
a  provision  of  limitation,  not  of  extension,  and  is  at  most  but  an 
implied  recognition  of  the  liability  imposed  by  the  law  upon  the  in- 
surer to  reimburse  the  policyholder  for  expenses  and  losses  upon 
removal.  As  has  been  stated  before,  however,  the  policyholder  is 
in  duty  bound  to  use  all  reasonable  means  to  save  the  property  at 
and  after  a  fire  and,  being  under  such  duty,  may  charge  the  insurer 
for  reasonable  expenses  incurred  and  losses  sustained  in  the  per- 
formance of  such  duty  up  to  the  amount  of  the  policy.  While  the 
liability  of  the  underwriter  in  this  respect  was  not  established  with- 
out some  dissent,  it  is  now  universally  recognized. 

In  applying  this  principle  of  additional  liability  the  courts  have 
said  that  the  connection  between  the  fire  and  the  loss  or  damage 
occasioned  by  the  removal  must  be  so  close  that  the  relation  of 
cause'and  effect  is  clearly  established.  The  removal  must  be  fairly 
aniJTeasonably  necessary  and  not  as  the  result  of  an  unreasonable 
and  unfounded  apprehension,  as  where  the  fire  is  at  a  considerable 
distance.  The  imminence  of  the  peril  must  be  apparent  and  must 
be  such  as  would  prompt  a  prudent  uninsured  person  to  remove 
the  goods  from  the  danger  threatening  ;^2^^  from  which  it  follows 
that  where  the  ganger  is  so  immediate  that  a  failure  ta  remoyg^  the 
goods  would  constitute  negligence,  the  insured  is  entitled  to  recover 
the  reasonable  expenses  and  losses  attending  the  removal. ^^^ 
Whether  the  removal  was  in  fact  necessary  or  prudent  must  be 
judged,  of  course,  not  by  the  final  outcome  but  by  the  circumstances 
as  they  appeared  at  the  time  of  the  removal. ^^^ 

Assuming  the  circumstances  of  a  particular  case  to  justify  a 
removal,  the  further  question  arises  as  to  what  are  the  limits  of  the 
insurer's  liability  for  the  consequent  expenses  and  losses.  Obvious- 
ly there  can  be  no  recovery  for  losses  due  to  carelessness  in  handling 
or  to  wanton  a'fid  unnecessary  exposure  ;^^''^  nor  can  there  be  a  re- 
covery for  losses  arising  from  risks  expressly  excluded  by  the  terms 
of  the  Standard  Policy.     For  instance,  while  the  courts  have  fre- 

(21)  White  V.   Republic   Fire  Ins.   Co.,   57  Me.   91.     Holtzman  ▼.    Franklin  Ins.    Co.,    12 
Fed.   Cas.   6649. 

(22)  Ca.<=e  v.   Hartford  Fire  Ins.   Co.,    13   111.   676. 

(23)  Balestracci    v.    Firemen's    Ins.    Co.,    34    La.    Ann.    844.      White    v.    Republic    Fire 
Ins.    Co..   57    Me.   91. 

(24)  Case  v.    Hartford   Fire   Ins.    Co.,    13   111.   676,   682. 

247 


The  Fire  Insurance  Contract 

quently  held  under  policies  other  than  the  standard  policy,  that  a 
loss  by  tlieft  arising  from  the  confusion  attending  removal  of  the 
goods  insured  is  a  loss  proximately  caused  by  the  fire  for  which  the 
insured  can  recover;  nevertheless  in  view  of  the  present  provision 
in  the  Standard  Policy  excluding  liability  for  losses  by  theftf IHe 
insurer  is  not  responsible  for  losses  by  theft  although  directly  and 
immediately  due  to  a  necessary  removal  of  the  goods.  ^^^^  The 
burden  of  proving  that  any  particular  portion  of  the  loss  was  caused 
by  theft  would,  of  course,  be  upon  the  insurer. 

The  reasonable  expenses  of  removal  may,  of  course,  be  re- 
covered, ^^^^  and  likewise  loss  by  breakage^^^^  and  that  caused  by  ex- 
posure of  goods  to  the  weather. ^^^^  And  this  liability  for  damage 
caused  by  the  elements  as  the  result  of  a  necessary  removal  would 
continue  for  a  reasonable  time  after  the  expiration  of  the  policy, 
but  not  for  damage  caused  by  a  new  fire  after  such  expiration. 

The  second  subdivision  of  this  subject  of  removal  concerns 
the  future  liability  of  the  company  for  losses  arising  in  the  new 
location.  The  provision  in  this  respect  is  unnecessarily  a  long  and 
cumbersome  one  and  is  found  in  lines  60  to  66  of  the  policy,  which 
I  shall  not  burden  you  by  quoting  as  the  reader  is  so  familiar  with 
it.  The  substance  and  intent  of  such  provision  is  that  the  policy 
covers  pro  rata^fQr^^e^days^at  a  proper  place  to  which  any  part 
of  the  prop^erty  is  necessarily  removed  ToF  preservation  from  fire. 
But  for  this  provision  the  policy  would  not  protect  the"  removed 
goods  from  loss  caused  by  an  admittedly  new  peril  such  as  a  fresh 
fire  arising  in  the  new  location.  It  has  been  said  that  the  framers 
of  this  Standard  Policy  felt  that  if  a  policy-holder  moved  his  goods 
under  a  legal  duty  so  to  do,  the  insurance  should  follow  the  goods 
for  a  time  long  enough  to  allow  the  policyholder  to  take  steps  to 
obtain  future  insurance,  and  it  is  believed  that  this  Standard  Fire 
Policy  was  the  first  policy  that  ever  contained  this  express  stipula- 
tion. There  was,  however,  a  well  known  precedent  in  the  law  of 
marine  insurance  where  property  necessarily  transshipped  was 
covered  by  the  policy.  The  desired  protection,  however,  could  be 
very  briefly  and  simply  expressed  by  inserting  after  the  words  at 
the  beginning  of  the  policy  referring  to  "the  following  described 
property  while  located  and   contained   as   described   herein"   such 

(25)  Balestracci    v.    Firemen's    Ins.    Co.,    34    La.    Ann.    844.      Fernandez    v.    Merchants 
Mutual  Ins.    Co.,    17   La.   Ann.    131.     Webb   v.    Protectors  Ins.   Co.,    14   Mo.    3. 

(26)  White  v.  Republic  Fire  Ins.   Co.,   57   Me.   91.     Talamon  v.   Home   Mutual   Ins.   Co., 
16    La.    Ann.   426. 

(27)  Balestracci  v.   Firemen's  Ins.   Co.,  34  La.  Ann.   844.     Stanley  v.   Western  Ins.   Co., 
L.   R.  3   Ex.   71. 

(28)  McPherson    v.    Guardian    Ins.    Co.,    Newf.    L.     R.     (1884-96)     768.      Thompson    v. 
Montreal  Ins.   Co..   6   U.   C   Q.   B.   319. 

248 


Abandonment,  Protection  and  Removal 

words  as  *'or  pro  rata  for  five  days  at  a  proper  place  to  which  any 
of  the  property  shall  necessarily  be  removed  for  preservation  from 
fire"  as  has  been  suggested. 


249 


6 


XIV 
WHAT  IS  A  FIRE  LOSS? 

j  W.  N.  Bament 

General  Adjuster,  The  Home  Insurance  Company 

When  Prometheus  brought  to  earth  as  a  gift  to  man  the  fire 
he  had  stolen  from  the  chariot  of  the  sun,  he  could  never,  even  with 
his  superhuman  attributes,  have  imagined  its  possibilities  of  de- 
struction as  evidenced  by  wars  and  conflagrations,  or  the  magnitude 
and  far  reaching  effect  of  its  benefits,  which  .have  their  practical 
manifestation  in  the  arts  and  sciences.  Nor  could  he  have  even 
dimly  pictured  as  one  of  the  results*  of  his  benefaction  the  great 
business  of  fire  insurance,  which,  after  an  evolutionary  process 
of  over  two  hundred  years,  is  now  regarded  as  the  hand-maid  of 
commerce  and  one  of  the  most  important  factors  in  our  social, 
mercantile  and  industrial  life. 

It  is  said  that  human  culture  began  with  the  utilization  of  fire, 
and  that  culture  increased  in  the  same  ratio  as  its  use.  The  ancients, 
the  barbaric  tribes,  and  even  our  forefathers  were  interested  in 
how  to  produce  and  preserve  it ;  we  are  chiefly  interested  in  how 
to  control  and  prevent  it.  It  was  an  element  in  the  national  and 
religious  ceremonies  of  the  ancient  Egyptians,  the  Greeks,  Romans 
and  Persians,  and  among  the  aboriginal  tribes  of  America.  From 
the  dawn  of  civilization,  and  even  before,  the  human  race  has  been 
more  or  less  familiar  with  fire  and  its  phenomena,  yet  the  question, 
"What  is  a  fire?"  has  claimed  the  consideration  of  scientists, 
lawyers,  courts  and  juries,  and  possesses  enough  elements,  if  not  of 
doubt,  yet  certainly  of  interest,  to  command  the  studious  attention 
of  all  those  engaged  in  the  business  of  fire  insurance. 

To  constitute  "fire"  within  the  meaning  of  a  policy  of  fire  in- 
surance, two  requisites  are  necessary.  First,  there  must  be  actual 
ignition,  evidenced  by  a  flame,  glow,  or  scmething  resembling 
luminosity.  Second,  the  fire  must  be,  so  far  as  the  insured  is  con- 
cerned, accidental  in  its  orip^in.  Hence  a  fire  in  a  stove,  grate  or 
furnace,  no  matter  how  intense  it  may  become,  or  the  flame  of  a 
lamp,  oil  stove  or  gas  jet,  no  matter  how  high  it  may  rise,  so  long 
as  it  is  confined  to  the  place  where  it  is  intended  to  be,  is  not  a  fire 
within  the  meaning  of  the  contract.  A  fire  of  this  character  is 
denominated  "friendly"  as  distinguished  from  ''hostile,"  and  any 


What  is  a  Fire  Loss? 

loss  caused  by  smoke,  heat  or  soot  from  such  fire,  or  by  the  burning 
of  property  therein,  is  not  covered  by  the  pohcy. 

If,  however,  such  friendly  fire  extends  beyond  the  place  in- 
tended and  provided  for  it,  and  causes  ignition  outside  its  proper 
limit's,  there  is  at  once  an  independent  fire,  fortuitous  in  its  origin, 
and  hostile  in  its  nature,  and  any  loss  resulting  therefrom,  whether 
hy  direct  burning,  smoke  or  heat,  comes  within  the  protection  of 
the  policy. 

A  contract  of  fire  insurance  differs  from  ordinary  contracts 
in  that  it  is  based  upon  an  event  which  is  possible  or  liable,  bul  not 
certain,  to  occur.  Its  very  essence  is  embodied  in  the  words 
"casualty,"  "accident,"  "chance,"  "contingency."  The  insurer 
undertakes,  for  a  comparatively  small  premium,  to  guarantee  the 
irhsured  against  loss  upon  the  happening 'of  a  certain  event,  and  the 
contract  implies  the  utmost  good  faith.  If,  therefore,  the  insured 
intentionally  sets  fire  to  his  property  he  thereby  violates  the  essen- 
tial principle  of  the  contract,  and  even  in  the  absence  of  a  special 
stipulation,  there  can  be  no  recovery.  And  it  is  not  necessary  that 
any  indictable  offense  be  shown  in  order  to  prevent  recovery  for 
the  wilful  burning  of  the  property. 

SCHMIDT  V.  NEW  YORK,  etc,  INS.  CO., 
1  Gray  (Mass.)  529. 

Recently  a  man  was  tried  on  the  charge  of  having  wilfully  set 
fire  to  his  property.  The  jury  disagreed  by  reason  of  the  fact  that 
the  accused  on  the  stand,  evidently  upon  the  advice  of  counsel,  made 
the  remarkable  statement  that  he  had  no  motive  for  burning  the 
property  because  the  premises  had  been  vacant  for  more  than  thirty 
days,  and  therefore  his  insurance  policy,  which  was  for  several 
thousand  dollars,  was  null  and  void. 

Where,  as  in  some  of  the  older  forms,  the  policy  contained  a 
stipulation  that  the  company  would  be  discharged  from  the  pay- 
ment of  loss  caused  by  gross  negligence,  and  it  having  been  proved 
at  the  trial  of  the  case  that  the  fire  did  occui  from  such  cause,  the 
insurer  was  not  held. 

CAMPBELI.  V.  MONMOUTH  MUT.  FIRE  INS.  CO.. 
59  Me.  430;  5  Bennett  395. 

The  general  rule  is  that  carelessness  or  negligence  of  the  in- 
sured, his  agents  and  servants,  m  the  abstjlice  uf  a  special  stipu^ 
lation,  attords  no  defense.     Aside  from  the  difficulties  in  the  way 
of  determining  the  degree  of  negligence  which  would  be  sufficient 

251 


The  Fire  Insurance  Contract 

to  cause  forfeiture,  negligence  is  a  well  known  human  character- 
istic, and  a  different  rule  would  practically  defeat  the  chief  purpose 
of  insurance. 

WATERS  V.  MERCHANTS'  LOUISVILLE  INS.  CO, 
11  Pet.  (U.  S.)  213;  1  Bennett  615. 

On  the  other  hand  there  is  good  authority  in  favor  of  the 
doctrine  that  ^rave  misconduct  on  the  part  of  the  insured  or  his 
responsible  agent  of  so  pronounced  a  character  as  to  evince  a 
fraudulent  purpose,  a  corrupt  design,  or  a  culpable  recklessness^ 
and  indifference  to  the  rights  of  others,  or  the  omission  to  do  that 
which  good  faith  requires  that  he  should  do,  would  warrant  n 
verdict  excusing  the  insurer  from  liability.  For  instance,  if  the 
premises  should  take  tire  and  the  flame  begin  to  kindle  in  such 
a  small  way  that  a  cup  of  water  would  put  it  out,  and  the  insured 
having  water  at  hand  should  neglect  to  use  it;  or  where  the  in- 
sured, in  his  own  house,  sees  the  burning  coals  in  the  fire  place 
roll  down  on  his  wooden  floor,  and  does  not  brush  them  up ;  oi 
if  the  insured  not  only  neglects  to  save  the  property  himself  but 
attempts  to  prevent  others  from  saving  it,  the  loss  has  been  held 
to  fall  upon  the  insured  and  not  upon  the  insurer. 

THORNTON  v.  SECURITY  INS.  CO., 

(C.  C.)   117  Fed.  m. 

CHANDLER  v.  WORCESTER  MUT.  FIRE  INS.  CO., 

3  Cush.   (Mass.)  328. 

ELLSWORTH  et  al.  v.  AETNA  INS.  CO., 

89  N.  Y.  186. 

FLEISCH  V.  INS.  CO.  OF  N.  AM., 

56  Mo.  App.  596. 

AURORA  FIRE  INS.  CO.  v.  JOHNSON, 

46  Ind.  315-326. 

CIN.  MUT.  INS.  CO.  V.  MAY, 

20  Ohio  211. 

OSTRANDER  ON  INS. 

There   is  quite   a   conspicuous  absence  of   consistency   in  the 

decisions  bearing  on  this  question.     For  example,  the  insured,  the 

owner  of  a  ste-^-mboat,  while  racing  with  another  boat  placed  a 

barrel  of   turpentine  near  the   opening  in  the   furnace,   intending 

to  use  it  for  fuel,  and  as  a  consequence  the  steamer  was  destroyed 

by  fire.     His  conduct  was  not  wilful,  yet  the  Court  held  that  there 

could  be  no  recovery.     (Citizens  Ins.  Co.  v.  Marsh,  41  Pa.  St.  386.) 

On  the  other  hand,  where  an  ice  house  was  destroyed  by  the  spread 

of  a  fire  which  had  been  made  by  the  president  of  the  plaintiff 

corporation,  not  far  from  the  building,  for  the  purpose  of  burning 

some  rubbish,  and  which  had  been  left  burning  without  any  one  to 

watch  it  during  the  noon  hour,  the  insurer  was  held  liable. 

252 


What  is  a  Fire  Loss? 

DES  MOINES  ICE  CO.  v.  NIAGARA  FIRE  INS.  CO., 
99  Iowa  193;  68  N.  W.  600. 

Every  insurance  company  has  numerous  instances  each  year 
where  negHgence  is  quite  as  pronounced  as  in  either  of  the  above 
cases,  and  no  one  in  these  days  ever  thinks  of  contesting  them.  It 
is  probably  no_^xaggeration  to  say  that  a  majority  of  all  the  fire 
losses  which  occur  are  directly  chargeable  to  negligence  of  some 
kind  on  the  part  of  the  insured,  his  agents  or  servants. 

The  New  York  standard  policy  contains  a  condition  making  it 
incumbent  upon  the  insured  to  use  all  reasonable  means  to  save 
and  preserve  the  property  at  and  after  a  fire,  or  .when  the  property 
is  endangered  by  fire  in  neighboring  premises,  although  it  has  been 
held  that  such  a  provision  does  not  impose  any  additional  duty 
upon  the  insured  because  it  is  clearly  his  duty  to  do  this  without 
any  express  provision  in  the  policy.  (Cincinnati  Mut.  Ins.  Co.  vs. 
May  20  Ohio  211,  (supra)  Gardere  vs.  Columbian  Ins.  Co.  7  Johns 
R.  514  (N.  Y.)  It  is,  however,  the  almost  universal  custom  for  the 
insured^  his  man  servants,  his  maid  servants,  and  everybody  else, 
to  lose  their  heads  in  the  presence  of  fire,  and  do  those  things  which 
they  sTiould  not  do,  and  leave  undone  those  things  which  they  should 
do,  and  although  there  are  a  few  cases  on  record  of  such  a  flagrant 
nature  that  the  insurers  were  excused  (supra),  it  is  seldom  that  a 
case  of  misfeasance  or  nonfeasance  occurs  sufficiently  pronounced 
to  induce  a  jury  to  exempt  the  insurers  from  liability. 

Tf^e  insured  biirn<;  his  property  while  insane,  his  irrespon- 
sible act  i<^  nr*  ^^r  ^^^jecovery^  (Karow  vs.  Continental  Ins.  Co. 
ST^mise;  15  N.  W.  27;  46  Am.  Rep.  17).  The  act  of  a  third 
party  in  setting  fire  to  the  property  whether  unintentional,  careless 
or  criminal,  or  that  of  an  agent  of  the  insured  while  acting  outside 
the  scope  of  his  authority,  will  not  relieve  the  insurer  from  liability 
unless  the  burning  was  with  the  privity  or  consent  of  the  insuST 
Likewise,  the  intentional  burning  of  the  property  of  the  husband 
by  the  wife,  or  that  of  the  wife  by  the  husband,  or  that  of  the  father  j 
by  the  son  will  afford  no  defense  to  the  insurer. 

WALKER  V.  PHOENIX  INS.  CO., 

62  Mo.  App.  209. 

MICKEY  V.  BURLINGTON  INS.  CO., 

35  la.  174. 

GOVE  V.  INS.  CO.. 

48  N.  H.  41. 

PERRY  V.  MECHANICS  INS.  CO., 

11  Fed.  485. 

PLINSKY  V.  GERMANIA  INS.  CO., 

32  Fed.  47. 

253 


The  Fire  Insurance  Contract 

feibelman  v.  manchester  assurance  co. 

108  Ala.  180. 

HENDERSON  v.  WESTERN  INS.  CO., 

10  Rob.  (La.)  164. 

MAUN  V.  MERCANTILE  TOWN  MUT.  INS.  CO., 

105  Mo.  App.  625.     Richards  on  Ins. 

There  is  on  record  a  foreign  case  where  a  piece  of  jewelry 
was  accidentally  knocked  from  a  mantel  piece  into  the  fire  below 
and  it  was  held  to  be  a  direct  loss  by  fire.  (Paris  Law  Courts,  22 
Irish  Laws  and  Solicitors,  Jl.  169).  It  is  submitted  that  this  ruling 
is  unsound.  It  is  true  the  fall  of  the  jewelry  was  accidental,  and  it 
dropped  into  a  place  where  it  was  not  intended  to  be.  The  fire, 
however,  was  not  accidental,  and  remained  where  it  was  voluntarily 
placed.  It  was  a  friendly  fire  performing  its  duty  as  such,  and  it  did 
not  become  any  the  less  friendly  or  acquire  any  of  the  elements 
of  a  hostile  fire  because  a  piece  of  more  than  ordinarily  expensive 
and  less  combustible  fuel  was  added  to  the  flames.  No  independent 
hostile  fire  was  created,  any  more  than  one  would  be  by  the  throw- 
ing into  the  grate  of  another  piece  of  wood  or  shovelful  of  coal. 
The  fire  itself  rnust  be  ac_cidental_in  order  to  bring  the  loss  within 
the  protection  oi  the  policy?  "" 

Some  analogy  may  be  drawn  between  those  cases  where 
jewelry  and  other  articles  fall  or  are  inadvertently  thrown  into  a 
grate  or  furnace,  and  the  familiar  and  frequent  ones  where  cloth- 
ing falls  upon  a  red  hot  stove,  or  where  a  lace  curtain  blows  or  is 
pushed  against  a  gas  jet.  The  analogy  is  slight  and  ends  with  the 
I  accident  nature  of  the  contact.  When  the  clothing  touches  the 
!  stove,  or  the  curtain  the  gas  jet,  anqther ^fii£_i^started,  entirely 
of  that  in  the  stove  or  the  gas  burner.  The  second  fire 
is  hostile,  and  not  being  confined  to  the  limits  within 
which  fire  is  intended  to  be,  the  loss  is  one  for  which  the  insurer  is 
liable. 

Where  the  heat_  from  escaping  steam  is  so  g^reat  as  to  cause 
charring,  but  without  ignition,  there  is  no  loss  within  the  meaning 
of  the  policj^.  (Gibbons  vs.  German  Ins.  &  Sav.  Inst.  30  111.  App. 
"263).  Although  certain  chemical  actions  may  correspond  in  their 
effects  to  fire,  they  do  not  constitute  fire  unless  they  result  in  actual 
ignition.  Mere  combustion  will  not  support  a  claim  for  loss  by 
fire,  unless  it  is  sufficiently  rapid  to  produce  ignition.  (Western 
Woolen  Mills  Co.  vs.  Northern  Assurance  Co.  139  Fed.  637;  72 
U.  S.  C.  C.  A.  1).  Although  lightning  may  be  a  form  of  fire,  loss 
caused  by  \ighimxig^,mthgut^^tu^[j^^ 

254 


What  is  a  Fire  Loss? 

meaning  of  the  words,  a  loss  by  fire;  but  a  "lightning  clause"  may 
be,  and  usually  is,  attached  to  the  policy. 

The  ablest  and  most  interesting  exposition  of  the  question  as 
to  what  is  meant  by  "fire"  within  the  meaning  of  a  contract  of  fire 
insurance  is  that  contained  in  the  opinion  of  the  United  States 
Circuit  Court  of  Appeals,  8th  Circuit,  in  the  case  of  Western  Woolen 
Mills  Co.  vs.  Northern  Assurance  Co.  139  Fed.  Rep.  637,  92  U.  S. 
C.  C.  A.  p.  1  which  may  be  briefly  stated  as  follows:  A  large 
quantity  of  wool  in  fleeces  was  submerged  for  eight  days  during  a 
flood,  which  caused  spontaneous  combustion,  with  smoke,  steam  and 
great  heat  by  which  the  wool  was  damaged  and  its  fibre  destroyed. 
The  building  did  not  burn,  nor  did  any  part  of  it.  The  wool  was 
spread  to  dry  and  was  stirred  with  pitch  forks  day  and  night,  as  it 
was  too  hot  for  handling,  though  not  hot  enough  to  blister  one's 
hands.  The  wool  was  at  all  times  wet,  but  at  no  time  was  there  any 
visible  evidence  of  what  is  popularly  known  as  fire. 

The  Court  said,  "Spontaneous  combustion  is  usually  a  rapid 
oxidation.  Fire  is  oxidation  which  is  so  rapid  as  to  either  produce 
flame  or  a  glow!  Fire  is  always  caused  by  combustion,  but  com- 
bustion does  not  always  cause  fire.  The  word  "spontaneous"  re- 
fers to  the  origin  of  the  combustion.  It  means  the  internal  develop- 
ment of  heat  without  the  action  of  an  external  agent.  Combustion 
or  spontaneous  combustion  may  be  so  rapid  as  to  produce  fire,  but  | 
until  it  does  so,  combustion  cannot  be  said  to  be  fire." 

"No  definition  oFfire  can  be  found. that  does  not  include  the  | 
idea  of  visible  heat  or  light,  and  this  is  also  the  popular  meanigg  l 
of  the  word.  The  slow  decomposition  of. animal  and  vegetable 
matter  in  the  air  is  caused  by  combustion.  Combustion  keeps  up 
the  animal  heat  in  the  body.  It  causes  the  wheat  to  heat  in  the  bin 
and  in  the  stack.  It  causes  hay  in  the  stack  and  in  the  mow  of 
the  barn  to  heat  and  decompose.  It  causes  the  sound  tree  of  the 
forest,  when  thrown  to  the  ground,  in  the  course  of  years  to  decay 
and  molder  away  until  it  becomes  again  a  part  of  Mother  Earth. 
Still  we  never  speak  of  these  processes  as  fire.  And  why?  Be- 
cause the  process  of  oxidation  is  so  slow  that  it  does  not  produce 
a  flame  or  glow."  Held  that  the  loss  was  not  the  result  of  fire  within 
the  meaning  of  the  contract. 

The  above  opinion  was  rendered  by  one  of  the  highest  courts 
in  the  land,  after  careful  study  and  consideration  of  the  testimony 
of  a  large  number  of  scientific  experts,  yet  a  Kansas  judge,  in 
another  case  in  the  State  Court  growing  out  of  the  same  fire,  had 

255 


The  Fire  Insurance  Contract 

such  an  exalted  opinion  of  the  intelhgence  of  a  Kansas  jury  that 
he  deemed  it  unnecessary  to  give  any  definition  of  what  constitutes 
"fire,"  and  the  jury,  as  was  to  be  expected,  proceeded  to  show  its 
entire  ignorance  of  the  subject  by  rendering  the  customary  insur- 
ance verdict,  which  the  divided  higher  court,  in  a  semi-apologetic 
opinion,  refused  to  disturb. 

WESTERN  WOOLEN  MILLS  CO.  v.  SUN  INSURANCE  OFFICE, 
72  Kan.  48;  82  Pac.  Rep.  513. 

In  a  case  where  the  building  was  heated  by  steam,  which  by 
the  breaking  of  a  pipe  escaped  into  a  room,  damaging  books  and 
furniture  and  causing  such  intense  heat  as  to  result  in  charring 
and  otherwise  severely  damaging  the  contents  of  the  room,  the 
Illinois  Appellate  Court  said :  "Fire  and  heat  are  not  one,  but  cause 
and  effect.  Damage  by  heat  is  not  insured  against  in  terms,  and 
is  covered  by  the  policy  only  where  the  misplaced  fire  causes  it.  If 
fire  were  a  moral  agent,  no  blame  could  be  imputed  to  it.  It  was 
doing  its  duty,  and  nothing  more.  The  damage  was  caused  by 
another  agent,  who,  undertaking  to  transmit  the  beneficial  influ- 
ence of  the  fire,  broke  down  in  the  task.  The  common  understand- 
(ing  of  the  word  "fire"  would  never  include  heat,  shoiLnLthedegree 
of  ignition." 

GIBBONS  V.  GERMAN  INS.  &  SAV.  INST., 
30  111.  App.  263. 

Perhaps  the  most  famous  and  the  most  frequently  quoted 
decision  bearing  on  this  subject  is  that  in  the  English  case  of  Austin 
vs.  Drewe,  decided  in  1816  (4  Campbell  360;  6  Taunt  436).  The 
property  covered  was  the  stock  and  utensils  in  a  sugar  house.  The 
building  was  eight  stories  in  height,  and  in  each  story  sugar,  in  a 
certain  stage  of  preparation,  was  deposited  for  the  purpose  of  being 
refined;  this  required  a  certain  degree  of  heat,  and  this  was  com- 
municated to  each  story  by  a  chimney  running  up  through  the  whole 
building  and  forming  almost  one  side  thereof.  At  the  top  of  the 
chimney,  above  the  eight  stories,  was  a  register,  which  the  plaintiffs 
used  to  shut  at  night  in  order  to  retain  in  the  chimney  and  building 
all  the  heat  they  could.  One  morning  a  servant  neglected  to  open 
the  register,  and  shortly  afterward  it  was  discovered  that  sparks 
and  smoke  had  gotten  into  the  rooms;  that  heat  had  slightly 
blistered  the  walls  and  accidentally  discolored  and  damaged  the 
sugars.  There  was  no  fire  In  the  building  that  ought  not  to  be  there ; 
nothing  was  on  fire  that  ought  not  to  be  on  fire;  the  damage  was 
occasioned  by  sparks,  heat  and  smoke.  The  jury  found  for  the 
defendant,  and  the  verdict  was  sustained  on  appeal,  the  Court  hold- 

256 


What  is  a  Fire  Loss? 

Ing  that  the  loss  was  occasioned  by  the  unskillful  management  of  the 
machinery  and  register  by  the  plaintiff's  own  servants;  that  it  was 
not  caused  by  fire  within  the  meaning  of  the  policy,  and  the  in- 
surer was  not  liable. 

The  smoking  lamp  figures  quite  extensively  in  the  experience 
of  every  fire  insurance  adjuster,  but  all  the  decisions  which  have 
been  rendered  in  cases  of  this  nature  are  in  favor  of  the  insurer. 
Two  cases  which  may  be  mentioned  as  directly  in  point  are  Fitz- 
gerald vs.  German  Amer.  Ins.  Co.  (62  N.  Y.  Supp.  824;  30  N.  Y. 
Misc.'  72)  and  Samuels  vs.  Continental  Ins.  Co.  (2  Pa.  Dist.  Ct. 
397).  The  former  was  an  ordinary  smoking  lamp  damage,  there 
being  no  fire  outside  the  lamp  itself.  In  reversing  a  judgment  for 
the  plaintiff  the  Court  said:  "The  rule  seems  to  be  that  where  the 
insured  employs  fire  for  economic  or  scientific  purposes,  and  the 
fire  is  confined  to  the  agencies  so  employed,  and  damage  ensues, 
without  any  actual  ignition  to  the  property  insured,  the  insurance 
company  is  not  liable."  The  latter  case  was  an  extraordinary 
smoking  lamp  damage,  the  flame  having  risen  two  or  three  feet 
above  the  chimney,  but  it  ignited  nothing  outside  the  lamp.  Held, 
that  the  insurer  was  not  liable. 

This  doctrine  is  eminently  sound,  and  if  it  were  otherwise, 
there  would  be  no  escape  from  liability  on  the  part  of  insurance 
companies,  for  the  expense  of  redecorating  tens  of  thousands  of 
ceilings  in  dwelling  houses  alone  which  are  blackened  or  otherwise 
discolored  each  year  by  smoking  gas  jets,  which  expense  would 
almost,  if  not  entirely,  absorb  the  modest  premiums  collected  on 
that  class  of  property. 

In  Massachusetts,  claim  was  made  for  damage  to  walls  and 
furnishings  by  smoke  from  burning  soot  in  a  chimney.  There  was 
no  fire  except  in  the  stove  and  in  the  chimney.  The  Court  seems 
to  have  had  some  difficulty  in  reaching  a  conclusion,  but  finally 
decided,  and  rightly,  that  the  blaze  in  the  chimney  was  a  hostile 
fire  independent  of  the  friendly  fire  in  the  stove,  and  that  the  in- 
surer was  liable,  using  the  following  language :  "A  chimney  is  not 
intended  to  be  used  as  a  place  in  which  to  kindle  fires.  It  is  in- 
tended to  carry  off  the  products  of  combustion.  We  are  inclined 
to  the  opinion  that  a  distinction  should  be  made  between  a  fire 
intentionally  lighted  and  maintained  for  a  useful  purpose  in  con- 
nection with  the  occupation  of  a  building,  and  a  fire  which  starts 
from  such  a  fire  without  human  agency,  in  a  place  where  fires  are 
never  lighted  nor  maintained,  although  such  ignition  may  naturally 

257 


The  Fire  Insurance  Contract 

be  expected  to  occur  as  an  incident  to  the  maintenance  of  necessary- 
fires,  and  although  the  place  where  it  occurs  is  constructed  with 
a  view  to  prevent  damage  from  such  ignition." 

WAY  V.  ABINGTON  MUT.  FIRE  INS.  CO, 
166  Mass.  67;  43  N.  E.  1032. 

By  parity  of  reasoning,  although  the  insurer  would  not  be 
liable  for  loss  caused  by  smoke  and  soot  from  a  lamp  or  an  oil  stove, 
so  long  as  the  flame  is  confined  to  the  wick,  no  matter  to  what 
height  it  may  extend,  yet  if  it  gets  outside  of  the  wick  and  envelops 
the  lamp  or  stove  itself,  the  insurer  would  be  liable  for  the  ensuing 
loss,  for  the  reason  that  the  fire  then  gets  outside  of  the  place  where 
it  is  intentionally  lighted,  loses  its  friendly  nature,  and  becomes 
hostile. 

A  case  bearing  directly  on  this  point  is  that  of  Collins  vs. 
Delaware  Ins.  Co.  (9  Pa.  Super.  Ct.  576).  The  damage  was  caused 
by  fire  in  an  oil  stove,  and  it  was  left  to  the  jury  to  determine  from 
the  conflicting  testimony  whether  the  fire  was  confined  to  the  wick 
or  spread  to  the  oil  reservoir.  The  verdict  was  for  the  plaintiff, 
the  Court  having  charged  the  jury  that  if  the  loss  was  due  to  smoke 
or  heat  caused  by  fire  while  in  its  proper  place  in  the  stove,  the  in- 
surer would  not  be  liable,  but  that  if  the  loss  was  caused  by  a  fire 
outside  its  proper  place  they  should  find  for  the  plaintiff. 

A  case  differing  in  an  essential  particular  from  that  of  Way 
vs.  Abingtqn  Mut.  Fire  Ins.  Co.  (supra),  but  possessing  some  points 
in  common,  is  that  of  Cannon  v.  Phoenix  Ins.  Co.  (110  Ga.  562). 
The  policy  covered  on  a  stock  of  dry  goods,  hats  and  clothing.  A 
stove  pipe  became  disconnected  at  the  ceiling,  and  when  a  fire  was 
built  in  the  stove,  the  smoke  and  soot  damaged  the  goods  in  the 
upper  story  to  the  extent  of  several  thousand  dollars.  Water  was 
used  quite  freely  to  cool  the  ceiling,  but  there  was  no  evidence  that 
there  was  any  fire  except  in  the  stove  where  it  was  intended  to  lie. 
Held,  that  the  insurer  was  not  liable. 

The  insurer  is  not  liable  for  damage  caused  by  an  exploding 

steam  boiler,  where  there  was  no  fire  except  under  the  boiler;  nor 

for  damage  to  a  boiler  by  overheating  from  regular  furnace  fires, 

owing  to  the  absence  of  water  in  the  boiler. 

MILLANDON  v.  NEW  ORLEANS  INS.  CO., 
4  La.  Ann.  15. 

AMERICAN  TOWING  CO.  v.  GERMAN  FIRE  INS.  CO., 
74  Md.  25;  21  Atl.  553. 

Recently,    in    Pennsylvania,    a    large    manufacturing    concern 

after  having  its  furnace  cleaned,  had  kindling  placed  therein  pre- 

258 


What  is  a  Fire  Loss? 

paratory  to  getting  up  steam  when  the  factory  opened  for  business 
the  following  morning.  The  water  had  been  drawn  off  from  the 
boiler,  and  the  manhole  left  open.  It  was  claimed  that  a  stranger, 
or  some  one  who  had  no  right  to  do  so,  set  fire  to  the  kindling,  which 
resulted  in  a  damage  of  several  hundred  dollars  to  the  boiler  and 
setting.  The  claim  rightly  or  wrongly  was  allowed  on  the  theory 
that  with  respect  to  the  insured  the  fire  was  hostile,  for  the  reason 
that  although  a  furnace  is  ordinarily  intended  to  hold  fire,  it  not 
intended  that  a  fire  which  needs  watching  should  be  lighted  indis- 
criminately by  strangers  at  any  time,  and  certainly  not  irrespective 
of  conditions.  If  this  fire  had  been  lighted  by  the  insured  or  any 
one  of  his  employees  while  acting  within  the  scope  of  his  authority, 
the  claim  would  not  have  been  recognized,  notwithstanding  the  fact 
that  the  boiler  was  not  in  condition  to  withstand  the  effects  of  the 
fire. 

A  decision  directly  in  point  has  just  been  handed  down  by  the 
Supreme  Court  of  Kansas  in  the  case  of  McGraw,  Trustee,  vs. 
Home  Insurance  Company.  It  was  alleged  that  some  unknown 
person  gained  entrance  to  the  laundry,  drained  the  boiler,  turned 
on  the  natural  gas,  kept  the  fire  going  until  the  boiler  was 
destroyed  and  then  turned  off  the  gas  and  retired  from  the 
building.  The  court  while  admitting  that  under  such  a  state  of 
facts  the  fire  would  doubtless  be  regarded  as  hostile  and  the  insurer 
held  liable,  concluded  that  the  theory  advanced  presented  features 
of  such  inherent  improbability  that  it  ought  not  to  be  adopted  ex- 
cept upon  evidence  tending  to  exclude  any  more  reasonable 
hypothesis.  As  no  such  evidence  was  presented  the  court  decided 
that  an  inference  of  malicious  injury  by  an  outsider  was  not  fairly 
deducible,  and  held  that  the  insurer  was  not  liable  (45  Ins.  Law 
Jour.  193).     144  Pac.  Rep.  821.    ' 

Where  the  insured  places  anything  on  a  stove  for  the  purpose 
of  cooking,  heating  or  warming,  and  the  stove  becomes  over-heated, 
causing  the  article  to  become  charred  and  give  off  an  oily  or  greasy 
srnoke  which  damages  the  buildinp^  and  contents^  it  has  he.^.p  he]r\. 
that  the  insurer  is  not  liable. 

There  is  but  one  discordant  note  to  mar  the  harmony  of  these 
decisions,  and  that  comes  from  Wisconsin.  A  servant  built  a  fire 
in  the  furnace  with  paper  and  cannel  coal,  not  used. or  intended  to 
be  used  for  such  purpose,  and  in  a  short  time  the  fire,  which  was 
confined  to  the  furnace,  became  so  violent  as  to  fill  the  house  with 
smoke,  soot  and  intense  heat,   resulting  in  a  damage  of   several 

259 


The  Fire  Insurance  Contract 

hundred  dollars  to  the  property.  The  Wisconsin  Supreme  Court, 
one  justice  dissenting,  held  that  the  fire  was  extraordinary  and  un- 
usual, unsuitable  for  the  purpose  intended,  and  in  a  measure  un- 
controllable, besides  being  inherently  dangerous  because  of  the 
material  used.  The  fire  was  accordingly  declared  hostile  within  the 
contemplation  of  the  policy,  and  the  insurer  held  liable. 

O'CONNOR  V.  QUEEN  INS-  CO, 
140  Wis.  388. 

This  is  the  only  court  which  has  varied  from  the  time-honored 
principle  that  thp  ^f|<;^irpr  i<;  nnt  liable  for  loss  caused  by  a  so-called 
friendly  fire.  There  was  a  strong  dissenting  opinion,  but  the  fire 
Tnthe  furnace  was  so  unusual  and  the  -heat  so  intense  that  the 
majority  of  the  court  could  not,  apparently,  refrain  from  arguing 
itself  into  the  belief  that  it  had  lost  its  friendly  nature  and  should 
be  regarded  as  hostile. 

Singularly  enough,  no  claim  for  loss  by  heat  or  smoke  from  a 
bonfire  has  ever  been  before  the  courts  for  adjudication,  probably 
because  losses  of  this  nature  are  usually  small.  The  word  "bon- 
fire," viewed  in  the  light  of  its  possible  etymological  significance, 
seems  friendly,  but  whether  it  be  derived  from  the  French  or  not — 
and  this  is  open  to  question — a  bon-fire  is  anything  but  a  good  fire. 
Inasmuch,  however,  as'  the  civil  authorities,  fire  departments, 
property  owners  and  the  long  suffering  community  make  no  objec- 
tion to  these  fires  being  kindled,  and  put  forth  no  effort  to  extin- 
guish them,  this  may  be  taken  as  presumptive  evidence  that  they 
are  looked  upon  by  the  public  generally  as  friendly,  and  it  would 
certainly  seem  that  they  should  be  so  regarded,  at  least  with  respect 
to  those  who  intentionally  light  them,  if  not  with  respect  to  others. 

Although  the  insured  must  show  that  he  has  sustained  a  loss 
by  fire  within  the  meaning  of  the  policy  before  he  can  recover 
against  the  insurers,  it  is  not  necessary  for  him  to  show  that  the 
property  injured  has  actually  been  burned  by  the  fijre.  It  is 
cufficient  if  heproves  that  fire  was  the  proximate^  that  IS.  jjae 
dominant,  etticient  cause  of  the  loss.  For  example,  the  insurer  is 
liable  for  damage  by  smoke,  by  water  used  to  extinguish  the  fire, 
by  the  operations  of  firemen  and  others,  by  falling  walls,  by  ex- 
posure during  the  fire,  or  by  reasonable  removal;  also  damage  by 
explosion  when  explosion  is  caused  by  fire;  also  loss  by  theft,  or 
injury  caused  by  intentional  blowing  up  of  building  by  the  civil 
authorities  to  prevent  the  spread  of  a  conflagration,  unless  there  are 
express  stipulations  to  the  contrary  in  the  policy. 

260 


What  is  a  Fire  Loss? 

Damage  caused  by  a  fire  engine  on  its  way  to  a  fire  is  not  a 
loss  coming  under  the  protection  of  the  policy;  (Foster  vs  Fidelity 
Ins.  Co.  24  Pa.  S.  Ct.  585)  ;  nor  damage  caused  by  a  fire  department 
which  breaks  into  a  building  under  the  mistaken  assumption  thai 
a_fire  is  in  progress;  but  Josses  of  the  latter  description  are  usually 
smail  and  there  is  a  general  inclination  on  the  part  of  the  insurers 
to  give  them  favorable  consideration. 

An  explosion  caused  by  an  explosive  substance  such  as  gun- 
powder coming  into  contact  with  fire  is,  strictly  speaking,  a  fire  of 
inconceivable  rapidity,  though  it  can  hardly  be  considered  fire  in 
the  popular  sense.  But  many  of  the  older  decisions  held  that  the 
ignition  of  gunpowder  constituted  fire  within  the  meaning  of  a 
policy  of  fire  insurance,  and  doubtless  on  account  of  these  decisions 
the  insurers  inserted  the  condition  exempting  themselves  from 
liability  for  loss  caused  by  the  explosion  of  gunpowder,  camphene, 
or  any  explosive  substance,  and  later  the  clause  as  it  appears  in  the 
standard  policy,  which  expressly  declares  that  the  company  shall 
not  be  liable  for  explosion  of  any  kind  unless  fire  ensues,  and  in  tha 
event,  for  the  damage  by  fire  only. 

The  most  famous  among  the  older  cases  bearing  on  this  subject 
is  that  of  Scripture  vs.  Lowell  Mut.  Fire  Ins.  Co.  decided  in  1852, 
10  Cush.  (Mass.)  356;  57  Am.  Dec.  111).  The  tenant's  minor  son 
carried  a  cask  of  gunpowder  into  the  attic  of  the  building  without 
plaintiif's  consent,  and  fired  it  with  a  match.  The  gunpowder  ex- 
ploded, set  fire  to  a  bed  and  clothing,  charred  and  stained  some 
woodwork  and  blew  oflf  the  roof  of  the  house.  The  Court  held 
that  the  entire  damage  by  combustion  and  explosion  was  covered 
by  the  policy. 

The  question  as  to  what  is  the  legal  test  of  the  existence  of 
causal  relation  is  one  concerning  which  there  is  a  great  diversity 
of  opinion.  Philosophers,  metaphysicians  and  logicians  for  cen- 
turies have  busied  themselves  with  the  subject;  the  philosophers 
and  logicians  differ  with  the  jurists,  and  the  jurists  differ  with  each 
other ;  and  in  no  branch  of  business  have  we  more  striking  or  more 
interesting  illustrations  than  in  that  of  fire  insurance. 

From    the   numerous    definitions    of    proximate    cause    which 
have  been  given,  the  following  is  taken  from  an  opinion  rendered 
by  our  highest  court :    "The  question  is  not  what  cause  was  nearest  / 
in  time  or  place  to  the  catastrophe.     That  is  not  the  meaning  of 
the  maxim,  causa  ^rojtimm  hon  fcmota  spectatur.    The  proximate , 
cause  is  the  efficient  cause^  the  one  that  necessarily  sets  thTothcrT 

261 


The  Fire  Insurance  Contract 

causes -i-fv-op€ ration.  The  causes  that  are  merely  incidental  or 
instruments  of  a  superior  or  controlling  agency  are  not  the  proxi- 
mate causes  and  the  responsible  ones,  though  they  may  be  nearer 
in  time  to  the  result.  It  is  only  when  the  causes  are  independent 
of  each  other  that  the  nearest  is,  of  course,  to  be  charged  with  the 
disaster.'^ 

THE  G.  R.  booth, 

171  U.  S.  450. 

One  of  the  most  celebrated  cases,  outside  of  insurance,  in- 
volving the  question  of  proximate  and  remote  cause,  is  one  recorded 
in  Blackstone  (2  Wm.  Blackstone  893;  3  Wilson  403)  which  is 
familiar  to  all  law  students,  that  of  Scott  v.  Shepherd,  familiarly 
known  as  the  "Squib  case."  Blackstone  dissented  and  the  majority 
of  the  Court  reached  their  conclusions  along  different  lines  of 
reasoning.  The  defendant,  a  lad,  threw  a  lighted  squib  or  serpent 
made  of  gunpowder,  from  the  street  into  the  market  house,  where  a 
large  concourse  of  people  were  assembled.  The  lighted  squib  fell 
upon  the  stand  of  one  Yates,  where  ginger  bread,  cakes  and  pies 
were  sold.  To  prevent  injury  to  himself  and  the  wares  of  Yates, 
one  Willis  instantly  took  up  the  squib  from  the  stand  and  threw  it 
across  the  market  house,  when  it  fell  upon  another  stand  of  one 
Ryal,  who  sold  the  same  sort  of  wares.  Ryal  Instantly  took  up  the 
squib  to  save  his  own  goods  and  threw  it  into  another  part  of  the 
market  house.  In  its  passage  it  struck  the  plaintiff  in  the  face, 
and  bursting,  put  out  one  of  his  eyes.  A  recovery  of  £100  by  the 
plaintiff  was  sustained  by  the  English  Court  of  Common  Pleas. 

This  seemingly  far  fetched  though  perhaps  logical  decision 
has  a  parallel  in  a  well  known  insurance  case,  to  wit :  Lynn  Gas  & 
Electric  Co.  vs.  Meriden  Fire  Ins.  Co.  158  Mass.  570,  33  N.  E. 
690,  29  L.  R.  A.  297,  35  Am.  St.  R.  540.  A  fire  occurred  in  the 
tower  of  a  building  through  which  electric  light  wires  were  carried. 
The  fire\vas  confined  to  the  tower,  and  the  damage  there  was  slight, 
but  it  caused  a  short  circuit  which  resulted  in  bringing  into  the 
dynamo  below  an  increase  of  electric  current.  This  caused  a  greater 
resistance  to  the  machinery,  which  was  transmitted  to  a  pulley 
through  a  belt  so  that  the  shock  destroyed  the  pulley.  By  the  de- 
struction of  that  pulley  the  main  shaft  was  disturbed  and  the  suc- 
ceeding pulleys  up  to  the  jack  pulley  were  ruptured.  By  reason  of 
pieces  flying  from  the  jack  pulley,  or  from  some  other  cause,  the 
fly  wheel  of  the  engine  was  destroyed,  the  governor  broken,  and 
everything  crushed.    This  general  disruption  occurred  in  a  part  of 

262 


What  is  a  Fire  Loss? 

the  building  remote  from  any  fire  and  the  Court  held  that  the  whole 
loss  was  by  fire  within  the  meaning  of  a  Massachusetts  standard 
policy. 

Both  of  the  foregoing  decisions  are  in  quite  striking  contrast 
to  that  rendered  by  the  New  York  Court  of  Appeals  in  the  familiar 
case  of  Ryan  v.  New  York  Central  &  Hudson  River  R.  R.  Co.,  35 
N,  Y.  210  (1866),  which  is  very  frequently  referred  to,  and  in  not 
particularly  complimentary  terms,  in  connection  with  the  question 
of  proximate  and  remote  cause.  The  Court,  actuated  to  a  great 
extent,  apparently,  by  considerations  of  public  policy,  ruled  in  sub- 
stance that  recovery  could  be  had  from  the  Railroad  Company  only 
for  the  burning  of  the  first  building  ignited,  and  that  it  made  no 
diflFerence  that  the  burning  of  the  second  building  was  a  probable 
consequence  of  the  burning  of  the  first.  This  view,  which  is  un- 
sound in  principle,  and  which  is  opposed  to  an  overwhelming  weight 
of  authority,  has  been  somewhat  modified  in  later  decisions  by  the 
Court  of  Appeals. 

HOFFMAN  V.  KING, 

53  N.  E.  401. 

WEBB  V.  R.  R., 

49  N.  Y.  420. 

The  same  strong  inclination  on  the  part  of  New  York's  high- 
est Court  to  discover  some  new  and  wholly  independent  cause 
intervening  between  the  original  cause  and  the  ultimate  effect,  as 
revealed  in  the  above  cases,  is  apparent  in  the  celebrated  insurance 
case  of  Hustace  vs.  Phenix  Ins.  Co.,  175  N.  Y.  292,  67  N.  E.  592, 
where  the  loss  was  caused  solely  by  concussion  due  to  an  explosion 
from  a  hostile  fire  in  the  Tarrant  Building,  fifty-six  feet  and  eleven 
inches  distant,  and  separated  from  it  by  two  buildings  and  an  alley- 
way. The  Court  of  Appeals  in  this  case,  one  Justice  dissenting, 
reversed  the  unanimous  decision  of  the  court  below  and  held  that 
the  loss  was  not  bv  fire  but  by  explosion,  and  that  the  insurer  was  _ 
noT  liable. 

This  decision  has  been  quite  severely  criticised,  but  it  seems  j 
to  be  in  entire  harmony  with  those  in  other  states  where  similar' 
conditions  have  been  under  consideration;  in  fact  there  does  not; 
appear  to  be  a  single  case  of  concussion  damage  on  record  where 
the  insurer  has  been  held  liable  under  the  standard  policy  or  under 
any  policy  containing  the  explosion  exemption  clause. 

But,  in  a  case  decided  by  the  United  States  Supreme  Court 
(Insurance  Co.  v.  Tweed,  7  Wall  (U.  S.)  44),  an  explosion  oc- 
curred in  a  certain  warehouse.     The  fire  which  followed  crossed 

263 


V 


The  Fire  Insurance  Contract 

the  street  and  communicated  to  a  mill,  and  from  there  to  the  ware- 
house containing  the  property  of  the  plaintiff.  The  Court  held  that 
there  was  no  intervening  cause;  that  the  explosion  was  the  proxi- 
mate cause  of  the  loss,  and  as  the  policy  contained  the  explosion 
exemption  clause  the  insurer  was  not  liable.  It  may  have  been  on 
account  of  this  decision  by  our  highest  court  that  the  words  "unless 
fire  ensues"  were  added  to  the  explosion  clause  in  the  modern  policy. 

There   is   some  conflict   in  the  authorities   upon   the   question 

whether,  under  a  policy  phrased  like  the  New  York  Standard,  an 

explosion  occurring  during  the  progress  of  a  fire,  should  be  treated 

as  a  mere  incident  of  the  fire,  the  latter  being  regarded  as  the 

efficient  cause  of  the  damage,  or  whether  the  explosion  should  be 

I    considered  proximate  in  reference  to  the  loss  caused  thereby,  and 

\    the  insurer  be  exempt  from  liability  for  such  damage  by  reason  of 

l(  the  exemption  clause  of  the  policy.    The  over-whelming  weight  of 

iauthority  is  to  the  effect  that  where  the  fire  occurs  in  the  property 

*^\described  in  the  policy,  and  an  explosion  takes  place  therein  during 

'  Ithe  progress  of  the  fire,   such  explosion  is  with  respect  to  such 

j  property  a  mere  incident  of  the  preceding  fire,  the  latter  being 

!  'treated  as  the  efficient  cause,  and  the  whole  loss  is  within  the  risk 

'  assumed,  although  the  policy  in  terms  excludes  liability  for  loss  by 

explosion. 

The  undoubted  intention  of  the  imderwriters  when  inserting 
'  the  explosion  provision,  w^as  not  so  much  for  the  purpose  of  exempt- 
ing themselves  from  liabiUty  for  loss  by  incidental  explosions  re- 
sulting from  raging  conflagrations  occurring  in  and  confined  to  the 
buildings  in  which  they  originate,  where  the  amount  of  the  explosion 
damage  is  practically  indeterminate,  bu^ jather  3^ith  the  view  of 
eliminating  claims  for  loss  by  explosions  resulting  from  sparks  or 
small  fires,  or  from  causes  which  are  in  fact  unknown,  but  which 
for  insurance  purposes  are  attributed  to  fire,  as  for  instance  the 
Washburn  mill  loss  in  Minneapolis  in  1878,  and  the  recent  Wheeler 
claim  in  Buffalo,  (Washburn  vs.  Insurance  Co.,  2  Fed.,  304;  29 
Fed.  Cas.,  308,  329,  330;  Wheeler  vs.  Phenix  Ins.  Co.,  41  Ins.  Law 
Journal,  247;  92  N.  E.  452).  In  fact,  the  intention  of  the  insurers 
was  to  exempt  themselves  from  liability  for  loss  by  explosion  of  any 
kind  including  those  caused  by  fire,  as  was  correctly  stated  by  the 
New  York  Court  of  Appeals  in  its  dictum  in  the  case  of  Briggs  vs. 
N.  B.  &  Mercantile  Insurance  Co.,  53  N.  Y.  446,  and  referred  to 
with  favor  by  the  same  Court  in  the  Hustace  case.    This  would,  of 

264 


What  is  a  Fire  Loss? 

course,  naturally  include  within  the  exception  loss  caused  by  con- 
cussion. 

Let  us  see,  therefore,  what  value,  if  any,  remains  in  the  ex- 
plosion exemption  clause  in  the  light  of  the  decisions  referred  to. 
If  the  loss  were  caused  by  explosion  not  preceded  by  a  hostile  fire, 
the*exception  would  be  unnecessary,  for  the  insurer  would  not  be 


IJablf.  even  if  thej)olicy  did  not  contain  such  a  provision.  It  will 
not  do  to  say  that  there  is  room  for  the  exception  because  explosions 
are  frequently  produced  by  flame,  as  by  a  lighted  match,  a  gas  jet, 
burning  lamp,  fire  in  a  furnace,  and  the  like;  in  short,  for  loss 
caused  by  a  friendly  fire,  because  the  insurer  would  not  be  liable  for 
loss  by  explosion  as  an  incident  of  such  a  fire,  any  more  than  it 
would  be  for  any  other  incidental  damage  resulting  therefrom,  even 
in  the  absence  of  the  exception.  Then  again,  inasmuch  as  concus- 
sion losses  in  neighboring  property  are  distinguished  from  those  in 
the  premises  where  the  fire  and  explosion  originate,  it  can  be  only, 
on  the  theory  that  the  concussion  of  the  air  due  to  the  explosion  is, 
with  respect  to  such  outside  property,  an  independent,  intervening 
cause  between  the  hostile  fire  and  the  final  effect,  and  if  this  be  true, 
then  the  explosion  or  concussion,  and  not  the  fire,  would  be  the 
proximate  and  efficient  cause,  and  the  insurer  would  not  be  liable 
even  if  there  were  no  exception.  The  fundamental  principle*;  imHpr- 
lying  friendly  fires  and  proximate  and  remote  cause  cannot  be 
:i^cfe(\  by  t^?  presence  or  absence  of  the  explosion  provision. 

There  is,  however,  an  intimation  in  the  decision  in  the  Hustace  . 
case  (supra)  which  was  one  involving  loss  by  concussion,  that  if  I 
it  were  not  for  the  exception  there  might  have  been  a  recovery  as  1; 
for  a  loss  by  fire,  but  this  declaration,  if  such  it  be,  amounts  to  an  I 
admission  that  the  explosion  or  concussion  is  not  an  intervening  | 
cause  but  an  inevitable  effect  and  a  mere  incident  of  the  fire.    Can  { 
it  be  possible  that  the  Court  intended  to  imply  that  the  proximity  j 
of  the  cause  can  shift  according  to  the  presence  or  absence  of  a    ' 
stipulation  in  the  policy  exempting  the  company  for  the  explosion 
loss?     And  yet,  the  suggestion  that  the  absence  of  the  explosion 
exemption  clause  might  have  imposed  a  liability  upon  the  insurer,  I 
seems  to  make  for  the  contention  that  what,  under  a  given  set  of 
circumstances,  will  be  deemed  to  be  the  proximate  cause,  will  vary 
with  the  introduction  or  omission  of  a  provision  inserted  for  the 
purpose  of  relieving  the  insurer  from  liability  for  a  certain  species 
of  risk  it  has  concluded  not  to  assume.     So  much  emphasis,  how-  i 
ever,  has  been  laid  upon  the  exemption  provision  in  the  decisions, 

265  / 


The  Fire  Insurance  Contract 

as  a  possible  controlling  factor,  that  it  is  perhaps  fortunate  for  the 

insurers  that  they  were  not  under  the  necessity  or  relying  entirely 

upon  the  principle  of  proximate  and  remote  cause  as  a  defense  in 

this  class  of  cases. 

But  where,  under  a  marine  policy  which  did  not  contain  an 

explosion    exemption    provision,    plaintiff's    vessel    was     insured 

against  fire,  and  a  fire  broke  out  under  freight  cars  loaded  with 

explosives,   which   exploded,   causing  another   fire,   which   in  turn 

caused  a  greater  explosion,   damaging  by  concussion,   the  vessel, 

about  one  thousand   feet  away,   it  was  held  that   plaintiff  could 

not   recover  on  the  policy  since  the  fire  was  not  the  proximate 

cause  of  the  damage,  viewed  within  the  reasonable  expectation  and 

purposes  of  the  ordinary  business  man  in  making  such  a  contract 

especially  in  view  of  the  distance  of  the  explosion  from  the  vessel. 

BIRD  V.  PAUL  F.  &  M.  INS.  CO.  (1818) 
Ins.  Law  Journal  52,  481;  120  N.  E.  Rep.  86. 

In  Louisiana  a  fire  broke  out  about  180  or  200  feet  distant  from 
the  property  of  plaintiff,  in  a  building  containing  a  quantity  of  gun- 
powder, and  in  about  thirty  minutes  the  gunpowder  exploded.  The 
explosion  produced  such  concussion  of  the  air  as  to  cause  a  damage 
of  about  $950.00  to  plaintiff's  property.  The  fire  continued  in  the 
town  for  forty-eight  hours,  but  did  not  reach  the  building  in  ques- 
tion, that  being  unharmed  except  from  the  concussion.  The  court 
which  discussed  the  question  at  considerable  length  and  apparently 
based  its  conclusion  upon  the  supposed  intent  of  the  contracting 
parties,  in  the  course  of  its  remarks  said:  "Perhaps  after  all,  it 
might  be  safe  here,  as  in  other  contracts,  to  inquire  whether  the  loss 
was  within  the  reasonable  intendment  of  the  parties  when  they  made 
the  contract.  Did  they  intend  by  an  insurance  against  fire  to  cover 
losses  arising  from  the  concussion  of  the  air  produced  by  an  ex- 
plosion of  gunpowder  upon  the  premises  of  other  persons  than  the 
insured?  We  think  such  an  extraordinary  result  could  not  have 
been  contemplated  by  the  parties.  We  do  not  think  insurance  com- 
panies  can  be  considered  responsible  for  the  consequences  of  the 
combustion  of  gunpowder,  unless  that  combustion  has  happened  in 
the  premises  insured,  or  the  gunpowder  is  itself,  with  other  mer- 
chandise, covered  by  the  policy." 

CABELLERO  v.  HOME  INS.  CO., 
15  La.  Ann.  517. 

In  Mitchell  vs.  Potomac  Ins.  Co.  183  U.  S.  42;  22  Sup.  Ct. 

22;  46  L.  Ed.  74,  plaintiff's  clerk  went  down  into  the  cellar  of  the 

store,  which  was  occupied  for  the  sale  of  stoves  and  tinware.     He 

266 


What  is  a  Fire  Loss? 

lit  a  niatch  because  it  was  dark,  and  the  lighted  match  came  in 
contact  with  the  vapor  of  gasoline  kept  in  the  cellar,  and  a  violent 
expl^^sion  at  once  followed,  causing  a  collapse  of  the  building.  It 
will  be  observed  that  this  was  a  ^T-i'pnHly  firp  and  the  Court  held 
that  the  loss  was  by  explosion,  and  that  fh^  in5;iirpH  rnnlH  not 
recover. 

Where  an  explosion  was  produced  by  the  lighting  of  a  match 
in  a  basement  filled  with  illuminating  gas,  and  goods  covered  by 
the  policy  were  damaged,  but  not  by  burning,  and  where  an  in- 
flammable and  explosive  vapor  evolved  in  the  course  of  the  process 
of  extracting  oil  from  shoddy  afterward  exploded,  causing  con- 
siderable damage,  it  was  held  that  the  insurers  were  not  liable. 

HEUER  V.  N.  W.  NAT.  INS.  CO. 
144  Ills   393 
STANLEY  V.  WESTERN  INS.  CO.. 
3  L.  R.  Ex.  71. 
-.  In  an  English  case  where  there  was  no  exception  in  the  policy, 
it  was  held  that  no  liability  attached  where  it  appeared  that  the 
damage  which  occurred  to  the  premises  was  occasioned  by  a  con- 
cussion of  a  large  quantity  of  gunpowder  at  a  magazine  about  half 
a  mile  distant. 

EVERETT  V.  LONDON  ASSURANCE  CORP., 
115  E.  C.  19  C.  B.  (N.  S.)  126. 

In  a  case  where  the  plaintiff's  prernises  adjoined  a  mill  which 

took  fire  and  shortly  after  exploded,  blowing  the  plaintiflf's  house 

oflF  its  foundation  and  almost  ruining  it,  it^^yas  |ield  that  the  in- 

Sjjrer_was  not  liable. 

MILLElTv.  LONDON  &  LANCASHIRE  INS.  CO.. 
41  III.  App.  395. 

In  German  Fire  Co.  vs.  Roost,  decided  by  the  Supreme  Court 

of  Ohio  (26  Ins.  Law  Journal,  699)  the  plaintiflf's  policy  contained 

the  usual  explosion  clause,  and  also  a  special  clause  insuring  against 

any  loss  or  damage  caused  by  lightning.    A  powder  house  situated 

across  the  street  seventy-one  feet  away,  was  struck  by  lightning; 

an  explosion  occurred  and  plaintiflf's  house  was  destroyed  by  the 

concussion.     It  was  held  that  the  plaintifif  could  not  recover;  and 

the  Court  said :  "In  no  case  which  has  come  within  our  observation 

— and  we  have  examined  a  great  many — has  a  liability  been  found 

to  attach  where  there  wns  a  pt'^visinn  excluding  liability  ^f}r  ]n^<;. 

bv  explosion  and  loss  was  caused  by  fire,  or  as  here,  by  lightning 

to  the  insured  property  by  an  explosion  produced  by  the  fire  or 
the  lightning  without  either  of  the  latter  agencies  coming  in  contact 
with  the  insured  property." 

267 


The  Fire  Insurance  Contract 

In  Hall  &  Hawkins  vs.  National  Fire  Ins.  Co.,  Tenn.  (35  Ins, 
Law  Journal  507)  a  fire  occurred  in  a  hardware  store  in  Knox- 
ville,  Tenn.,  and  ignited  powder  stored  therein.  A  tremendous  ex- 
plosion followed,  shaking  the  whole  city  and  the  country  for  miles 
around.  The  resultant  concussion  damaged  plaintiff's  stock  con- 
tained in  a  building  between  thirty  and  forty  feet  distant,  to  the  ex- 
tent of  several  thousand  dollars.  Held,  that  the  insurer  was  not 
liable. 

The  English  decisions  are  in  accord  with  the  American  de- 
cisions in  respect  of  these  concussion  damages,  and  although  they 
may  seem  to  be  in  conflict  with  the  oft  quoted  first  Baconian  maxim, 
it  is  evident  that  the  line  must  be  drawn  somewhere,  otherwise,  as 
was  said  by  Ryles,  J.,  in  an  English  case  (Everett  vs.  London  As- 
surance Co.  19  C.  B.  (N.  S.)  126)  if  a  ship  was  in  the  neighborhood 
of  Etna  or  Vesuvius  and  was  shaken  by  an  eruption,  that  Vi^ould 
be  a  damage  by  fire ;  or  if  a  gun  were  fired  off,  loaded  with  small 
shot,  among  crockery,  that  would  be  a  damage  by  fire;  or  it 
might  be  said  that  if  the  heat  of  the  sun  were  too  great,  that 
would  be  a  damage  by  fire. 

Where  an  adjoining  building  burned,  and  as  the  result  of 
fire  a  party  wall  fell  and  carried  with  it  the  partition  wall  and  part 
of  the  building  covered  by  the  insurance,  it  was  held  to  be  a 
direct  loss  by  fire. 

ERMENTROUT  v.  GIRARD  F.  &  M.  INS.  CO. 
63  Minn.  305;  65  N.  W.  635. 

Where  a  building  was  destroyed  by  fire,  leaving  some  of  the 
walls  standing,  and  two  days  thereafter  one  of  the  walls  fell,  damag- 
ing the  building  covered  by  the  insurance,  it  was  held  to  be  a  loss 
within  the  policy. 

SCOTTISH  COURT  OF  SESSIONS  7, 
Cases  in  Ct.  of  Sessions  52,  1  Bennett  259. 

Where,  for  a  week  after  a  fire  a  high  wind  prevailed  and  on 
ihe  seventh  day,  while  a  wind  amounting  to  a  gale  was  blowing,  a 
high  wall  belonging  to  the  burned  building  fell  over  on  to  the  ad- 
joining building,  crushing  its  roof  and  doing  considerable  damage, 
the  Court  sustained  the  finding  of  the  jury  that  fire  was  the  proxi- 
mate cause  of  the  loss,  and  therefore  covered  by  the  policy. 

RUSSELL  V.  GERMAN  FIRE  JNS.  CO.. 
(Minn.)  1907;  111  N.  W.  400. 

The  climax  in  this  line  of  decisions  (it  is  to  be  hoped)  was 

reached  in  an  Alabama  case  wLer^.  four  moa^hs  tdt^  a  fire,  the 

wall  of  an  adjoining  building  was  blown  over  on  to  the  building 

268 


What  is  a  Fire  Loss? 

occupied  by  the  insured,  during  a  high  windstorm,  and  the  Court 
left  it  to  the  jury  to  determine  whether  it  was  a 'direct  loss  by  lire 
and  whether  the  insured  was  guilty  of  negligence  in  not  moving 
the  goods  from  danger  in  accordance  with  the  provisions  of  the 
policy.  The  decision  was  in  favor  of  the  plaintiff.  If  the  line  of 
liability  could  not  be  drawn  at  four  months,  it  would  seem  that  in 
the  mind  of  the  Alabama  Court  there  would  be  no  point  in  the 
matter  of  time  at  which  the  Hne  could  be  drawn.  The  more  logi- 
cal and  reasonable  portion  of  this  decision  would  seem  to  be  found 
in  the  three  closing  words :    "Sayer,  J.,  dissents." 

WESTERN  ASSURANCE  COMPANY  v.  HANN, 
(1917)  51  Ins.  Law  Journal  648,  78  Sou.  Rep.  232. 
It  is  suggested,  however,  that  in  cases  of  this  character  the 
right  of  subrogation  might  be  of  value  to  the  insurer  against  the 
owner  of  a  building  who  permits  the  walls  to  remain  standing  for 
an  unreasonable  time  without  taking  proper  precautions  to  prevent 
their  falling. 

But  in  a  Georgia  case  it  was  held  that  damage  to  office  fixtures 
resulting  from  the  fall  of  the  building  twenty-five  days  after  the 
fire  was  not  covered,  the  building  having  in  the  meanwhile  been  re- 
pairedTand  heavy  rains  having  fallen  which^tended  to  weaken  the 
structure. 

CUESTA  V.  ROYAL  INS.  CO., 
98  Ga.  72.  27  S.  E.  172. 
In  the  absence  of  a  stipulation  in  the  policy  to  the  contrary,  the 
insurer  would  be  liable  for  loss  caused  by  the  destruction  of  prop- 
erty by  the  order  of  civil  authorities  to  prevent  the  spread  of  a 
conflagration,  and  the  point  is  well  argued  in  City  Fire  Ins.  Co.  vs. 
Codies  20  Wend,  (N.  Y.)  367.  The  standard  policy,  however,  con- 
tains a  special  provision  covering  this  contingency,  which  was  no 
doubt  prompted  by  this  and  kindred  decisions. 

Xhe-_weight  of  the  decisions  is  in  favor  of  the  doctrine  that 
not  only  loss  by  removal  but  also  for  the  expense  of  removal  is  a 
direct  loss  by  fire,  whether  the  building  containing  the  goods  be 
actually  on  fire  or  in  imminent  danger  of  burning,  even  without 
any  special  provision  in  the  policy.  Some  doubt,  however,  has  been 
expressed  with  respect  to  the  item  of  expense  unless  liability  there- 
for is  specifically  assumed. 

In  the  absence  of  conditions  to  the  contrary,  the  insurer  ^mder 
a  fire  insurance  policy  is  liable  ^r>|-  frnnA^  '^tolfn  during  a  fire,  but 

269 


/ 


The  Fire  Insurance  Contract 

the  standard  policy  and  others  in  current  use  contain  an  express 
provision  exempting  the  insurance  company  from  such  liabiUty. 

It  has  been  suggested  that  the  condition  making  the  poHcy  void 
if  the  insured  neglects  to  use  all  reasonable  means  to  preserve  the 
property  at  and  after  a  fire,  or  when  the  property  is  endangered  by 
fire  in  neighboring  premises,  and  the  condition  exempting  the  in- 
surer from  liability  for  loss  by  theft,  are  inconsistent  with  each 
other  and  that  the  latter  should  therefore  not  be  enforceable. 

In  support  of  this  view  the  argument  is  advanced  that  the 
eflfect  of  these  two  clauses  is  to  subject  the  property  to  a  risk  against 
which  the  insured  has  no  protection;  that  if  the  property  is 
negligently  lost  by  theft  no  clause  is  necessary;  and  as  property  is 
quite  likely  to  be  stolen  if  removed  from  a  building,  the  more 
efl^ectually  the  insured  complies  with  the  conditions  of  the  contract, 
the  more  eflFectually  he  diminishes  his  own  security.  But  a 
Missouri  court  which  held  the  insurer  liable  for  loss  by  theft  when 
the  policy  contained  no  exemption  provision,  sustained  the  validity 
of  the  provision  in  another  case,  and  in  a  most  remarkable  decis- 
ion brushed  aside  all  arguments  directed  against  the  alleged  incon- 
sistency in  the  two  conditions. 

WEBB  V.  PROTECTION  &  AETNA  INS.  CO.'s, 

14  Mo.  3;  3  Bennett  509. 

NEWMARK  V.  L.  &  L.  &  G.  INS.  CO.. 

30  Mo.  160;  4  Bennett  464. 

Eminent  authorities,  however,  hold  that  the  insurer  is  not  liable 
under  the  New  York  standard  policy  either  for  the  expense  of 
putting  out  a  fire  or  of  protecting  the  property  at  and  after  a  fire, 
and  there  are  several  decisions  supporting  this  view. 

HEBNER  v.  palatine  INS.  CO., 

157  111.  144—152. 

WELLS  V.  BOSTON  INS.  CO., 

6  Pick.  (Mass.)  182. 

RALLI  V.  TROOP, 

157  U.  S.  386—405. 

Except  where  it  is  otlierwise  specifically  provided,  theinsurer 
vvill  not  be  liable  for  fon^fqufnti'^^  dn^^f^^^,  such  as  loss  of  the  use 
^f  a  store  or  factory,  loss  of  rents,  the  incidental  loss  of  trade  and 
consequent  loss  of  prospective  profit,  these  being  regarded  as  too 
remote,  and  not  supposed  to  enter  into  the  calculation  of  the  con- 
tracting parties.  Thus  a  policy  on  a  bridge  does  not  cover  incidental 
loss  of  tolls  from  the  adjacent  turnpike  belonging  to  plaintiflFs. 

FARMERS  INS.  CO.  v.  NEW  HOLLAND  TURNPIKE  CO. 

122  Pa.  37,  15  Atl.  563. 

NIAGARA  FIRE  INS.  CO.  v.  HEFLIN, 

22  Ky.  L.  Rep.  1212,  60  S.  W.  393. 

270 


What  is  a  Fire  Loss? 

HAYES  V.  INS.  CO. 

170  Mass.  492,  49  N.  E.  754. 

NIBLO  V.  INS.  CO. 

1  Sandf.  (N.  Y.)  551. 

The  standard  policy  contains  a  condition  expressly  disclaiming 
liability,  unless  specifically  assumed,  for  loss  occasioned  "by  inter- 
ruption of  business,  manufacturing  process  or  otherwise."  Losses 
of  this  nature,  however,  are  taken  care  of  by  special  contracts  in 
the  shape  of  rent,  profit  and  use  and  occupancy  insurance,  which 
classes  in  recent  years  have  assumed  quite  large  proportions. 

In  the  absence  of  an  exemption  provision  in  the  policy,  it  has 
been  held  that  the  insurer  is  liable  for  any  loss  which  may  accrue 
to  the  insured  by  reason  of  any  ordinance  or  law  regulating  the 
construction  or  repair  of  buildings;  hence,  where  a  city  ordinance 
will  not  allow  a  building  that  has  been  damaged  by  fire  to  be  re- 
paired, the  insurer,  is  liable Jctf- the  entire  value  of  the  building,  less 
whatever  value  remains  over  the  expense  of  removing  it ;  or,  where 
the  building  may  be  repaired,  and  the  ordinance  requires  changes 
either  of  a  minor  or  radical  character  to  be  made,  the  insurer  is 
liable  for  the  additional  expense  rendered  neoessary  by  these 
changes,  unless  such  liability  is  expressly  disclaimed  in  the  contract. 

The  proposition  is  fully  discussed  in  a  decision  rendered  by 
the  Supreme  Judicial  Court  of  Massachusetts  in  the  case  of  Hewins, 
et  al.,  vs.  Insurance  Company.  Under  a  Massachusetts  standard 
policy  which  contains  no  exemption  stipulation,  the  insurer  was 
held  liable,  but  under  a  New  York  standard  policy  which  was  in- 
volved in  the  same  litigation  and  which  contains  an  exemption 
provision,  liability  was  limited  to  the  amount  needed  to  restore  the 
building  to  its  original  condition. 

HEWINS  V.  LONDON  ASSURANCE  CORP., 
184  Mass.,  178;  68  N.  E.,  62  Cf. 
BRADY  V  INSURANCE  CO., 
11  Mich..  425. 
MONTELEONE  v.  ROYAL  INS.  CO., 
47  La.  Ann.  1563. 
HAMBURG  BREMEN  INS.  CO.  v.  GARLINGTON, 
66  Tex.,  103. 
LARKIN  V.  GLENS  FALLS  INS.  CO., 
80  Minn.,  527. 
PENN.  CO.  V.  PHIL.  CONTRIBUTIONSHIP 
201  Pa.,  497. 
The  Standard  Policy  Law  of  Massachusetts  does  not,  appar- 
ently, preclude  the  insurer  from  stipulating  against  such  liability, 
and  a  clause  has  been  adopted  in  Boston   expressly   disclaiming 
liability,   unless  specifically  assumed,  beyond  the  actual  value  of 

271 


The  Fire  Insurance  Contract 

the  property  described,  at  the  time  the  loss  occurs,  or  beyond  what 
it  would  then  cost  the  insured  to  repair  or  restore  it  to  the  con- 
dition in  which  it  was  immediately  before  the  loss  occurred.  And 
if  the  assured  desires  protection  against  the  demolition  and  in- 
creased cost  of  construction,  it  can  be  secured  by  having  a  rider 
covering  this  feature  attached  to  the  policy,  in  consideration  of  an 
additional  premium. 

The  question  as  to  what  is  a  consequential  loss  is  one  not  en- 
tirely free  from  difficulty.  It  arises  most  frequently  in  connection 
with  breweries,  packing  houses  and  cold  storage  plants.  Where 
the  cooling  apparatus  is  located  in  the  same  building  as  the  stock, 
there  is  no  question  as -to  liability  for  the  incidental  damage  to  the 
latter  on  account  of  the  interruption  of  the  process  of  refrigeration. 
It  is  where  the  stock  is  stored  in  a  building  which  depends  for  its 
refrigeration  upon  an  ice  plant  located  in  an  adjacent  or  distant 
building,  that  the  question  of  liability  for  so-called  consequential 
damage  presents  itself. 

Several  years  ago,  in  a  western  city,  a  large  packing  house, 
including  the  refrigerating  plant,  was  destroyed  by  fire.  About 
one  hundred  feet  distant  from  the  ice  plant,  and  connected  there- 
with by  a  cold  air  conductor,  were  two  storage  warehouses,  con- 
taining about  five  million  pounds  of  meat.  No  fire,  smoke  or  water 
entered  the  storage  buildings,  the  only  damage  to  the  meats  therein 
being  that  due  to  a  rise  in  temperature  from  the  shutting  oflF  of 
cold  air  from  the  ice  plant.  The  insured  asked  the  consent  of  the 
local  representatives  of  the  insurance  companies  to  ''handle  the 
salvage,"  and  supposing  that  reference  was  made  to  the  salvage  in 
the  packing  house  proper,  consent  was  given,  whereupon  the  in- 
sured took  the  entire  stock  in  the  two  warehouses,  shipped  some  to 
Boston,  some  to  Buffalo,  and  some  to  other  places,  and  presented  a 
claim  to  the  companies  for  loss  and  expenses  incurred  of  about 
$250,000.00.  The  companies  took  exception  to  the  amount  of  the 
claim,  and  demanded  an  appraisement,  which  resulted  in  an  award 
of  nearly  $50,000.00  more  than  the  original  claim.  The  policies 
simply  covered  on  stock  in  the  warehouses,  and  contained  no 
reference  to  consequential  loss.  This  is  probably  the  largest  loss  of 
the  kind  on  record. 

There  never  has  been  any  court  decision  bearing  directly  on 
this  question,  and  when  the  above  loss  occurred,  some  insurers, 
although  willing  to  admit  that  if  the  whole  plant,  including  the 
warehouses  and  contents,  had  been  written  under  blanket  policies 

272 


What  is  a  Fire  Loss? 

for  single  premiums  the  entire  property  might  possibly  have  been 
regarded  as  one  risk,  took  the  position  that  inasmuch  as  the  con- 
tents of  the  warehouses  were  written  under  specific  policies  which 
had  no  connection  with  the  general  insurance  covering  the  packing 
house  plant,  no  liability  existed  for  damage  to  the  stock  caused  by 
the  rise  in  temperature.  If  the  case  could  have  been  tried  un- 
affected by  the  element  of  waiver,  the  court  would  no  doubt  have 
inquired,  as  in  other  contracts,  whether  the  loss  was  within  the 
reasonable  intendment  of  the  parties. 

If,  as  has  uniformly  been  held,  damage  to  adjacent  property  by 
explosion  caused  by  fire,  is  regarded  as  too  remote  to  come  within 
the  protection  of  the  policy,  it  is  not  clear  why  the  same  reasoning 
does  not  apply,  with  equal  force,  to  damage  by  rise  in  temperature 
caused  by  fire  in  a  neighboring  building.  If  the  loss  is  not  regarded 
as  the  inevitable  physical  effect  of  the  fire,  in  one  case,  it  is  not  easy 
to  perceive  why  it  should  be  in  the  other.  And  as  a  matter  of 
principle,  it  should  make  no  difference  whether  all  the  buildings 
are  owned  by  one  man,  or  whether  there  are  separate  ownerships. 

In  order  to  guard  against  any  question  arising  ifi  case  of  loss \ 
on  this  class  of  property,  policies  are  now  written  expressly  dis-  \ 
claiming  liability    for   consequential   loss,   and   if   the   insured   de-  \ 
sires  insurance  of  this  nature,  he  can  secure  it  by  taking  out  a 
separate  policy  covering  such  risks,  or  by  having  an  endorsement 
made  on  his  policy  and  paying  an  additional  premium  therefor. 

Let  us  hear  the  conclusion  of  the  whole  matter.  Within  the 
meaning  of  an  ordinary  policy  of  insurance  the  word  "fire"  must 
beconstrued  in  its  ordinary  popular  sense,  and  not  be  given  such 
technical  or  restricted  meaning  as  might  be  applied  to  it  upon 
scientific  analysis.  There  must  be  something  besides  mere  combus- 
tion ;  the  element  of  flame  or  glow  must  be  present.  The  fire  must 
be  withou^ intent  on^the  part  of  the  insured  or  his  responsible  agent 
to-miufethe  property;  it  must  be  accidental  with  respect  to  the 
insured.  If  intentionally  kindled  for  a  useful  purpose  in  a  place 
specially  designed  or  provided,  the  fire  does  not  change  its  charac- 
ter because  the  flame  extends  unusually  high,  or  the  heat  becomes 
excessive,  or  smoke  escapes  therefrom  and  causes  damage.  The  fire 
must  be  hostile  as  distinguished  from  what  is  universally  regarded 
as  friendly,  and  it  must  be  the  proximate  and  not  the  remote  cause 
of  the  loss.  -         .- -  . 

T^  If  a  hostile  fire  causes  an  explosion,  the  fire  is  held  to  be  the 
efficient  cause  of  the  whole  loss  which  ensues  in  the  premises  where 

273 


The  Fire  Insurance  Contract 

it  originates  when  its  effects  are  produced  in  direct  sequence,  though 
one  of  the  incidents  of  the  sequence  may  be  an  explosion,  on  the 
theory  that  it  could  not  have  been  intended  to  nullify  such  predomi- 
nant cause  by  the  explosion  exemption  provision. 

If  as  the  result  of  a  hostile  fire  the  concussion  of  the  air  causes 
damage  to  neighboring  property,  the  explosion  or  concussion,  and 
not  the  fire,  is  held  to  be  the  proximate  cause  of  the  loss.  If  a 
friendly  fire  causes  an  explosion,  none  of  the  damage  resulting  can 
be  regarded  as  a  loss  by  fire. 

There  are  probably  some  phases  of  this  question  which  have 
not  been  touched  upon,  and  new  conditions  will  no  doubt  arise  to 
tax  the  ingenuity  of  the  layman,  the  lawyer,  and  the  jurist,  but  a 
careful  study  of  the  text  writers,  and  an  analysis  of  the  decisions 
all  tend  to  confirm  and  emphasize  the  correctness  of  the  propositions 
laid  down  in  the  beginning  of  this  address,  and  to  demonstrate  thai 
they  are  fundamentally  sound. 


274 


XV  ' 

THE  TRUE  PURPOSE  OF  THE  LOSS  SETTLEMENT 

Allen  E.  Clough 

Secretary,  Committee  on  Losses  and  Adjustments,  New  York  Board 
of  Fir^  Underwriters 

The  true  purpose  of  the  loss  settlement  under  the  obligations 
assumed  in  a  fire  insurance  policy  by  the  insurer  is,  of  course,  to 
meet  fully  the  requirements  of  the  contract  entered  into.  The  defi- 
nitions of  the  terms  "insure,"  ^'insurer"  and  "insurance"  have 
changed  but  little,  if  any,  since  the  earliest  days  of  the  business  and 
no  claim  to  originality  of  ideas  can  be  made  as  to  the  thoughts  about 
to  be  presented. 

As  will  be  noted,  large  use  is  made  of  many  of  the  leading 
works  on  insurance,  the  effort  now  being  to  merely  condense  into 
this  necessarily  limited  statement,  the  nature  of  the  contract,  the  rea- 
sons therefor  and  the  support  these  have  had  by  the  courts  and  long 
established  and  recognized  practice. 

What  do  we  mean  when  we  say  we  insure  ?  Exactly  what  prop- 
erty or  interest  do  we  intend  to  cover  by  the  contract,  under  the 
policy  form  attached?  And,  having  agreed  to  insure,  and  come  to 
an  understanding  with  our  client  as  to  what  we  insure,  what  shall 
our  attitude  be  when  the  client  becomes  a  claimant? 

The  Century  Dictionary  defines  Insurer:  "To  guaranty  in- 
demnity for  future  loss  or  damage  on  certain  stipulated  conditions." 
Webster's  International  defines  Insurance :  "A  contract  whereby, 
for  a  stipulated  consideration,  called  a  premium,  one  party  under- 
takes to  indemnify  or  guarantee  another  against  loss  by  a  certain 
specified  contingency  or  peril  *  *  *  Fire  Insurance,  insuring 
for  a  given  period  against  loss  from  injury  to  specified  property  by 
fire  *  *  *."  Insurer:  "One  who  contracts  to  indemnify  an- 
other by  way  of  insurance." 

Indemnity  is  defined  in  the  Century  Dictionary  as,  "Security 
given  against  or  exemption  granted  from  damage  or  loss.  Compen- 
sation for  loss  or  damage  sustained — reimbursement.  More  spe- 
cifically, an  obligation  to  provide  for  future  reimbursement  in  case 
loss  should  occur.  If  the  object  of  a  contract  for  indemnity  is  ex- 
pressed as  being  to  secure  against  loss  or  damage  *  *  *  the  ob- 
ligation becomes  enforceable  only  when  loss  or  damage  has  been 
incurred." 

275 


The  Fire  Insurance  Contract 

Webster's  International  says :  "Indemnity :  compensation  for 
loss,  damage  or  injury  sustained;  as,  insurance  is  a  contract  of  in- 
demnity." 

The  Standard  Dictionary  defines  "Insurance  Loss:  injury  or 
diminution  of  value  within  the  limits  provided  in  a  policy,  or  the 
sum  payable  on  that  account." 

That  early  writer,  Roccus,  says  \Dt  Assecur,  not.  1)  :  "Asse- 
curatio  est  contractus  quo  quis  alienae  rei  periculum  in  se  suscepit, 
obligando  se,  sub  certo  pretio,  ad  cam  compensandam,  si  ilia  perie- 
rit."  This  has  been  well  translated  in  May  on  Insurance  (1-1)  as. 
"Insurance  is  a  contract  whereby  one,  for  a  consideration,  under- 
takes to  compensate  another  if  he  shall  suffer  loss." 

Richards  on  Insurance  Law  (p.  27)  says :  *^At  the  very  outset 
it  must  be  noted  that  insurance  is  a  contract  of  indemnity." 

Mr.  Justice  Lawrence,  in  Lucena  v.  Crauford  (2  B.  &  P.  N. 
R.  269  (H.  L.  1806),  pp.  301-303),  in  answer  to  questions  proposed 
by  the  judges,  after  citing  the  definitions  of  Vallin,  Roccus  and  oth- 
ers, said :  "Insurance  is  a  contract  by  which  the  one  party,  in  con- 
sideration of  a  price  paid  to  him  adequate  to  the  risk,  becomes  se- 
curity to  the  other  that  he  shall  not  suflfer  loss,  damage  or  prejudice 
by  the  happening  of  the  perils  specified  to  certain  things  which  may 
be  exposed  to  them." 

(Wambaugh,  Cases  on  Insurance,  p.  30.) 

Park  on  Insurance  (p.  1)  says:  "Policy  is  the  name  given  to 
the  instrument  by  which  the  contract  of  indemnity  is  effected  be- 
tween the  insurer  and  the  insured;  and  it  is  not  like  most  contracts 
signed  by  both  parties,  but  only  by  the  insurer,  who,  on  that  ac- 
count, it  is  supposed,  is  denominated  the  Underwriter.  Notwith- 
standing this,  there  are  certain  conditions  *  *  *  to  be  per- 
formed as  well  by  the  person  not  subscribing  as  by  the  underwriter, 
otherwise  the  policy  will  be  void." 

Adam  Smith,  in  his  "Wealth  of  Nations"  (1-10),  which  has 
been  called  "the  best  foundation  for  the  study  of  political  economy," 
refers  thus  to  Insurance:  "That  the  chance  of  loss  is  frequently 
undervalued,  and  scarce  ever  valued  more  than  it  is  worth,  we  may 
learn  from  the  moderate  profit  of  insurers." 

Angell  on  Insurance  (p.  1)  says:  "A  contract  of  indemnity  is 
given  to  a  person,  against  his  sustaining  loss  or  damage,  and  cannot 
properly  be  called  one  that  insures  the  thing,  it  not  being  possible  so 
to  do ;  and,  therefore,  as  Lord  Hardwicke  has  said  in  Sadlers  Co.  v. 

276 


True  Purpose  of  the  Loss  Adjustment 

Badcock  (2  Atk.  554),  it  must  mean  insuring  the  person  from  dam- 
age ;  this  is,  damage  to  the  thing  or  to  his  property." 

"The  contract  for  insurance  is  not  an  insurance  of  the  subject 
matter,  but  an  agreement  to  indemnify  a  particular  person  from  any 
damage  he  may  sustain  by  the  destruction  of  his  interests  in  the  ar- 
ticle, by  any  perils  insured  against." 

May  on  Insurance  says  (I.  1.  p.  4)  :  "It  had  its  origin  in  the 
necessities  of  commerce,  *  ♦  ♦  wherever  danger  is  appre- 
hended or  protection  required,  it  holds  out  its  fostering  hand,  and 
promises  indemnity.  This  principle  underlies  the  contract,  and  it 
can  never,  without  violence  to  its  essence  and  spirit,  be  made  by  the 
assured  a  source  of  profit,  its  sole  purpose  being  to  guaranty  against 
loss  and  damage.  'Though  based  on  self-interest,'  says  De  Morgan, 
'yet  it  is  the  most  enlightened  and  benevolent  form  which  the  pro- 
jects of  self-interest  ever  took.  It  is,  in  fact,  in  a  limited  sense,  a 
practical  method,  the  agreement  of  a  community  to  consider  the 
goods  of  its  individual  members  as  common.  It  is  an  agreement 
that  those  whose  fortune  it  shall  be  to  have  more  than  average  suc- 
cess shall  resign  the  overplus  in  favor'of  those  who  have  less." 

I  do  not  hesitate  to  quote  at  considerable  length  from  a  recent 
English  work,  "Welford  &  Otter-Barry's  Fire  Insurance,"  as  the 
theory  of  the  fire  insurance  contract  is  so  clearly  expressed  therein, 
(p.  1)  "A  contract  of  fire  insurance  is  a  contract  one  person  under- 
takes in  return  for  the  agreed  consideration  to  indemnify  another 
person  against  loss  or  damage  occasioned  by  fire  up  to  the  agreed 
amount."  (p.  5)  "The  contract  of  fire  insurance,  like  all  other  con- 
tracts of  insurance,  differs  from  an  ordinary  contract  in  that  it  re- 
quires, throughout  its  existence,  the  utmost  good  faith,  or  uberrima 
fides,  as  it  is  called,  to  be  observed,  on  the  part  of  both  the  assured 
and  the  insurers."  (p.  6-7)  "The  contract  of  fire  insurance  resem- 
bles the  contract  of  marine  insurance  and  differs  from  that  of  life 
assurance  in  that  it  is  purely  a  contract  of  indemnity  against  losses 
actually  sustained.  Even  where  by  the  terms  of  the  contract,  as  is 
usually  the  case,  the  insurers  expressly  undertake  in  the  event  of  loss 
or  damage  by  fire  to  the  property  insured,  to  pay  or  make  good  the 
loss  or  damage  up  to  a  specified  sum,  the  contract  is  nevertheless 
one  of  indemnity,  and  of  indemnity  only." 

It  is  the  fundamental  principle  of  fire  insurance  that  the  assured,  in 
case  of  a  loss  covered  by  his  contract,  shall,  so  far  as  the  sum  specified  in 
the  contract  permits,  be  fully  indemnified,  but  shall  never  be  more  than 
fully  indemnified.  This  principle  is  applied  in  accordance  with  the  fol- 
lowing rules,  namely: — 

277 
10 


The  Fire  Insurance  Contract 

(1)  To  establish  a  right  to  indemnity  it  is  necessary  for  the  as- 
sured to  show  that  he  has  in  fact  sustained  a  Ipss^by  reason  of  his  inter- 
est in  the  subject-matter  of  insurance. 

(2)  The  extent  of_the^  assured's  indemnity  must,  subject  to  the 
Xerj^^  of  the  contract"^e  measured  by  The  loss  which  he  has  actually 

sus^    ned.  

^^T)  The  assured  is,  therefore,  not  entitled  to  receive  anything  by 
wayfj,i  indemnity,  even  though  the  property  insured  be  destroyed  by  fire, 
if  he  has  in  fact  sustained  no  loss.  Thus,  if  he  has  parted  with  the  whole 
of  his  interest  in  the  subject-matter  of  insurance  before  the  happening 
of  the  fire  which  destroys  it,  he  retains  nothing  to  which  the  right  of 
indemnity  can  attach. 

Even  where  his  interest  remains  at  the  time  of  the  fire,  he  may  in 
reality  lose  nothing,  since  his  loss  may  have  been  made  good  to  him  by 
some  third  person  who  was  under  a  legal  obligation  to  do  so.  In  neither 
case,  therefore,  is  the  assured  entitled  to  recover  anything  from  the  in- 
surers. 

It  further  follows  that  if  his  loss  has  been  in  any  way  diminished, 
his  right  to  indemnity  must  be  proportionately  abated. 

(4)  If  the  assured  has  once  received  from  the  insurers  the  full 
value  of  the  subject-matter  of  insurance,  he  cannot  retain  for  himself 
any  benefit  whatever  arising  out  of  his  interest  in  such  subject-matter, 
by  reason  of  which  he  would  be  more  than  fully  indemnified.  He  is 
bound,  therefore,  upon  payment  of  his  indemnity-  to  account  to  the  in- 
surers for  any  compensation  which  he  may  receive  from  any  third  per- 
son legally  responsible  to  him  for  the  loss,  and  to  hand  over  to  them, 
if  it  is  in  his  power  to  do  so,  whatever  remains  of  the  subject-matter  of 
insurance  together  with  all  his  Hghts,  if  any,  against  third  persons  aris- 
ing out  of  the  loss. 

In  working  out  the  principle  of  indemnity,  it  frequently  happens 
that  the  assured,  either  with  the  assistance  of  the  insurers,  or  on  their 
behalf,  sues  a  person  alleged  to  be  responsible  for  the  loss. 

The  contract  is,  in  theory,  a  contract  of  perfect  indemnity,  subject 
to  the  difficulty  in  practice  of  ascertaining  what  is  a  perfect  indemnity 
and  subject  also  to  a  possible  qualification  in  the  case  of  valued  policies, 
(p.  314)  (4)  The  insurers  may,  however,  by  the  terms  upon  which 
they  settle  the  assured's  claim,  or  by  their  conduct  towards  the  assured, 
debar  themselves  from  afterwards  asserting  their  rights. 

The  contract  of  fire  insurance  is  simple  indemnity ;  it  is  a  con- 
tract of  personal  indemnity;  it  insures  persons  against  such  loss  as 
may  happen  to  the  things  described  as  being  the  property  of  the  in- 
sured or  in  which  they  have  an  insurable  interest.  (Columbia  Ins. 
Co.  V.  Lawrence,  10  Pet.  507 ;  Carpenter  v.  Providence-Washington 
Ins.  Co.,  16  Pet.  495.) 

As  is  well  known,  so-called  "valued  policies"  are  sometimes 
written  as  a  matter  of  convenience,  mainly  on  property  whose  value 
would  be  difficult  of  ascertainment  or  only  at  unusual  expense  after 
a  fire,  such  as  pictures  and  other  works  of  art,  rare  books  and  man- 
uscripts, or  collections  of  stamps,  coins  and  other  similar  property 
of  no  intrinsic  value  except  that  the  expense  of  obtaining  and  as- 
sembling them  has  been  large.  An  agreement  is  reached  in  advance 
on  the  value  of  the  subject  of  the  insurance,  which,  in  event  of  a 
total  loss,  in  absence  of  fraud;  is  accepted  as  the  basis  of  adjust- 

278 


True  Purpose  of  the  Loss  Adjustment 

ment.  Such  policies  are  not  provided  for  under  the  Standard  PoUcy 
law  of  this  State,  but  are  perhaps  properly  written  in  the  abser 
ui  any  statutory  prohibition.  As  to  this  class  of  policies  it  ma^  o 
said  that,  what  shall  be  considered  as  indemnity  under  the  con',  cts 
is  agreed  upon  in  advance  of  the  occurrence  of  a  loss  whicl  nay 
or  may  not  happen.  *'The  purpose  in  all  cases  is  alike — indotnitv 
for  the  loss  of  a  valuable  interest." 

(May  on  Insurance,  I-l — p.  11)   (Harris  v.  Eagle  Fire,  S.  C. 

N.  Y.,  1810.) 
Compulsory  valued  policies,  provided  for  by  the  statutes  of  a 
few  States,  are  contracts  of  an  entirely  different  character,  and  can- 
not be  defended  successfully — they  have  no  connection  with  the  the- 
ory on  which  insurance  is  based,  i.  e.,  indemnity,  and  are  practically 
wager  contracts  which  are  frowned  on  by  the  law. 
'^^(  Moving  Picture  Co.  Amer.  v.  Scottish  Union  &  National  Ins. 
Co.,  S.  C.  Penn.,  1914;  94  Atl.  642.)  (Draper  v.  Delaware  State 
Grange  Mutual  Fire  Ins.  Co.,  91  Atl.  206.)  They  are  believed  to 
foster  carelessness  on  th'e  part  of  the  insured,  if  not  to  actually  tempt 
to  arson,  by  all  authorities  on  insurance,  including  many  of  the  best 
informed  insurance  commissioners,  and  those  charged  with  the  ad- 
ministration of  the  laws  of  the  various  states  having  valued  policy 
laws  on  their  statute  books. 

Marshall,  in  his  Treatise  on  Insurance  (p.  682),  says  in  refer- 
ence to  the  early  days  of  fire  insurance :  **Jt  cannot  be  denied  that 
this  species  of  insurance  affords  great  comfort  to  individuals,  and 
often  preserves  whole  families  from  poverty  and  ruin,  and  yet  it  has 
been  much  doubted  by  wise  and  intelligent  persons  whether  in  a 
general  and  national  point  of  view  the  benefits  resulting  from  it  are 
not  more  than  counterbalanced  by  the  mischiefs  it  occasions.  Not 
to  mention  the  carelessness  and  inattention  which  security  naturally 
creates,  every  person  who  has  any  concern  in  any  of  the  fire  offices, 
or  who  has  attended  the  Courts  of  Westminster  for  any  length  of 
time,  must  own  that  insurance  has  been  the  original  cause  of  many 
fires  in  London,  with  all  their  train  of  mischievous  consequences." 

That  this  fear  was  well  grounded  must  be  admitted,  for  not- 
withstanding the  fact  that  the  courts  and  the  insurance  companies 
have  held  steadfastly  to  the  theory  of  indemnity,  fire  insurance  has 
doubtless  been  the  cause  of  less  care  being  taken  of  their  property,  as 
to  the  fire  hazard,  by  many  property  owners,  and  not  a  few  have 
through  all  the  years  since  its  inception  looked  upon  it  as  a  ready 
market  for  their  belongiii|^,  when  otherwise  not  salable,  and  have 

279 


The  Fire  Insurance  Contract 

been  led  to  the  crime  of  arson,  to  which  they  would  not  have  been 
tempted  except  for  the  possible  profit  through  the  fire  insurance 
policy  in  their  hands.  The  existence  of  fire  insurance  has  also  often 
prompted  persons  who  have  suffered  from  fires  through  natural 
causes,  to  make  fraudulent  claims  on  their  insurers  and  commit  per- 
jury, seeing  in  the  destruction  of  their  property  opportunities  to 
make  illegitimate  profits  through  misrepresentations  as  to  the  values 
of  the  property  insured. 

Mr.  George  Richards  has  pertinently  remarked  in  commenting 
on  the  famous  case  of  Darrell  against  Tibbetts,  decided  by  the 
English  courts  in  favor  of  the  landlord's  underwriters  and  against 
the  landlord,  who  sought  to  keep  his  double  indemnity,  he  being  in- 
sured against  loss  by  explosion  on  premises  occupied  by  a  tenant 
who  had  covenanted  in  the  lease  to  repair  any  such  loss,  the  under- 
writers having  paid  the  loss  on  its  occurrence  and  the  tenant  having 
subsequently  made  the  needed  repairs  as  he  had  agreed : 

The  pith  and  point  of  our  inquiry  must  be  this:  Shall  the  law  per- 
mit the  insured  public,  including  bad  men  and  good  men  alike,  to  utilize 
their  insurance  contracts  as  a  source  of  profit';'  Are  such  calamities  as 
conflagrations  and  shipwrecks,  imperiling  the  safety  of  the  public  at 
large,  to  be  converted  by  canons  of  insurance  law  into  pecuniary  bless- 
ings to  individuals  who  are  insured  against  their  occurrence,  events  not 
to  be  dreaded  and  guarded  against,  but  to  be  hoped  for  and  prayed  for, 
and  by  unscrupulous  men  planned  for  and  labored  for?  If  the  law  allows 
any  man  to  make  a  huge  profit  by  his  insurance  contract,  then  many  a 
man  will  deliberately  take  out  and  hold  insurance  with  that  result  in 
view.  If  so,  he  will  certainly  be  apt  to  welcome  a  fire,  and  if  he  does 
not  deliberately  drop  the  spark  that  occasions  destruction,  it  is  not  likely 
that  he  will  use  any  special  precaution  to  prevent  it.  And  what  sort  of 
a  situation  then  shall  we  have  in  the  community? 

A  well-known  and  successful  insurance  company  has  recently 
said  in  the  leaflet  it  sends  to  its  agents : 

Adjustments  should  always  be  an  honest,  pains-taking,  deliberate 
and  thorough  effort  to  ascertain  the  actual  loss.  To  give  the  impression 
that  companies  are  careless  or  indifferently  liberal  in  handling  losses 
and  more  anxious  to  please  claimants  than  to  reach  exactness,  has  an 
obvious  hurtful  influence.  To  permit  the  securing  of  a  more  or  less 
profit  from  a  fire  has  in  more  instances  than  we  know  of  suggested  an 
opportunity  to  the  fraudulent  and  criminal. 

One  case  we  do  know  of,  that  of  a  professional  fire  bug  who  "suf- 
fered" more  than  a  score  of  fires  and  finally  lodged  in  the  penitentiary 
for  a  season.  He  confessed  that  his  incendiary  career  was  instigated  by 
a  qttick,  careless,  lump  settlement  of  an  honest  damage  to  his  small 
cigar  stock,  which  gave  him  some  two  hundred  dollars  profit. 

No  class  of  business  has  a  greater  interest  in  maintaining  the 

public  conscience,  business  probity,  equity  and  justice,  in  the  highest 

sense  of  these  terms,  than  the  underwriter.    He  must  mete  as  he 

would  have  measured  to  him.     He  cannot  promise  indemnity  and 

give  less.    The  golden  rule  is  trite,  but  still  above  par  as  a  business 

280 


True  Purpose  of  the  Loss  Adjustment 

policy.  On  the  other  hand,  if  he  is  careless  or  complaisant  in  meet- 
ing the  claims  made  upon  him  and  grants  materially  more  than  in- 
demnity, or  does  not  choose  his  clients  wisely,  his  business  is  in 
danger  of  being  considered  as  conducted  contrary  to  public  policy 
and  to  the  detriment  of  the  community,  not  only  materially,  but 
morally. 

The  public  is  much  interested  in  our  business,  and  through  in- 
surance commissioners,  attorney-generals  and  investigation  commit- 
tees is  constantly  inquiring  into  it;  will  probably  require  more  in- 
formation of  us  in  the  future  than  it  has  as  yet.  Therefore,  aside 
from  our  duty  as  citizens  of  the  commonwealth,  it  behooves  us, 
from  the  standpoint  of  practical  common  sense,  to  so  conduct  our 
business  that  we  shall  not  be  subject  to  the  criticism  that  we  are 
lax  in  our  methods  and  are  only  interested  in  the  making  of  the 
largest  profit.  We  shall  only  protect  ourselves  by  guarding  the 
community  as  far  as  we  are  able  against  the  occurrence  of  fires  for 
profit.  It  is  essential  ^o  this  protection  tnat  the  origin  of  fires  should 
be  carefully  inve«itigated  and  dishonest  claims  contested.  Because 
these  investigations  and  contests  are  expensive  and  often  inconclu- 
sive is  no  argument  against  them.  The  underwriter's  best  interests 
and  those  of  the  public  are  too  closely  related  for  the  insurer  to  buy 
his  peace  as  cheaply  as  possible  and  shut  his  eyes  to  the  fact  that 
thereby  he  may  be  approaching  dangerously  to  essentially  com- 
pounding a  felony. 

As  has  been  said,  the  courts  have  uniformly  held  to  the  theory 
of  indemnity  in  insurance. 

The  English  Court  of  Appeal  has  said,  by  Judge  Brett : 

In  order  to  give  my  opinion  upon  this  case,  I  feel  obliged  to  revert 
to  the  very  foundation  of  every  rule  which  has  been  promulgated  and 
acted  on  by  the  courts  with  regard  to  insurance  law.  The  very  founda- 
tion, in  my  opinion,  of  every  rule  which  has  been  applied  to  insurance 
law  is  this,  namely  that  the  contract  of  insurance  contained  in  a  marine 
or  fire  policy  is  a  contract  of  indemnity,  and  of  indemnity  only,  and  that 
this  contract  means  that  the  assured,  in  case  of  a  loss  against  which  the 
policy  has  been  made,  shall  be  fully  indemnified,  but  shall  never  be  more 
than  fully  indemnified.  That  is  the  fundamental  principle  of  insurance; 
and  if  ever  a  proposition  is  brought  forward  which  is  at  variance  with 
it,  that  is  to  say,  which  ejther  will  prevent  the  assured  from  obtaining 
a  full  indemnity,  or  which  will  give  to  the  assured  more  than  a  full 
indemnity,  that  proposition  must  certainly  be  wrong. 

By  Judge  Cotton : 

I  think  that  the  question  turns  on  the  consideration  of  what  a  policy 
of  insurance  against  fire  is,  and  on  that  the  right  of  the  plaintiff  depends. 
The  policy  is  really  a  contract  to  indemnify  the  person  insured  for  the 
loss  which  he  has  sustained  in  consequence  of  the  peril  insured  against 
which  has  happened,  and  from  that  it  follows,  of  course,  that  it  is  only 
a  contract  of  indemnity;  it  is  only  to  pay  that  loss  which  the  assured 

281 


The  Fire  Insurance  Contract 

may  have  sustained  by  reason  of  the  fire  which  occurred.  In  order  to 
ascertain  what  that  loss  is,  everything  must  be  taken  into  account  which 
is  received  by  and  comes  to  the  hand  of  the  assured,  and  which  dimin- 
ished that  loss.  It  is  only  the  amount  of  the  loss,  when  it  is  considered 
as  a  contract  of  indemnity,  which  is  to  be  paid  after  taking  into  account 
and  estimating  those  benefits  or  sums  of  money  which  the  assured  may 
have  received  in  diminution  of  the  loss. 

And  Judge  Bowen  in  the  same  case  uses  similar  language. 
Castellain  v.  Preston,  L.  R.,  11  Q.  B.  D.  380  (1883). 

The  United  States  Supreme  Court  accepts  this  principle  in  Chi- 
cago, etc.,  R.  Co.  V.  Pullman  Car  Co.,  139  U.  S.  79,  88: 

The  general  rule  of  law  (and  it  is  obvious  justice)  is,  that  where 
there  is  a  contract  of  indemnity  (it  matters  not  whether  it  is  a  marine 
policy  or  a  policy  against  fire  on  land  or  any  other  contract  of  indem- 
nity), and  a  loss  happens,  anything  which  reduces  or  diminishes  that  loss 
reduces  or  diminishes  the  amount  which  the  indemnifier  is  bound  to  pay. 

Chief  Justice  Knowlton,  of  the  Massachusetts  Supreme  Court, 
said  in  a  recent  case : 

A  contract  for  insurance  against  fire  in  the  form  prescribed  by  our 
statutes  is  a  contract  of  indemnity,  and  the  assured  is  only  entitled  to  be 
put  in  the  same  condition  pecuniarily  that  he  would  have  been  in  if  there 
had  been  no  fire. 

The  Supreme  Court  of  Louisiana  said,  in  Nicolet  v.  Insur- 
ance Co.: 

If  the  property  at  risk  had  been  of  a  value  less  than  this  amount, 
the  assured  would  have  been  entitled  to  no  more  than  an  indemnity 
equivalent  to  their  loss  and  the  sum  stipulated  in  the  contract  reducible 
to  the  actual  damage.  If  the  property  insured  exceeded  the  amount  cov- 
ered by  the  policy,  the  indemnity,  in  the  event  of  a  total  loss,  could  not 
be  enlarged  so  as  to  afford  full  protection.  (Wambaugh  p.  864,  S.  C.  La. 
366.) 

And  later,  in  Hoffman  v.  Western  Marine  and  Fire  Insur- 
ance Co. : 

The  insurer's  liability  is  distinctly  defined  by  the  policy,  and  by  well 
ascertained  principles  of  the  law  of  insurance.  If  goods  are  wholly 
destroyed  by  fire,  the  insurer  is  bound  to  make  indemnity,  by  paying 
their  value  at  the  time  of  the  loss.  If  the  goods  be  not  destroyed  but 
damaged,  the  insurer  is  bound,  by  the  like  rule  of  indemnity,  to  pay  the 
assured  the  difference  of  value  between  the  goods  in  their  sound  and  in 
their  damaged  condition.  The  idea  of  a  right_  of  abandonment  of  the 
goods,  which  seems  to  have  existed  in  the  plaintiff's  mind,  and  in  that 
of  his  principal  witness,  w^ho  assisted  him  in  making  out  the  appraise- 
ment, is  entirely  unsanctioned  by  the  law  of  fire  insurance. 

(Wambaugh  p.  869,  S.  C.  La.  1  La.  Ann.  216.) 

The  Supreme  Court  of  Illinois,  in  Illinois  Mutual  F.  Ins.  Co.  v. 
Andes  Co. : 

It  is  difficult  to  see  how  this  can  be  done  consistently  with  prin- 
ciple, under  a  contract  which,  we  apprehend,  this  must  be  admitted  to 
be,  to  indemnify  the  reassured  against  the  loss  it  might  sustain  from  the 
risk  it  had  incurred  in  consequence  of  its  prior  insurance. 

Here  followed  quotations  from  Bainbridge  v.  Neilson,  10  East, 
329,  347  (1808),  to  the  effect  that  a  poHcy  of  insurance  is  a  con- 

282 


True  Purpose  of  the  Loss  Adjustment 

tract  of  indemnity,  per  Bayley,  J.,  and  from  Hamilton  v.  Mendes 
(1761),  per  Lord  Mansfield,  C.  J. 

(Wambaugh,  p.  909,  S.  C.  111.  1873,  67  111.  362.) 

The  Delaware  Superior  Court  has  recently  said  in  Draper  v. 
Delaware  State  Grange  Mutual  Fire  Ins.  Co. : 

The  contract  of  insurance  against  loss  or  damage  to  property  is  a 
contract  of  indemnity,  and  it  is  an  undertaking  on  the  part  of  the  insurer, 
based  upon  sufficient  consideration,  to  pay  the  insured  a  certain  sum  of 
money  upon  the  happening  of  a  certain  contingency,  i.  e.  loss  occasioned 
the  insured  by  fire  on  the  property  described  in  the  contract. 

A  contract  of  insurance  is  essentially  a  personal  contract,  and  it  is 
not  a  contract  to  insure  property  against  loss  by  fire,  but  is  one  to  insure 
the  owner  of  property  against  loss  by  fire;  therefore,  destruction  by  fire 
of  the  property  described  in  the  contract  of  insurance  is  not  the  con- 
tingency upon  which  the  insurer  promises  to  indemnify  the  insured,  but 
it  is  only  when  by  fire  the  insured  has  sustained  a  loss  that  the  insurer 
may  be  called  upon  to  perform  its  contract  of  indemnity. 

A  contract  of  insurance  is  a  contract  of  indemnity,  and  its  object  is 
to  avert  a  loss  rather  than  to  allow  a  gain,  and  a  policy  of  insurance 
against  loss  to  the  insured  on  property  in  which  the  insured  has  no  inter- 
est amounts  to  a  wager,  and  wager  policies  are  void  upon  the  ground 
that  they  are  contrary  to  public  policy. 

(91  Atlantic,  206.) 

Our  own  New  York  Supreme  Court  said  many  years  ago  in 
Kernochan  v.  New  York  Bowery  Fire  Ins.  Co.,  a  case  affirmed  by 
the  Court  of  Appeals : 

It  is  indeed  true,  as. was  insisted  by  the  counsel  for  the  defendants, 
that  in  this  State,  since  wager  policies  have  been  abolished,  the  assured, 
whether  in  a  marine  or  fire  policy,  can  never  be  permitted  to  recover 
more  than  a  full  indemnity  for  the  loss  which  it  is  proved  that  he  sus- 
tained.   (Wambaugh  p.  915,  12  N.  Y.,  S.  C.  1.) 

And  the  Appellate  Division  of  the  same  Court,  in  1912,  in  the 
case  of  Heilbrunn  v.  German  Alliance  Ins.  Co.,  said : 

The  contract  of  insurance  with  the  mortgagee  was  nothing  more 
than  a  contract  of  indemnity,  and  the  liability  of  the  insurer  was  meas- 
ured, not  by  the  amount  of  the  policy,  but  by  the  amount  of  loss  in- 
curred by  the  insured.  *  *  *  If  the  defendant  is,  as  in  the  present 
case,  merely  an  indemnitor,  and  the  plaintiff  has,  before  suit  brought, 
been  paid  from  other  sources  all  or  part  of  the  amount  for  which  the  in- 
demnitor had  undertaken  to  be  liable,  it  is  perfectly  competent  to  show 
that  fact  by  way  of  defense,  and  thus  reduce  the  amount  recoverable. 

(S.  C.  N.  Y.,  App.  Div.  1912)  135  N.  Y.  Supp.  769. 

Many  other  references  could  be  quoted,  but  these  appear  suffi- 
cient for  our  present  purpose  to  establish  the  fact  that,  from  the 
early  days  of  insurance  to  the  present,  there  has  been  no  serious 
divergence — that  the  fire  insurance  contract  is  one  of  indemnity 
only. 

We  have  perhaps  been  prone  to  regard  the  well-known  and 
often  referred  to  decisions  in  the  cases  of  Foley  v.  Manufacturers 
Fire  Ins.  Co.  (152  N.  Y.  131)  and  Michael  v.  Prussian  National  Ins. 
Co.  (171  N.  Y.  25),  both  decisions  of  the  N.  Y.  Court  of  Appeals, 

283 


The  Fire  Insurance  Contract 

as  departing  from  the  indemnity  theory,  but  may  not  the  real  facth 
be,  as  Mr.  Richards  has  pointed  out,  that  in  the  first  the  payment 
was  due  to  the  insured,  since  up  to  the  time  of  the  trial  the  contrac- 
tors had  not  reinstated  or  rebuilt,  in  whole  or  in  part,  notwithstand- 
ing their  agreement  so  to  do,  and  that  therefore  the  present  liability 
at  issue  in  the  case  was  clear.  No  question  of  subrogation  was 
presented  to  the  Court,  and  it  is  possible  that  had  the  loss  been  paid 
and  the  attempt  had  then  been  to  enforce  the  right  of  subrogation 
the  decision  might  have  been  more  in  line  with  that  in  the  case  of 
Darrell  v.  Tibbitts,  already  referred  to.  And,  as  to  the  case  of 
Michael  v.  Prussian  National  Ins.  Co.,  Justice  Gray's  opinion  was 
evidently  based  on  "1st,  that  the  underwriters  had  not  yet  made 
payment,"  and  were  therefore  not  entitled  to  claim  subrogation,  and, 
"2nd,  that  the  subject  matter  of  the  insurance  is  not  the  same  as  the 
subject  matter  of  the  pooling  agreement" — or,  in  other  words,  that 
the  insurance  payment  enforced  was  considered  only  as  the  indem- 
nity contracted  for.  In  neither  case  was  the  question  of  double 
payment  considered  as  actually  presented.  Chief  Justice  Andrews 
said:  "This  flows  from  the  nature  of  the  contract  of  insurance, 
which  is  a  contract  of  indemnity,  and  where  there  is  no  interest 
there  is  no  room  for  indemnity."  And,  doubtless,  Justice  Gray 
would  unhesitatingly  endorse  the  theory  of  indemnity,  when  pre- 
sented concretely. 

It  has  been  argued  that  the  case  of  Irwin  v.  Westchester  Fire 
(58  Misc.  441),  affirmed  by  the  Court  of  Appeals,  without  opinion 
(199  N.  Y.  550),  is  a  qualification  of  the  doctrine  of  indemnity  ap- 
plied by  the  English  and  United  States  Supreme  Courts.  The  as- 
sured had  erected  a  frame  addition  to  her  building  in  violation  of  a 
city  ordinance.  The  Supreme  Court,  at  a  special  term,  in  a  proceed- 
ing to  which  the  owner  was  not  a  party,  had  adjudged  the  "addi- 
tion" to  be  in  violation  of  the  said  ordinance  and  a  nuisance,  and 
directed  the  removal  by  the  Common  Council.  The  authorities  neg- 
lected to  obey,  and  later  the  owner  brought  an  action  to  restrain  the 
removal  of  the  "addition."  Six  months  later  the  court  found,  as  a 
matter  of  fact  and  law,  that  the  addition  was  a  violation  of  the  ordi- 
nance and  nuisance,  and  fourteen  months  later,  following  confer- 
ences and  promises  by  the  owner  to  remove  the  addition,  at  the  time 
of  the  fire  it  was  essentially  still  undisturbed  on  its  original  founda- 
tion. In  the  meantime,  as  stated  by  the  court,  with  full  knowledge 
of  all  the  circumstances,  the  agent  of  the  company  had  insured  the 
property,  discussed  what  was  being  done  with  the  owner  and  ad- 

284 


True  Purpose  of  the  Loss  Adjustment 

vised  her  not  to  tear  it  down  and  not  to  worry  about  the  matter. 
The  court  said: 

My  conclusions  are  that  the  judgment  and  orders  of  the  court,  and 
the  plaintiff's  promises  respecting  the  character  of  the  "addition"  and 
its  removal,  did  not  change  the  plaintiff's  interest  in,  title  to,  or  posses- 
sion of  the  structure,  so  long  as  it  remained  undisturbed  upon  her  prem- 
ises, and  attached,  as  it  originally  was,  to  the  main  building,  and,  more- 
over, that  the  defendant  is  bound  by  the  knowledge  of  its  agents  respect- 
ing the  character  and  results  of  the  litigation  concerning  the  said  "addi- 
tion," and,  having  issued  the  policy  with  such  knowledge,  cannot  now 
deny  its  liability  on  that  account. 

This  decision  appears  to  have  been  mainly  based  on  the  knowl-^ 
edge  of  and  waiver  by  the  company  through  its  agent.  Tieman  et  al. 
V.  Citizens  Insurance  Co.  (78  N.  Y.  Supp.  620)  has  also  been  re- 
ferred to  as  showing  that  the  New  York  courts  do  not  endorse  the 
theory  of  indemnity  as  do  those  of  other  states,  and  apparently  with 
some  reason,  for  the  court  said  (Ingraham,  J.)  : 

The  fact  that  the  plaintiffs'  property  was  damaged  by  a  risk  within 
the  terms  of  the  policy  was  at  the  time  of  the  fire  a  direct  damage  to  the 
plaintiffs,  which  the  defendant  had  insured.  The  fact  that  the  plaintiffs 
had  offered  to  sell  the  property  at  the  price  which  they  subsequently 
obtained,  notwithstanding  the  impairment  of  its  value  by  the  fire,  would 
not  release  the  defendant  from  liability;  and  I  cannot  see  that  the  exe- 
cution of  this  contract  would  have  that  effect.  I  think,  therefore,  that 
when  these  buildings  were  damaged  the  express  terms  of  the  policy 
applied,  and  by  it  the  insurance  company  became  liable  to  the  plaintiffs 
to  the  amount  that  the  buildings  were  damaged,  irrespective  of  the  sub- 
sequent disposition  that  they  were  able  to  make  of  the  damaged  buildings. 

Whether,  had  it  been  shown  that  the  very  contract  pending  at 

the  time  of  the  fire  had  been  carried  out  unaltered  and  unaffected, 

the  court's  views  might  have  been  less  decided,  can  only  be  left  to 

speculation.     The  court,  as  constituted  in  1902,  might  have  been 

likely  to  hold  that :    "Moneyloss  is  not  thejruf'  mpa5;iirp  nf  the  in- 

demnity  under^he  contract;  that  the  test  should  be,  Did  the_pmp- 

ertTThe  subject  matter  of  the  contract  suffer  diminutiQiLin-^value_by 

the  happening  of  the  hazard  insured  against?"     However,   it  is 

scarcely  to  be  believed  that  the  New  York  Court  of  Appeals  will 

fail  to  uphold  the  sound  rule  of  "indemnity  only,"  so  sweepingly 

adopted  by  other  coiyts,  when  cases  are  presented  in  which  the 

issue  is  squarely  raised.    The  signs  of  the  times  are  that  our  courts 

are  giving  ear  to  the  criticism  of  many  of  our  leading  jurists  and 

public  opinion  that  mere  technicalities  should  be  set  aside  in  favor  of 

substantial  justice  and  public  policy. 

CLEMENT,  FIRE  INSURANCE  AS  A  VALID  CONTRACT,  I,  17. 

MAY  ON  INSURANCE,  I,  1,  IL 

COOLEY,  BRIEFS  ON  THE  LAW  OF  INSURANCE,  I,  85-97. 

RICHARDS  ON  INSURANCE  LAW,  27,  72. 

OSTRANDER,  LAW  OF  FIRE  INSURANCE,  356. 

285 


The  Fire  Insurance  Contract 

DEMING  V.  MERCHANTS  COTTON  PRESS, 
90  Tenn.  306,  347. 

CARPENTER  v.  PROV.  WASH.  INSURANCE  CO., 
16  Pet.  495. 

EAGER  V.  ATLAS  INSURANCE  CO, 
14  Pick  (Mass.)    141,   146. 

CUMMINGS  V.  INSURANCE  CO., 

55  N.  H.  458. 

IMPERIAL  FIRE  INSURANCE  CO.  v.  COOS  COUNTY. 

151  U.  S.  452. 

ILLINOIS  MUTUAL  INSURANCE  CO.  v.  HOFFMAN, 

31  111.  App.  295,  132  111.  522. 

MURDOCK  V.  CHENANGO  COUNTY  MUT., 

2  N.  Y.  210. 

CROSS  V.  NATIONAL  FIRE, 

132  N.  Y.  133. 

BORDEN  V.  HINGHAM  MUT., 

18  Piek   (Mass.)   523. 

CASTELLAIN  v.  PRESTON, 

II  Q.  B.  Div.  380. 

CHICAGO,  ETC.,  R.  CO.  v.  PULLMAN  CAR  CO., 

139  U.  S.  79,  88. 

NICOLET  V.  INSURANCE  CO., 

3  La.  366. 

HOFFMAN  V.  WESTERN, MARINE  &  FIRE, 

1  La.  Ann.  216. 

ILLINOIS  MUTUAL  v.  ANDES  INSURANCE  CO., 

67  111.  362. 

DRAPER  V.  DELAWARE  STATE  GRANGE  MUTUAL, 
91  Atl.  206. 

Cooley's  Briefs  on  Insurance  (1-78)  says:  "Whatever  analo- 
gies may  be  discovered  between  the  contract  of  insurance  and  other 
kinds  of  contracts,  there  are  certain  fundamental  characteristics  of 
the  insurance  contract  that  must  be  taken  into  consideration  in  order 
to  understand  the  distinctions  and  quaUfications  observed  in  the  ap- 
plication of  the  general  rules  of  law  to  its  interpretation." 

The  contract  of  insurance  is  a  voluntary  contract,  in  which  the  in- 
surers have  a  right  to  incorporate  conditions,  and  such  conditions  will 
be  binding  on  the  insured  in  the  absence  of  an  objection.  (Keim  v.  Home 
Mutual  F.  &  M.  42  Mo.  38,  97  Am.  Dec.  291)  (Rann,  et  al,  Exrs.  v.  Home 
Ins.  Co.,  C.  A.,  N.  Y.,  I.  L.  J.,  V-15).  If  the  insured  objects  to  any  condi- 
tion in  the  policy,  he  is  under  no  obligation  to  make  the  contract;  but  if 
he  voluntarily  enters  into  it  he  will  be  bound  thereby.  . 

The  contract  of  insurance  is  a  conditional  contract  in  that  it  indem- 
nifies the  insured  only  in  case  the  loss  does  not  occur  from  an  excepted 
case,  and  it  insures  the  property  only  while  located  and  contained  as 
described  in  the  policy. 

TYLER  V.  AETNA  FIRE, 

2  Wend.  (N.  Y.)  280. 

JONES  v.  INS.  CO.  NORTH  AMERICA, 

90  Tenn.  604;  18  S.  W.  260. 

COOLEDGE  V.  CONTINENTAL  INSURANCE  CO, 
67  Vt.  14;  30  Atl.  798. 

286 


True  Purpose  of  the  Loss  Adjustment 

Fire  insurance  being  then  a  promise  of  indemnity  under  certain 
conditions  named  in  the  contract  written  by  the  insurer  and  volun- 
tarily accepted  by  the  insured,  the  insurer  and  his  adjuster  must 
have  in  mind  that  the  courts  have  properly  held,  as  a  matter  not 
only  of  law,  but  of  equity,  that  any  ambiguities  in  the  contract  must 
be  construed  in  favor  of  the  insured,  on  the  theory  that  its  wording 
is  that  of  the  insurer,  who  is  presumed  to  have  accepted  any  liability 
the  contract  can  consistently  be  construed  to  cover.  The  claim  of 
contrary  intent  will  not  ordinarily  be  considered  or  allowed  to  over- 
ride the  written  provisions  of  a  contract. 

There  should  be  no  argument  possible,  after  a  fire  has  occurred, 
as  to  the  exact  cover  of  a  policy.  Its  statement  that  it  does  insure 
in  accordance  with  the  written  policy  form,  should  admit  no  doubt 
as  to  its  intent  in  the  minds  of  the  insurer  and  insured  alike.  The 
time  for  the  careful  wording  of  its  cover  is  when  the  liability  is  ac- 
cepted. The  needs  of  the  insured  should  be  particularly  inquired 
into  and  the  contract  given  him  should  be  plainly  and  explicitly 
worded,  admitting  of  no  ambiguity,  and  leaving  no  room  for  discus- 
sion after  the  fire.  Much  of  the  acrimony  in  adjustments  and  the 
charges  made  against  insurance  companies  of  unfairness  and  alleged 
desire  to  cancel  their  liabilities  as  cheaply  as  possible,  regardless  of 
justice  to  their  clients,  have  arisen  from  carelessly  worded  policy 
forms. 

It  should  not  be  left  to  the  liberality  or  discretion  of  the  insur- 
ance company,  or  for  it  to  be  influenced  by  the  value  of  the  cus- 
tomer's business,  whether,  after  a  fire,  the  policy. on  "building  and 
permanent  fixtures"  covers  the  seating  fixtures  of  a  hall  or  theater, 
which  are  merely  fastened  to  the  floor  by  screws  and  therefore  re- 
movable without  material  defacement  of  the  building;  whether  cus- 
toms duties  are  insured  in  a  policy  covering  on  goods  in  bond^ 
whether  customers'  property  in  the  hands  of  a  tailor  or  furrier  and 
the  value  of  the  labor  he  has  expended  on  them  are  covered; 
whether  tenant's  improvements  are  to  be  covered  under  a  building 
policy  in  whole  or  in  part.  The  proper  wording  of  policies  in  such 
cases  as  the  last  mentioned  can  only  be  determined  after  a  careful 
reading  of  the  existing  leases  as  to  their  provisions  in  reference  to 
cancellation  on  the  occurrence  of  a  fire,  for  removal  of  the  improve- 
ments, and  as  to  reversion  to  the  building  owner.  A  permit  in  a 
policy  for  a  chattel  mortgage  does  not  contemplate  the  existence  of 
more  than  one  mortgage.  Many  other  illustrations  of  the  point  I 
wish  to  emphasize  might  easily  be  given. 

287 


The  Fire  Insurance  Contract 

Both  insured  and  insurer  are  often  at  fault.  The  blame  will, 
however,  be  usually  placed  on  the  insurer,  and  properly,  because  he 
is  presumed  to  be  familiar  with  the  requirements  of  his  business,  the 
necessity  for  exact  information,  and  to  be  expert  in  the  proper  word- 
ing of  his  contracts. 

In<?urance  has  been  called  "the  handmaid  of  commerce."  How 
important  it  is  has  just  now  been  so  thoroughly  demonstrated  that 
our  national  government  has  been  obliged  to  undertake  one  branch 
of  it,  at  least  temporarily.  It  can  only  be  faintly  imagined  what 
would  be  the  result  if  fire  insurance  should  become  no  longer  ob- 
tainable, but  how  many  men  daily  file  away  insurance  policies,  which 
in  case  of  fire  should  be  worth  thousands  of  dollars  to  them,  without 
taking  the  trouble  to  look  at  more  than  their  filing  backs,  certainly 
without  reading  carefully  the  policy  forms. 

It  should  be  the  aim  of  the  insurer  to  impress  upon  his  clients 
that  fire  insurance  is  neither  a  mystery  nor  something  which  cannot 
be  understood  by  the  "plain  people ;"  not  a  scheme  for  the  fattening 
of  the  stockholders  nor  a  "get-rich-quick"  scheme  for  the  initiated 
few ;  and  that  it  can  as  readily  be  understood  by  the  average  busi- 
ness man  as  his  own  business,  if  he  will  only  give  it  the  attention 
its  importance  to  him  warrants  if  he  has  a  fire. 

Losses  should  be  adjusted  from  the  same  standpoint  as  that  of 
any  good  citizen  and  honest  man  endeavoring  to  carry  out  his  busi- 
ness engagements,  bearing  in  mind  his  rights  and  also  his  responsi- 
bilities, remembering  that  his  intent  will  be  judged  more  by  his  ac- 
tions than  by  his  words.  (Clement,  Fire  Insurance  as  a  Valid  Con- 
tract, pp.  454,  456.) 

Holiest  claimants  are  entitled  to  prompt  attention  and  the  most 
courteous  treatment  even  if  their  claims  are  exaggerated.  They 
should  be  argued  with  and  shown  their  errors  and  mistaken  judg- 
ment as  to  their  loss. 

If  the  adjuster  can  impress  a  claimant  with  the  belief  that  the 
adjuster  is  well  informed,  fair-minded  and  sincerely  desirous  of  ar- 
riving at  a  settlement  which  will  fully  discharge  the  whole  obliga- 
tion of  the  company  to  the  insured,  he  can  insist  upon  the  company's 
rights,  limit  the  settlement  to  the  liability  contracted  for  under  the 
policy,  retain  the  respect  and  confidence  of  the  claimant  and  make 
a  good  friend  for  his  company.  He  cannot  expect  to  convince  the 
claimant  of  the  justness  of  his  view  unless  he  has  first  honestly  con- 
vinced himself. 

Fire  insurance  is  a  plain,  straightforward  business  in  which  the 

288 


True  Purpose  of  the  Loss  Adjustment 

margins  of  profits  are  small,  considering  the  risk  involved.  The  pri- 
vate and  business  morals  of  the  men  engaged  in  it  as  insurers  an| 
adjusters  will  compare  favorably  with  those  of  men  in  any  profea 
sion  or  line  of  trade. 

I  believe  that  our  business  with  our  clients  and  claimants  is  af 
conducted  as  to  give  daily  evidence  of  this  fact. 


28f 


XVI 

THE  CHIEF  PACTOE  IN  FIRE  LOSS  ADJUSTMENTS 

Willis  0.  Robb 
Manager,  New  York  Fire  Insurance  E^^Ji.ange 

I  do  not  hope  to  be  able,  and  indeed  shall  not  try,  to  tell  my 
hearers  anything  very  new  here.  But  by  reminding  them  of  some 
things  they  already  know,  and  have  always  known,  but  do  not 
always  remember,  I  may  be  able  to  help  them  extract  from  things 
famihar  a  profit  that  even  novelties  would  not  yield. 

Furthermore,  I  shall  have  to  admit  ir<  tiie  outset  that  the  ele- 
ment which  I  have  chosen  to  designate  as  the  chief  factor  in  loss 
adjustments,  and  to  discuss  under  that  head,  is  not  strictly  and  lit- 
terally  the  chief  factor  at  all.  For  the  losses  themselves  are  the 
real  chief  factor  in  adjustments.  As  the  cards  beat  all  the  players 
in  whist,  so  the  losses  in  the  long  run  outweigh  all  the  human  ele- 
ments in  loss  adjustments.  The  contract  and  its  construction,  the 
parties,  principal  and  subordinate,  precedents  and  processes,  men 
and  methods,  are  all  more  or  less  helpless  before  the  brute  might 
of  the  loss  itself.  Facts  are  stubborn  things,  and  among  underwrit- 
ing facts  the  stubbornest  of  all  are  losses.  But  their  very  stubborn- 
ness disqualifies  them  as  subjects  of  study.  As  a  treatise  on  whist 
which  should  discuss  only  the  various  possible  results  of  the  deal, 
without  telling  how  to  play  the  hands,  would  be  a  mere  exercise  in 
permutations,  so  the  Chronicle  Fire  Tables,  though  of  great  statist- 
ical value,  are  not  well  suited  to  the  needs  of  an  evening  club  of  in- 
surance students.  In  one  case  as  in  the  other,  it  is  the  human  and 
controllable  elements  of  the  game,  the  personal  and  voluntary  fac- 
tors of  the  problem,  that  are  likely  to  interest  and  profit  the  learner. 
And  from  this  point  of  view,  which  must  be  the  point  of  view  of 
the  company  manager  seeking  to  better  his  company's  position,  as 
well  as  of  the  company  employe  seeking  to  fit  himself  for  the 
work  of  adjusting  losses,  the  chief  factor  in  a  loss  adjustment,  or 
rather  what  we  may  call  the  greatest  common  factor  in  all*  loss 
adjustments,  is  unquestionably  the  personal  quality  of  the  adjiuster. 

In  this  chapter,  therefore,  I  meaii  to  say  very  little  about  losses 
and  loss  adjustments, — as  little,  that  is,  as  one  can  say,  once  he  has 
begun  talking  at  all,  on  a  subject  which  has  been  the  chief  staple  of 
his  conversation  for  nearly  twenty  years, — and  to  devote  my  time, 
and  invite  your  attention,  to  adjusters  instead;  or  rather,  to  the 

290 


Chief  Factor  in  Loss  Adjustments 

adjuster,  considered  in  the  abstract.  Moreover,  I  mean  to  touch  but 
lightly  on  those  elements  in  the  personal  equipment  of  the  adjuster 
which  are  due  to  his  special  training  in  the  details  of  his  work,  and 
to  confine  myself  chiefly  to  those  elements  due  either  to  natural  en- 
dowment or  general  culture,  and  especially  the  latter.  For  it  is  the 
general  character^nd  cnilitoe  o^  not  his  spe- 

ciaTt raining  and  experience  as  an  adjuster, — his  quality  and  not  his 
qualifications, — that  constitutes  the  chief  human  factor  in  loss  ad- 
justments. 

Let  me  dwell  on  this  point  a  little  at  the  outset,  for  it  is  the 
core  of  my  sermon.  I  concede  without  reserve  that  the  young  ad- 
juster must  be  taught  the  theory  and  practice  of  his  profession,  and 
in  a  more  systematic  and  painstaking  manner  than  most  of  us  now 
in  the  business  were  in  fact  taught  in  our  time.  For  I  reject  the 
doctrine  that  every  ex-agent,  ex-solicitor,  ex-broker,  ex-counterman, 
or  even  ex-manager,  is  fitted  by  his  previous  connection  with  the 
insurance  business  to  adjust  losses,  without  previous  training  in  that 
branch  of  the  business,  just  as  I  reject  the  doctrine  that  everybody 
who  has  failed  in  some  other  business  is  ipso  facto  qualified  for  the 
insurance  business.  There  are  a  good  many  things  to  be  learned — 
both  general  principles  and  specific  facts — before  one  can  become  an, 
adjuster.  But  no  one  can  learn  them  profitably ;  that  is,  no  man  by 
learning  them  can  become  a  good  adjuster,  unless  his  general  char- 
acter, culture  and  judgment  have  been  very  considerably  developjpd 
before  Ii^j  began  these  special  studies. 

The  old  adage  says  you  cannot  make  a  whistle  out  of  a  pig's 
tail.  I  believe  one  smart  Yankee  undertook  to  falsify  that  saying, 
and  did  in  fact  exhibit  just  that  kind  of  a  musical  instrument  at  the 
Centennial  Exhibition  in  1876.  But  in  the  quarter  of  a  century  that 
has  since  elapsed  there  appears  to  have  been  no  demand  for  the 
product  of  that  misguided  industry,  and  the  adage  has  lost  little  of 
its  lustre  because  of  this  solitary  attempt  to  belie  it.  In  the  same 
way  it  remains  true  that  you  cannot  make  a  good  adjuster  out  of  a 
young  man  whose  native  character  and  general  culture  are  inferior, 
despite  the  number  of  instances  in  which  the  experiment  has  been 
hopefully  tried.  For  in  this,  as  indeed  in  every  other  art  and  pro- 
fession, it  is  indispensable  that  specific  training  should  be  underlaid 
by  intelligence  and  preceded  by  culture. 

A  lady  of  my  acquaintance,  herself  a  gifted  and  greatly  ad- 
mired public  reader,  was  once  asked,  as  a  favor  to  a  personal  friend, 
to  gi\e  the  latter's  young  daughter  lessons  in  expression  and  voice 

291 


The  Fire  Insurance  Contract 

culture.  She  tried  the  girl  a  few  times,  then  declined  to  go  further 
with  the  experiment.  To  one — not  the  girl's  mother — who  inquired 
why,  she  said,  "Lucy  has  a  pleasing  and  flexible  voice,  charming 
manners  and  presence,  and  some  knowledge  of  elocution.  But  all 
high  grade  instruction  would  be  wasted  on  her,  because  she  simply 
lacks  the  central  intelligence  without  which  no  art  can  be  either 
mastered  or  made  worth  while."  By  the  same  token  it  is  impos- 
sible— and  here  I  speak  in  accents  of  anguish  and  out  of  the  fullness 
of  bitter  experience — it  is  absolutely  impossible  for  any  business 
college  or  any  office  training  to  make  a  good  stenographer  and  type- 
writer operator  out  of  a  girl  who  has  not  a  quick  intelligence  and  a 
real  and  intimate  acquaintance  with  good  English  to  start  with. 

These  are  but  illustrations  of  a  truth  of  which  all  professions 
and  arts  and  occupations  furnish  abundant  examples.  And  there  is 
scarcely  any  other  calling  known  under  heaven  and  among  men 
where  personal  force,  general  character,  tact,  adaptability  and  bear- 
ing so  far  outweigh  specific  knowledge  and  experience  as  elements 
of  success  as  in  the  adjusting  of  fire  losses. 

I  am  aware  that  the  uninitiated  sometimes  suppose  an  adjuster 
to  be  stuffed  full  of  special  knowledges  of  all  kinds,  covering  the 
materials  and  the  processes,  the  customs  and  the  prices  peculiar  to 
all  the  mercantile  and  manufacturing  businesses  of  the  country.  But 
that  is  some  way  off  the  truth.  Experience  does  indeed  acquaint  an 
adjuster,  in  a  general  way,  with  a  good  many  other  men's  business, 
and  he  cannot  but  pick  up,  whether  he  retains  it  or  not,  much  mis- 
cellaneous information  from  all  sources.  But  that  is  far  from  say- 
ing that  he  becomes  a  master  of  the  special  knowledge  of  the  life- 
long followers  of  the  various  pursuits  he  successively  "takes  a  flyer" 
in.  The  adjuster  is  a  sciolist,  not  a  specialist.  I  do  not  suppose 
there  is  an  adjuster  in  New  York  who  is  a  genuine  up-to-date  expert 
in  any  single  mercantile  or  manufacturing  business,  much  less  in 
forty  or  fifty  of  them.  And,  after  all,  it  is  not  expert  knowledge 
that  chiefly  counts,  but  the  general  experience  and  judgment  that 
enable  the  adjuster  quickly  to  pick  up  and  use  such  specific  knowl- 
edge as  the  case  requires.  Every  new  adjustment  must  be  treated 
as  an  opportunity  for  learning  something  new,  or  correcting  and 
bringing  down  to  date  some  previously  acquired  knowledge,  rather 
than  as  an  invitation  to  display  the  perfect  wisdom  begotten  of  bye- 
gone  losses.  In  the  main,  it  is  better  for  an  adjuster  to  be  teachable 
than  wise. 

292 


Chief  Factor  m  Loss  Adjusti^nts 

I  remember — and  here  already  I  find  myself  departing  from  my 
.resolve  not  to  tell  stories  about  particular  loss  adjustments — I  re- 
member a  certain  window-glass  factory  adjustment  at  Bellairc,  Ohio, 
some  fifteen  years  ago,  in  the  course  of  which  rather  more  than  the 
nsual  insight  into  manufacturers'  secrets  of  cost  of  production,  etc., 
was  necessarily  obtained  by  the  adjusters  engaged.  (Perhaps  one 
thing  that  helps  me  to  recall  this  particular  adjustment  so  clearly, 
after  all  these  years,  is  the  fact  that  I  had  inspected  and  approved 
the  risk  three  hours  before  it  burned).  The  secretary  and  manager 
of  the  works  was  a  hard-headed  German  with  whom  other  people's 
beliefs  and  arguments  didn't  "go."  Having  compiled  his  estimate 
of  the  quantities  and  values  of  glass,  in  cylinders,  sheets  and  lights, 
packed  and  unpacked,  in  the  various  portions  of  the  burned  works, 
he  would  neither  discuss  nor  defend  his  figures.  There  they  were, 
and  there  he  was.  It  mattered  nothing  that  the  quantities  were  im- 
possible and  the  prices  absurd,  in  the  light  of  the  experience  of  every 
other  glass-house  in  the  "Glass  City."  Remonstrance,  appeal,  mathe- 
matical demonstration, — none  of  these  things  moved  him.  They  cut 
no  ice  and  no  glass.  We  showed  him  by  his  own  books  how  far 
wrong  he  was,  and  satisfied  his  own  stockholders  that  our  criticisms 
were  just.  All  would  not  do.  So  we  had  an  appraisal  by  two  of  his 
neighbors  in  the  business,  and  got  an  award  that  more  than  sustained 
our  contention.  The  adjustment  was  full  of  difficulties  and  punctu- 
ated with  Teutonic  grunts  and  objurgations.  It  had  taken  a  week — a 
week  of  the  steady  and  unremitting  attention  that  only  field  men  ever 
give  to  losses,  and  that  most  metropolitan  adjusters  know  nothing 
about.  I  was  very  tired  when  it  was  over,  but  had  a  "grip"  full  of 
useful  figures,  and  a  whole  lot  of  ready-to-serve  information  about 
glass  making.  I  knew  what  went  into  the  "batch"  and  what  came 
out  of  it,  the  cost  and  proportions  of  the  ingredients,  the  rate  of 
wear,  capacity,  and  cost  of  the  melting  pots,  the  blowers',  cutters', 
and  packers'  wages,  the  functions  of  the  lear  and  the  flattening  oven, 
the  difference  between  single  and  double  strength,  at  what  point  a 
'box"  ceased  to  mean  100  sq.  ft.  and  began  to  mean  50  sq.  ft.  instead, 
and  all  manner  of  similar  wisdom. 

Though  young  in  the  business  of  adjusting  losses,  I  had  already 
begun  to  discover  there  were  many  things  I  didn't  know.  But  I  cer- 
tainly did  think,  after  that  Bellaire  adjustment  was  over,  that  at 
least  I  knew  the  window-glass  business.  Accordingly  when,  some 
months  later,  I  got  notice  of  another  similar  loss,  up  in  the  newly 
developed  natural  gas  field  of  Findlay,  I  said  to  myself,  as  I  put 

293 


^  The  Fire  Insurance  Contract 

my  Bellaire  memoranda  in  my  grip  again,  "Well,  if  window-glass 
losses  must  come,  they  may  as  well  come  to  me  as  to  any  one.  I  can 
take  care  of  'em  if  anybody  can.  And  those  young  fellows  up  at 
Findlay,  who  are  said  to  be  new  to  the  business,  will  certainly  begin 
to  sit  up  and  take  notice  before  I  get  through  telling  them  what  I 
know  about  glass  making."  In  which  spirit  I  boarded  the  cars  for 
Findlay.  It  happened  that  on  the  train  I  fell  in  with  an  old  field 
man  to  whom  I  told  my  destination  and  mission,  and  he  remarked 
casually  that  he  supposed  the  advantages  the  Findlay  glass-makers 
enjoyed  in  the  way  of  free  fuel,  free  land,  and  bonuses,  would  have 
resulted,  at  least  temporarily,  in  a  very  low  cost  of  production.  The 
idea  was  new  to  me.  I  didn't  say  so,  however,  but  a  wholesome 
pensiveness  fell  on  me,  and  by  the  time  I  reached  Findlay  I  was  pre- 
pared to  act  the  part  of  the  intelligent  listener,  rather  than  that  of 
the  eloquent  orator.  And  it  proved  well  for  my  company  that  I 
had  fallen  on  this  lucid  interval.  My  Findlay  claimants  were  not  old 
manufacturers,  it  is  true,  but  their  superintendent  w^as,  and  for  their 
part  they  were  excellent  men  of  business  and  good  accountants ;  and 
they  soon  showed -me  that  it  was  costing  them  to  make  window-glass 
that  year  in  Findlay  about  seventy-five  per  cent  (I  think  it  was)  of 
the  figures  I  had  so  laboriously  compiled  at  Bellaire  the  year  before. 

This  fable,  it  seems  to  me,  teaches  three  things :  first,  that  those 
who  have  just  newly  moved  into  glass  houses  shouldn't  begin  throw- 
ing stones  till  they  have  gained  a  residence ;  second,  that  in  an  adjust- 
ment the  claimant  should  be  given  the  white  pieces  and  the  first 
move ;  and  third,  that  a  sprig  of  perennial  good  sense  is  often  more 
useful  than  a  hay- wagon  load  of  information  harvested  last  season. 
Upon  examination  I  observe  that  all  three  of  these  morals  are  the 
same,  but  they  are  probably  none  the  worse  for  that.  At  any  rate 
the  experience  itself  was  a  very  useful  one,  because  of  the  way  it 
emphasized  the  great  truth  that  specific  knowledge  must  always  play 
second  fiddle  to  general  judgment  in  an  adjuster's  talents.  And 
every  year  that  has  passed  since  then  has  only  added  to  the  force 
of  this  teaching. 

No  sort  of  knowledge  is  likely  to  be  wholly  useless  to  an  ad- 
juster, and  happy  he  who  can  acquire,  retain,  and  command  for  in- 
stant use  a  wide  range  of  facts  bearing  on  the  businesses  and  ma- 
terials he  must  deal  with.  But  the  facts  themselves  must  always,  in 
the  long  run,  be  subordinate  to  the  capacity  to  use  them  aright.  And 
that  capacity  comes  by  other  roads  than  the  facts  it  must  employ. 
In  part,  of  course,  it  is  nature's  own  gift,  and  implies  no  other  merit 

294 


Chief  Factor  in  Loss  Adjustments 

in  its  possessor  than  a  wise  choice  of  ancestry.  And  with  that  por- 
tion of  an  adjuster's  training  which  begins  three  generations  before 
he  is  born  we  cannot  profitably  occupy  ourselves  further  than  to  note 
and  choose  among  its  results.  But  while  integrity,  quick  intelligence, 
self-control,  resourcefulness,  a  keen  sense  of  justice,  courtesy  and 
tact  are  in  great  measure  native  endowments,  there  is  no  one  of  these 
great  and  eminently  practical  virtues  but  may  be  developed  and 
amplified  from  comparatively  small  original  stocks  of  the  raw  ma- 
teriaU  And,  whether  by  inheritance  or  by  development,  they  and 
other  similar  qualities  must  be  acquired  before  an  adjuster  can  be 
made,  or  be  ready  for  the  making;  that  is,  before  any  special  training 
in  his  business  can  profitably  be  given  him. 

Perhaps,  after  all,  I  cannot  give  this  general  proposition,  that  / 
what  an  adjuster  is  is  more  important  than  what  he  knows,  its  proper 
weight  and  significance  in  any  way  better  than  by  giving  you  some 
idea  of  what  I  think  he  ought  to  know.  For  I  am  as  far  as  possible 
from  believing  that  his  special  knowledge  is  unimportant  in  itself, 
merely  because  I  believe  it  relatively  less  important  than  his  general 
character. 

An  adjuster  then,  should  know  the  insurance  contract  thor- 
oughly, its  printed  conditions  and  the  commoner  varieties  of  its 
written  or  attached  forms,  clauses,  riders,  restrictions,  permits,  etc. 
He  should  even  have  some  acquaintance  with  the  historical  develop- 
ment of  the  several  features  of  a  modern  policy,  with  their  earlier 
forms  and  the  legal,  commercial  and  practical  reasons  that  have  led 
to  their  modification.  His  knowledge  of  the  contract  should  cover 
both  the  natural  meaning  of  its  terms,  and  the  various  constructions 
placed  upon  them  by  the  courts.  He  need  not — he  ought  not — be  a 
lawyer,  but  his  acquaintance  with  insurance  law  should  be  so  good 
that  no  lawyer's  opinion  on  any  point  of  purely  insurance  law  will 
have  any  weight  with  him  unless  accompanied  by  the  reasoning  or 
the  precedents  on  which  it  rests.  He  should  have  a  general  ac- 
quaintance with  commercial  book-keeping, — a  particular  and  expert 
knowledge  would  be  better  still.  He  should  be  able  to  estimate  the 
cost  of  a  plain  brick  or  frame  building,  both  generally  and  in  detail, 
and  have  a  similar  acquaintance  with  prices  of  the  commoner  kinds 
of  destructible  property, — ^household  furniture,  wearing  apparel, 
belting,  common  machinery,  and  stocks  of  merchandise.  He  should  " 
have  an  extensive  general  knowledge — a  special  knowledge  he  cannot 
have — of  the  staple  articles  of  commerce,  considered  both  from  the 
underwriter's  and  the  adjuster's  point  of  view.     His  knowledge  of 

295 


The  Fire  Insurance  Contract 

manufacturing  processes  should  be  on  a  par  with  his  knowledge  of 
trade  commodities.  And  especially  he  should  know  where  to  seek 
the  information  he  himself  does  not  possess  on  any  or  all  of  these 
subjects, — the  men,  the  books,  the  places  that  can  tell  him  what  he 
needs  to  know. 

Now,  it  will  be  admitted  that  this  sketch,  brief  as  it  is,  calls  for 
an  assortment  of  qualifications  by  no  means  easy  to  acquire.  It  is 
distinctly  a  large  contract  so  to  fit  for  the  work  of  adjusting  losses 
any  young  man,  no  difference  what  his  native  ability,  that  he  will 
fill  the  requirements  here  indicated.  It  is  probably  no  slander  to  say 
that  a  good  many  of  the  fifty  or  sixty  men  now  adjusting  losses  in 
New  York  City  do  not  fairly  measure  up  to  this  standard  of  special 
training  and  equipment.  But  I  still  affirm  that  a  man  might  exem- 
plify fully  the  several  kinds  of  knowledge  embraced  in  this  cata- 
logue and  still  be  much  less  than  half  of  a  good  adjuster;  and,  con- 
versely, that  he  might  be  to  all  intents  and  purposes  a  very  good 
adjuster  indeed,  and  yet  be  deficient  in  several  or  many  of  these 
important  requirements.  For,  all  together,  they  neither  constitute, 
nor  compare  in  importance  with,  that  part  of  an  adjuster's  equipment 
which  I  have  chosen  to  call  the  chief  factor  in  loss  adjustments. 

To  revert  to  the  division  adopted  at  the  outset,  every  profes- 
sional or  business  man  may  be  viewed  as  divided,  like  Caesar's  Gaul, 
into  three  parts:  natural  character,  general  culture,  and  specific 
training.  For  the  purposes  of  this  paper,  I  am  passing  very  lightly 
over  the  last  of  these  three  elements  in  the  equipment  of  an  adjuster, 
important  as  I  have  just  declared  it  to  be.  And  in  like  manner,  I 
mean  to  say  but  little  about  the  first  of  them.  For  tremendous  as  is 
the  importance,  not  only  in  loss  adjustments,  but  in  all  other  human 
enterprises,  of  purely  natural  endowments,  it  is  of  little  use  to  dis- 
cuss them  before  an  audience  composed  chiefly  of  employees  rather 
than  employers.  It  might  profit  a  roomful  of  company  managers 
to  have  pointed  out  to  them  the  native  qualities  of  mind  and  person 
they  should  seek  for  in  their  adjusters.  But  men  still  young,  and 
looking  forward  to  shaping  their  own  careers  in  the  insurance  busi- 
ness, will  care  more  to  know  how,  with  the  natural  gifts  they  already 
have,  they  may  best  prepare  themselves  for  the  work  of  adjusting 
losses.  Moreover,  I  have  the  perfectly  definite  conviction  that  the 
weak  spot  in  the  armor  of  the  average  adjuster  is  to  be  sought,  not 
in  what  he  was  by  nature  and  inheritance,  before  he  learned  any- 
thing, nor  in  the  specific  training  he  has  received  as  an  adjuster,  but 
in  that  intermediate  region  of  the  general  education  he  received,  or 

296 


Chief  Factor  in  Loss  Adjustments 

gave  himself,  before  his  specific  training  began.     In  other  words,  it 
is  neither  in  character  nor  in  technical  education  that  an  adjuster  is 
so  likely  to  be  deficient  as  in  general  culture.    And  this  deficiency  is, 
I  am  bound  to  say,  likely  to  be  more  apparent  in  a  city  like  New 
York  than  anywhere  else.    It  is  a  commonplace  of  observation  that, 
not  only  in  the  insurance  business  but  in  every  other  business  and 
profession,  notably  the  law,  outsiders  from  all  parts  of  the  country 
win  an  undue  proportion  of  the  chief  prizes  in  competition  with 
native  New  Yorkers.     Of  course  one  reason  is  that  a  great  city 
attracts  the  stronger,  more  daring  and  more  resourceful  spirits  from 
the  professional  and  mercantile  ranks  in  all  the  smaller  towns  and 
cities,' and  that  therefore  the  outside  contingent  is  of  greater  average 
strength  of  fibre  than  the  unselected  home  talent.     But  I  am  well 
satisfied  that  in  the  insurance  business,  at  least,  a  man  usually  has  a 
better  chance  of  fitting  himself  to  take  high  rank,  whose  years  of 
preparation  are  passed  in  a  smaller  place,  than  another  of  precisely 
e(^ual  natural  gifts  who  spends  the  same  years  in  New  York  City. 
There  are,  it  seems  to  me,  two  chief  reasons  -for  this.    The  first  is 
that  where  the  work  of  a  business  or  profession  is  so  highly  spe,- 
cialized  and  subdivided  as  it  must  be  in  the  great  offices  and  estab- 
lishments of  a  large  city,  a  young  man  has  many  chances  of  spending 
his  life  at  one  desk  or  in  one  department  of  work,  and  comparatively 
few  chances  olt  getting  such  a  wide  outlook  over  his  chosen  calling 
as  a  whole  tlTat  he  will  be  in  line  for  promotion  to  any  really  first- 
rate  post.    It  is  otherwise,  of  course,  in  the  smaller  place,  where  a 
youth  soon  gets  a  "try-out"  at  every  branch  of  the  business,  and  so  a 
chance  to  learn  general  principles  and  fit  himself  for  advancement 
toward  the  top.     The  young  man  who  in  New  York  might  spend 
years  in  writing  policies  or  keeping  one  record-book,  would  in  the 
country  be  displaying  his  all-around  ability,  and  gaining  both  self- 
confidence  and  the  notice  of  his  superiors,  in  six  months'  time.     But 
the  other  reason  is  still  more  potent.     In  New  York  the  office  help 
is  composed  of  clerks  who  have  left  school,  on  the  average,  two  or 
three  years  earlier  than  they  wouM  havfi- kit, it  had_ their  youth  been 
passed  in  a  smaller  place.    The  tremendous  attraction,  the  jmll^  that 
business  life  exerts  on  the  youth  of  a  great  city,  is  quite  without  a 
parallel  elsewhere,  and  this  facFis  full  of  danger  to  the  community 
as  well  as  to  the  individual.    The  most  stunning  piece  of  educational 
statistics  within  my  knowledge  is  the  fact  that  until  six  years  ago 
New  York  City  proper — Manhattan — did  not  have  a  single  High 
School  in  its  educational  system.     And  that  fact  is  typical  of  the 

297 


The  Fire  Insurance  Contract 

jWhole  attitude  of  the  city  toward  the  preparation  of  its  young  men 
for  their  life  work.    Nothing  like  the  same  proportion  of  New  York 
City  boys,  either  of  wealthy,  moderately  well-to-do,  or  poor  families, 
get,  or  seek,  or  are  expected  to  take,  a  high-school,  or  preparatory 
school,  or  college  course,  as  of  boys  of  the  corresponding  grades  of 
society  in  the  smaller  cities  and  towns  of  New  England,  or  rural 
New  York,  or  Pennsylvania,  or  the  Middle  West  or  North-West. 
Business  colleges  in  abundance  we  have  here,  some  of  them  excellent 
of  their  kind,  some  wretched  beyond  the  power  of  words  to  describe, 
but  all  of  them  quite  inadequate  to  supply  the  general  training  that 
most  of  their  pupils  chiefly  need.    But  the  typical  preparation  for 
business  of  New  York  boys,  even  of  intelligent  and  well-to-do  fami- 
lies, is  not  that  of  even  the  business  college,  but  of  actual  employment 
in  an  office  or  shop  or  store  from  the  age  of  sixteen  or  younger.  And 
one  conspicuous  and  inevitable  result  is  the  immense  mass  of  clerical 
ability  of  the  cheapest  grade,  that  gluts  the  New  York  market,  keeps 
salaries  absurdly  low,  and  furnishes  only  an  insignificant  percentage 
of  promotions  to  the  ranks  of  upper  class  business  men.  For  contact 
with  the  world  in  early  youth,  while  it  brightens  and  sharpens  and 
hardens,  does  not  really  educate,  once  in  five  hundred  times.    Occa- 
sionally a  strong,  or  even  a  fine,  spirit  makes  its  way  to  honor  and 
power  from  the  ranks  of  the  newsboys  or  the  bootblacks.     But  in 
the  main  those  schools  graduate  their  pupils  into  careers  of  crime 
and  wretchedness.    Sometimes  a  man  whom  chance  or  necessity  has 
driven  into  business  in  early  boyhood  has  made  of  himself,  despite 
the  lack  of  schools  or  teachers  or  leisure,  that  delightful  and  unmis- 
takable product,  a  cultivated  gentleman.    We  all  know  and  honor  a 
few  such,  I  trust.     But,  for  one  such  example,  there  are  always 
hundreds  of  the  kind  in  whom  an  average,  or  perhaps  more  than  an 
average  natural  ability  has  been  practically  deprived  of  all  chance  of 
achieving  a  worthy  development  by  the  premature  substitution  of  an 
office  for  a  school-room  as  a  sphere  of  activity.    If  every  young  man' 
who  has  chosen,  or  been  compelled,  to  go  into  business  several  years 
before  his  schooling  ought  to  have  ended,  could  fairly  appreciate 
what  it  is  he  has  missed  thereby,  and  then  set  to  work  to  make  good 
the  loss  as  far  as  lies  in  his  power,  the  number  of  individual  suc- 
cesses, in  life  and  in  business,  would  be  greatly  increased.    Many  a 
man  has  gained  for  himself  a  great  part  of  the  benefits  that  a  high 
school  and  college  course  ought  to  yield,  without  in  fact  going  to 
school  at  all;  but  most  men  do  not  and  never  will  accomplish  any 
such  achievement,  because  they  have  no  proper  conception  either  of 

298 


Chief  Factor  in  Loss  Adjustments 

its  value  or  its  practicability.  For  example,  an  acquaintance,  and  a 
very  considerable  acquaintance,  with  history,  and  with  the  best  liter- 
ature of  all  languages,  is  possible  to  almost  every  man.  And  such  an 
acquaintance  is  of  permanent,  various  and  purely  practical  value  to 
every  man  who  has  it,  in  ways  and  to  a  degree  that  words  cannot 
overstate.  But  the  bright  boy  who  goes  into  business  from  the 
grammar  school  is  only  too  likely  never  to  have  had  that  fact  prop- 
erly impressed  upon  him  before,  and  not  to  have  a  reasonable  chance 
of  having  it  impressed  upon  him  after  his  business  career  begins. 
Abraham  Lincoln  and  Andrew  Carnegie,  and  many  another  beside, 
may  indeed  have  abundantly  made  good  the  defects  of  their  formal 
education,  and  grown  up  into  a  ripeness  of  wisdom,  a  keenness  of 
intelligence,  and  a  saneness  of  judgment  that  are  rare  among  men 
of  any  age  or  country.  But,  after  all,  it  is  only  the  rare  spirit  who 
can  perform  any  such  miracle.  And  it  is  a  tremendous  handicap  that 
is  imposed  on  the  ordinary  boy  who  is  plunged  into  steady,  exacting 
routine  work — drudgery,  if  you  please  to  call  it  so — before  his 
judgment,  his  will,  his  tastes  and  his  ambitions  have  ever  begun  to 
turn  him  toward  self-culture  and  the  intellectual  life.  All  honor  to 
those  who  overcome  that  handicap  and,  by  becoming  and  remaining 
forever  greater  than  their  work,  both  magnify  it  and  enrich  their 
own  lives. 

But  whether  this  personal  culture  be  chiefly  derived,  in  the 
normal  way,  from  a  thoroughly  good  general  education,  or  acquired 
by  the  individual,  through  superior  insight  and  determination,  in 
spite  of  the  almost  total  lack  of  educational  facilities,  in  the  ordinary 
sense,  the  point  I  make  is  that  without  it  no  considerable  success  is 
possible  in  any  profession  or  in  any  high-grade  business  or  occupa- 
tion. And,  in  particular,  the  business  of  adjusting  losses,  it  seems  to 
me,  demands,  even  more  than  it  demands  great  natural  ability  or 
superior  technical  training,  this  general  culture  and  all  around  de- 
velopment of  character  and  intelligence. 

For  consider  a  few  of  the  prime  requisites  in  an  adjuster's 
equipment,  taken  merely  as  examples,  and  almost  at  haphazard,  and 
see  how  largely  they  must  proceed  from  such  a  general  culture  if 
they  are  to  be  found  at  all.  Take  first  the  virtue  of  flexibility — the 
power  of  adapting  or  attuning  one's  self  to  the  mental  quality  of  the 
man  one  is  dealing  with.  An  adjuster  must  be  able,  first  of  all,  to 
draw  out  his  claimant,  to  get  in  touch  with  him,  to  gain  his  con- 
fidence and  his  respect.  He  must  deal  with  the  Doctor  of  Divinity 
or  the  Fifth  Avenue  swell,  or  the  great  merchant  or  manufacturer, 

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The  Fire  Insurance  Contract 

without  seeming  to  look  up,  and  with  the  bartender  or  the  East  Side 
"kyke"  without  seeming  to  look  down :  meeting  every  man  as  nearly 
as  possible  at  his  own  level,  and  doing  business  with  him  on  terms 
of  equality,  so  far  as  either  party's  consciousness  can,  at  the  time, 
record. 

Of  the  immense  value  of  this  kind  of  adaptability  there  cannot 
be  two  opinions.  And  while  an  occasional  finely  tempered  soul  may 
be  born  with  it  in  his  kit,  in  the  main  it  comes  only  with  much  knowl- 
edge, both  of  books  and  of  men — of  life  and  of  history.  President 
Roosevelt,  whose  comradeship  with  cowboys  and  with  kings  is 
equally  easy  and  unconstrained,  is  a  type  of  the  character  made 
flexible  by  cultivation,  and,  because  flexible,  potent  beyond  the  pos- 
sibilities of  the  narrow  or  commonplace  mind.  Another  example  of 
personal  flexibility  occurs  to  me  often,  and  I  digress  to  tell  a  story 
for  the  sake  of  it. 

Some  eighteen  years  ago  I  went  from  Cincinnati  to  adjust  the 
loss  of  the  Tabard  Inn  and  its  contents,  in  the  curious  and  interesting 
English  colony  at  Rugby,  Tennessee,  then  largely  under  the  control 
of  the  late  Thomas  Hughes.  It  was  a  lonely  region  on  the  Cumber- 
land plateau,  and  the  colony  contained  some  of  the  most  attractive 
and  delightful  people  I  have  ever  seen  brought  together.  A  few  of 
them  were  from  New  England  and  other  parts  of  the  North,  but 
for  the  most  part  they  were  English, — English  of  the  Seven  Seas, 
however,  for  they  had  come  from  India,  Australia,  and  the  Straits 
Settlements,  as  well  as  from  the  British  Isles.  Among  them  still 
dwelt  many  of  the  native  mountaineers  of  the  region,  the  real  Caro- 
lina-Tennessee breed  that  Miss  Murfree  and  her  successors  have 
tried  to  make  us  see  through  a  kind  of  pink  halo  of  fiction.  One 
day,  at  the  post-ofiice  in  the  village  store,  my  host,  the  Superin- 
tendent of  the  Colony,  introduced  me  to  Uncle  Henry  Plotner,  a 
typical  native,  but  a  very  shrewd  and  original  old  man,  a  bit  of  a 
philosopher  and  a  most  entertaining  companion.  Uncle  Henry  took 
kindly  to  me,  because,  as  it  seemed,  he  was  glad  to  meet  a  stranger 
who  came  from  no  farther  away  than  Cincinnati,  instead  of  hailing 
from  Berwick  or  Calcutta  or  Melbourne;  and  he  told  me  many 
stories  of  the  colonists'  experiments  in  agriculture  and  kindred  arts 
that  seemed  to  him,  and  sometimes  to  me,  pretty  funny.  He  evi- 
dently had  but  a  poor  opinion  of  the  practical  good  sense  of  his  new 
neighbors,  whom  he  looked  on  as  mainly  a  set  of  harmless  but  im- 
provident lunatics.  But  he  made  one  exception  or  reservation. 
"Wilson,  the  surveyor,"  he  said,  "is  all  right;  just  a  plain,  ordinary 

300 


Chief  Factor  in  Loss  Adjustments 

fellow  like  you  or  me,  and  got  as  much  sense  as  either  of  us."  A 
day  or  two  later  I  went  to  call  on  Wilson.  He  kept  bachelor's  quar- 
ters in  a  one-room  cottage  he  had  built  in  the  forest  on  the  edge  of 
the  village.  A  fresh-faced,  powerful,  but  rather  clumsy  young 
Englishman  he  was,  in  soiled  duck  trousers  and  a  shapeless  jacket. 
One  side  of  his  one  room  was  covered  with  empty  beer-bottles,  on 
shelves,  to  the  ceiling.  With  that  dogged  patience  that  can  only  be 
called  British,  he  had  sampled  about  all  the  brews  of  beer  and  ale  the 
United  States  could  boast  of,  sending  to  New  Orleans,  St.  Louis, 
Cincinnati,  Milwaukee,  and  even  Harrisburg  and  New  York  for  the 
goods;  and  while  he  hadn't  yet  found  just  the  thing  he  liked,  he  was 
rather  proud  of  his  collection  of  bottles,  just  as  it  stood,  and  still 
hopeful  of  one  day  coming  on  a  really  good  beer  somewhere.  On 
the  opposite  side  of  the  room  were  some  surveying  instruments,  some 
chemical  supplies  and  apparatus,  and  a  small  but  striking  collection 
of  books.  The  young  man's  conversation  was  unaffected,  and  his 
bearing  quite  what  Uncle  Henry  had  described  it.  But  it  was  clear 
he  was  a  "thoroughbred,"  all  the  same,  and  I  made  early  inquiries 
from  the  Superintendent.  Wilson  proved  to  be  a  Cambridge  Senior 
Wrangler,  brother  of  Dr.  Wilson,  a  famous  head-master  of  Clifton 
College  in  England,  born  and  bred  in  a  family  of  scholars,  himself 
one  of  its  brightest  lights.  He  was  far  and  away  the  most  learned 
man  in  the  little  colony,  perhaps  in  all  Tennessee.  And  yet  he  was 
the  one  man  in  the  settlement  whom  Uncle  Henry  could  commune 
with  as  with  an  equal  and  familiar.  He  died  of  typhoid  fever  a  year 
or  two  later,  I  believe,  and  his  career  never  fairly  began.  But  I 
never  think  of  him  without  wishing  that  the  business  of  adjusting 
losses  could  be  made  more  attractive  to  the  type  of  man  he  rep- 
resented. 

Next  to  flexibility  J  incline  to  rank  modestv^  by  which  I  mean, 
not  the  laclc  of  selt-conceit,  but  the  ability  to  prevent  one's  self- 
conceit  from  becoming  offensive  to  the  man  one  is  dealing  with,  and 
so  a  serious  obstacle  to  the  conduct  of  business.  I  sympathize  with 
the  philosopher  who  concluded  that  all  men  have  about  equal  endow- 
ments of  self-conceit,  the  difference  among  them  being  only  in  their 
display  of  it  to  the  world.  Indeed,  the  reason  why  my  self-conceit 
offends  my  neighbor  is  largely  because  it  comes  in  contact  with  his 
own  more  or  less  protuberant  bump  of  the  same  quality.  But  if  it 
does  offend,  and  if  I  have  reason  to  wish  to  avoid  giving  offense,  then 
I  were  wise  to  exercise  control  in  that  respect.  In  an  adjuster,  more- 
over, the  danger  of  a  conceited  bearing  lies  not  merely, in  the  risk 

301 


The  Fire  Insurance  Contract 

of  arousing  resentment  and  hostility,  but  in  its  tendency  to  dull  his 
own  perception  of  the  feelings  and  purposes  of  those  he  is  treating 
with.  For  no  one  who  is  chiefly  concerned  with  his  own  ideas  and 
their  expression  can  be  properly  alive  to  what  is  going  on  in  the  mind 
of  the  other  party  to  the  conversation.  And  there  is  absolutely 
no  more  urgent  necessity  than  this  in  adjustments, — that  the  ad- 
juster should  quickly  and  constantly  gauge  his  claimant's  state  of 
mind  and  feeling.  So  that  nothing  is  more  certain  than  that  a  mani- 
festly conceited  adjuster  is  a  menace  to  his  company's  welfare,  unless 
it  be  the  other  fact  that  manifest  conceit  is  almost  always  a  product 
of  an  imperfect  education  or  general  culture.  A  little  freshly-gained 
knowledge  is  of  course  a  fertile  begetter  of  conceit,  particularly  if  it 
be  some  very  narrow  and  special  kind  of  knowledge.  But  wisdom 
IS  the  parent  of  modesty.  A  new-fledged  country  school-teacher,  who 
begins  to  suspect  himself  of  being  a  lightning  calculator  or  a  born 
speller,  jars  the  township  with  his  tread.  But  Presidents  Eliot  and 
ITadley  step  softly  when  they  cross  the  campus. 

Again,  an  adjuster  should  have  a  thoroughly  good  rnmjjj^nd  of 

language.  OFcourse  he~inust  be~ableT6'  state  an  argument  clearly, 
draw  an  agreement  correctly,  and  frame  a  report  intelligibly.  But 
that  is  not  all.  If  he  is  to  do  business  with  all  sorts  and  conditions 
of  men,  and  if,  as  we  have  insisted  he  must,  he  is  to  meet  every  man 
at  his  own  level,  he  mustjspeak  to  every  one,  as  far  as  possible,  in 
his  own  tongue, — that  is  to  say,  employing  the  vocabulary,  the  style, 
and  the  illustrations  that  each  of  them  best  understands.  Here  again 
natural  gifts  count  for  much,  but  in  the  main  it  is  a  thorough  cul- 
ture, a  real  knowledge  of  life  and  literature,  that  is  the  determining 
factor.  No  young  fellow  who  has  merely  grafted  upon  the  slipshod 
speech  of  the  street  a  few  commercial  and  technical  phrases  from  the 
office  or  the  shop,  and  decorated  the  result  with  snatches  of  rhetoric 
borrowed  from  Chimmie  Fadden  or  Weber  &  Fields,  or  the  New 
York  Sun's  joke  column,  has  fairly  begun  to  equip  himself  for  ad- 
justing losses  through  the  medium  of  the  English  language;  though 
no  one  of  the  sources  of  speech  here  named  is  in  itself  to  be  despised. 
Good  sense  and  a  right  understanding  of  the  point  at  issue  do  go 
far  to  enable  a  man  to  express  himself  with  sufficient  clearness  about 
all  kinds  of  routine  matters.  And  a  clerk  or  office  man,  not  entrusted 
with  important  correspondence,  does  not  need  **the  tongues  of  men 
and  of  angels"  in  his  business.  But  an  adjuster  must  carry  his  mer- 
chandise of  speech  to  all  kinds  of  markets,  and  must  be  sure  it  will 
be  welcome,  and  merchantable  in  them  all.    Now  merchantable  cer- 

302 


Chief  Factor  in  Loss  Adjustments 

tainly  does  not  mean  formed  for  display,  but  it  does  mean  suited  to 
the  local  demand,  conforming  to  the  local  standards.  And  only  the 
man  of  considerable  natural  gifts  or  the  man  of  considerable  educa- 
tion can  be  sure  of  habitually  saying  the  right  thing  in  the  right  way 
and  to  the  right  hearer. 

I  pass  over  such  qualities  as  thoroughness,  self-control,  cour- 
tesy — all  indispensable  to  an  adjuster  and  all  dependent  in  great 
measure  upon  his  general  nurture  rather  than  his  native  endow- 
ments or  his  business  training,  just  as  I  am  passing  over  the 
fundo.mental  virtues  of  integrity  and  a  strong  desire  to  do  justice — 
which  latter  are  usually  rather  nature's  gifts  than  the  products 
of  any  sort  of  culture. 

And  T  come  to  what  is  perhaps  one  of  the  most  important 
of  the  intellectual  (as  distinguished  from  the  purely  moral)  quali- 
ties of  a  good  adjuster — resourcf^fylpfgg, — tlif>  quality  of  being, 
equal  to  any  previously  unexoerie^^^H  rnnHitinn&.and.  emergencies^ 
There  are  few  men,  I  fancy,  to  whom  the  unexpected  happens 
oftener  than  to  the  adjuster.  Many  incidents  of  his  career  are  of 
coui  ie  entirely  commonplace,  orthodox,  capable  of  being  foreseen, 
and  in  fact  carefully  provided  for  by  his  training  and  experience. 
But  a  very  large  number  are  of  the  other  sort  altogether.  Losses 
themselves,  the  conduct  of  claimants  and  their  employees,  the 
handling  of  accounts  and  other  evidences  of  values,  salvage  oper- 
ations, the  problems  of  policy  construction  and  apportionment  are 
all  likely  to  develop  surprises  for  the  most  experienced  of  ad- 
justtrs,  and  to  test  his  general  fitness  for  his  job  in  sudden  and 
excruciating  ways.  Sometimes  it  is  specific  expert  knowledge  that 
is  thus  called  for  at  a  moment's  notice,  but  more  often  it  is  that 
familiarity  with  general  principles,  and  that  power  of  applying 
them  to  new  conditions,  that  we  call  general  ability.  The  man 
who  ha>  not  this  quality  will  never  in  the  world  be  a  great  ad- 
juster. And  this  habit  or  practice  of  correct  reasoning  and  of 
prompt  action  upon  the  results  of  such  reasoning  is  the  product  of 
nothing  so  much  as  of  general  culture  and  all-around  mental  de- 
velopmint.  Books  and  the  school  room  alone  will  not  give  it, 
to  b^  sure,  but  they  can  greatly  increase  the  probability  that  a  man 
will  K  :quire  it  for  himself.  For  training  begets  pdwer,  and  power 
does  the  world's  work. 

A  little  story  that  comes  to  my  mind  in  this  connection  hap- 
pens to  be  a  special  agent's  rather  than  an  adjuster's  story,  but  it 
will  illustrate  my  point  well  enough.     An  old  friend  from  the  Cen- 

303 


The  Fire  Insurance  Contract 

tral  West  called  upon  me  a  few  weeks  ago  to  report  progress  since 
we  met  last.  He  is  still  a  young  man,  but  is  at  the  head  of  a  very 
important  field  department  for  one  of  the  largest  insurance  com- 
panies in  the  country,  and  with  every  prospect  of  a  distinguished 
career.  Ten  years  ago,  when  he  had  just  left  the  local  office  where 
he  got  his  start  and  gone  on  the  road  for  an  English  company,  he 
was  sent  to,  let  us  say,  Brownsville,  Indiana,  to  collect  a  balance 
and  transfer  an  agency.  He  found  the  delinquent  agent  to  be  a 
rising  young  lawyer  in  the  county  town,  probably  honest  enough, 
but  wholly  without  financial  strength,  and  just  then  engaged  in  a 
hot  campaign  for  election  as  Prosecuting  Attorney  of  the  county, — 
a  campaign  that  was  imperatively  demanding  all  the  ready  money 
he  and  his  friends  could  spare.  The  aspiring  young  candidate  ex- 
plained to  Wright,  the  special  agent,  that  it  was  quite  impossible 
to  pay  that  little  balance  at  once,  but  that  the  election  would  be  over 
in  about  a  month,  and  he  was  absolutely  sure  to  be  in  office  and  in 
funds  in  a  very  short  time.  Wright,  who  felt  himself  too  new  to 
his  job  to  tamper  with  imperative  instructions,  threatened  suit.  But 
the  lawyer-agent  only  laughed  at  that.  The  balance  would  be  paid, 
he  explained,  before  judgment  and  execution  could  possibly  be  had, 
and  the  legal  expenses  would  be  quite  wasted.  Pay  he  surely 
would,  and  that  before  long,  but  pay  now  he  could  not,  nor  could 
anybody  make  him.  Well,  Wright  went  on  with  his  preparations 
for  the  transfer,  selected  a  new  agent  and  turned  over  the  supplies 
to  him,  then  spent  a  few  minutes  in  meditation,  and  a  few  more  in 
making  certain  inquiries  from  local  sources.  Next  day  he  called 
on  his  ex- agent  and  explained  that  he  was  unable  to  remain  longer 
in  town,  and  that  he  felt  it  necessary  under  his  instructions  to  put 
his  Company's  claim  for  that  balance  in  the  hands  of  a  lawyer,  in 
spite  of  the  probable  futility  of  such  a  course.  That  was  all  right, 
the  delinquent  said;  instructions  ought  to  be  obeyed,  he  supposed, 
but  in  any  event  no  lawyer  would  be  able,  and  he  was  pretty  sure 
none  would  try,  under  the  circumstances,  to  collect  the  money 
before  he  was  ready  to  pay  it.  With  whom  did  he  mean  to  leave 
the  claim?  Wright  referred  to  a  slip  of  paper  and  said  he  had  been 
advised  to  employ  Mr.  Tom  Jackson.  The  other's  jaw  dropped  as 
if  paralyzed.  ''Oh — well — why — say,  for  God's  sake  don't  do  that ! 
Why  he's  my  opponent  in  this  campaign!"  "Is  he?"  said  Wright, 
as  if  the  idea  were  new  to  him.  "Yes,"  said  the  agent,  "and  he'd 
just  tear  this  county  wide  open  if  he  had  a  thing  like  that  against 
me.     He  couldn't  get  the  money,  and  he  wouldn't  try  very  hard. 

304 


Chief  Factor  in  Loss  Adjustments 

But  he'd  beat  me  out  of  my  election,  sure  as  shooting!'*  "Well," 
replied  Wright,  soothingly,  "if  that  is  so,  it  seems  to  me  you  have 
a  mighty  easy  way  of  making  sure  of  your  election."  The  fright- 
ened candidate  looked  hard  at  him  for  a  moment,  then  said,  desper- 
ately, "Say,  wait  till  the  afternoon  train."  Then  he  went  out  on  the 
street  and  borrowed  the  amount  of  that  little  balance  in  five  and  ten 
dollar  sums,  much  of  it  in  silver,  visiting  all  his  party  friends 
among  the  office-holders,  merchants,  and  saloon-keepers  of  the 
place,  and  coming  back  flushed  and  perspiring,  but  immensely  re- 
lieved. Wright  took  the  afternoon  train,  and  his  company  never 
knew  how  the  money  was  raised.  But  he  didn't  have  to  keep  track 
of  the  result  of  that  election,  because  it  had  ceased  to  interest  him. 
Now,  that  particular  trick  had  probably  never  been  "turned"  before 
by  anybody,  and  an  inexperienced  young  special  agent  who  could 
hit  upon  it,  and  make  it  "go,"  must  have  had,  as  his  subsequent 
career  attests  he  did  have,  internal  resources  of  an  unusual  kind. 
And  the  demand  for  just  that  kind  of  first-aid-to-the-injured  men- 
tal equipment  is  of  frequent  if  not  constant  occurrence  in  the  ad- 
justment of  losses.  And  it  is  a  demand  that  no  man  can  respond  to 
habitually  unless,  in  addition  to  good  natural  qualifications  and 
good  training  in  his  business,  he  has  the  general  preparation  that 
is  a  training  for  all  business. 

I  need  not  further  multiply  qualifications  nor  examples  of  their 
usefulness.  You  may  take  my  word  for  it  that  the  chief  human 
factor  in  loss  adjustments  is  the  personal  force  and  quality  of  the 
adjuster;  and  that  the  business  is  one  which,  while  it  is  perforce 
too  often  left  in  other  hands,  really  calls  for  the  services  of  a  set 
of  all-around  intellectual  athletes. 

If  the  Insurance  Society  should  succeed  in  developing  more 
of  that  kind  of  material  than  the  Loss  Departments  can  absorb, 
it  is  an  absolute  certainty  that  the  other  branches  of  the  insurance 
business  will  gladly  take  up  the  surplus. 


305 


XVII 

THE  CLAIM— THE  PROOF  OF  LOSS— WHEN  IS 
LOSS  PAYABLE! 

Robert  J.  Fox 

Of  Fox  &  Weller,  Attorneys 

Until  the  conviction  in  the  so-called  Markheim  case,  later  af- 
firmed by  the  Court  of  Appeals,  there  had  been  much  doubt  as  to 
what  constituted  a  claim  against  an  insurance  company  for  the  pay- 
ment of  a  loss  upon  a  contract  of  insurance.  Louis  Markheim, 
president  of  the  Markheim  Company,  a  corporation,  was  convicted 
after  a  trial  lasting  several  days,  held  before  Mr.  Justice  Gavcgan, 
of  the  Supreme  Court,  and  a  jury,  and  was  sentenced  to  imprison- 
ment for  not  less  than  two  years  and  not  more  than  three  years  and 
six  months,  for  a  violation  of  what  is  known  as  Section  1202  of  the 
Penal  Law,  where  it  is  provided : 

A  person,  who  knowing  it  to  be  such: 

Presents  or  causes  to  be  presented  a  false  or  fraudulent  claim  or 
any  proof  in  support  of  such  a  claim  for  the  payment  of  a  loss  upon  a 
contract  of  insurance  *  *  ♦  is  punishable  by  imprisonment  for  not 
more  than  five  years  or  by  a  fine  of  not  more  than  $500,  or  by  both  such 
fine  and  imprisonment. 

An  appeal  was  taken  to  the  Appellate  Division  of  the  Supreme 
Court;  the  conviction  was  affirmed,  Mr.  Justice  Scott  writing  a 
forceful  and  interesting  opinion,  in  which  all  the  other  justices  con- 
curred (People  V.  Markheim,  162  App.  Div.,  p.  859),  and  on  an  ap- 
peal taken  to  the  Court  of  Appeals  was  again  affirmed  by  a  unani- 
mous court,  no  opinion  being  written. 

Prosecutions  had  been  successfully  had  under  this  statute,  but 
in  every  case  after  the  filing  of  a  formal  proof  of  loss,  and  until  the 
Markheim  case  there  had  never  been  a  prosecution  unless  in  a  case 
where  such  a  proof  of  loss  had  been  filed.  It  may  be  instructive, 
therefore,  to  review  briefly  the  story  of  the  Markheim  case,  so  that 
we  may  appreciate  more  fully  the  importance  and  far-reaching  ef- 
fect of  the  decision. 

The  Markheim  Company,  of  which  Louis  Markheim  was  the 
president,  was  a  corporation  engaged  in  the  business  of  importing, 
buying  and  selling  at  wholesale  embroideries  and  laces,  at  12-14 
West  Twenty-first  street.  New  York  City,  occupying  the  store  and 
basement.  The  corporation  had  been  known  by  the  name  of  Bondy, 
Markheim  &  Co.,  and  on  February  28,  1913,  by  an  order  of  the 

306 


Claim — Proof  of  Loss — ^When  is  Loss  Payable 

court,  its  name  was  changed  to  Markheim  Company,  Inc.  The  fire 
occurred  just  before  7  o'clock  on  the  evening  of  Saturday,  April  12, 
1913.  It  started  in  the  basement  and  extended  to  the  grade  floor. 
The  fire  department  responded  promptly  and  in  a  short  time  had  the 
fire  under  control.  The  Markheim  Company  was  carrying  at  the 
time  of  the  fire  insurance  on  stock  to  the  amount  of  $131,000.  Im- 
mediately after  the  fire  the  company  retained  public  adjusters,  who 
sent  out  postal  cards  notifying  the  companies  of  the  fire  loss.  The 
loss  came  under  the  jurisdiction  of  the  Loss  Committee  of  the  New 
York  Board  of  Fire  Underwriters,  and  a  committee  of  two  adjusters 
was  at  once  appointed.  The  public  adjusters  took  an  inventory  of 
the  grade  floor,  and  with  the  assistance  of  Markheim,  president  of 
the  insured,  and  its  bookkeeper,  made  up  from  the  books  a  merchan- 
dise statement.  This  merchandise  statement,  purporting  to  be  a 
true  transcript  of  the  books  of  the  Markheim  Company,  was  pre- 
sented to  the  company  adjusters  on  April  17;  attached  to  it  was  a 
list  of  43  insurance  companies  affected  by  the  loss,  showing  the 
amount  of  insurance  carried  in  each  company,  and  with  it  was  sub- 
mitted the  inventory  of  the  stock  on  the  grade  floor.  This  mer- 
chandise statement  showed  a  sound  value  of  stock  on  hand  at  the 
time  of  the  fire  of  $145,663.85  and  was  made  up  as  follows: 

"Merchandise  Statement Markheim  Co.,  Inc. 

Nos.  12-14  W.  21st  Street. 

Inventory  as  per  ledger  June  30^12  $96,606.67 

Purchases  less  Returns, 

June  30/12  to  April  12/13  $147,008.94 

Discount  6%  8,820.53 


138,188.41 

$234,795.08 
Sales  less  Returns  $137,038.08 

Goods  out  at  memo  86.88 


$137,124.96 
Less  gross  profit  35%  47,993.73 


89,131.23 

Showing  Amt.  of  value  on  hand 
April  12/13  (Date  of  fire)  $145,663.85" 

307 


The  Fire  Insurance  Contract 

On  the  morning  of  the  day  following  (April  18th),  the  Com- 
pany adjusters,  by  appointment,  made  a  visit  to  the  premises,  where 
they  met  Markheim,  the  president  of  the  Company,  its  bookkeeper 
and  the  public  adjusters.  Markheim  confirmed  the  merchandise 
statement  which  had  been  submitted  by  his  adjusters  and  said  thctt 
his  books  were  true  and  correct;  that  the  goods  remaining  in  sight 
were  so  badly  damaged  as  to  be  unmerchantable  and  there  was 
practically  no  salvage.  A  request  was  then  made  for  his  books  of 
account  for  examination  in  connection  with  the  statement  submitted 
and  they  were  examined  by  the  Company  adjusters  and  found  to 
confirm  the  statement ;  the  bookkeeper  assumed  that  the  books  were 
correct  and  so  stated. 

It  may  be  well  to  recall  the  situation  as  it  presented  itself  at 
that  time:  While  there  was  a  large  water  and  smoke  damage,  it 
was  apparent  that  the  actual  burning  out  of  sight  was  slight.  Mark- 
heim contended  that  his  books  were  correct  and  the  sound  value  of 
the  stock  on  hand,  as  stated,  was  $145,663.85;  that  the  stock  in 
sight  both  on  the  grade  floor  and  in  the  basement  was  so  badly 
damaged  as  to  be  unmerchantable  and  claimed,  therefore,  that  the 
loss  in  fact  exceeded  the  total  insurance,  $131,000,  or  was  almost 
to  the  extent  of  $145,663.85,  the  entire  sound  value  as  shown  by 
the  books  and  the  statement.  The  stock  on  the  grade  floor  had  been 
inventoried  at  cost  at  $17,327.61,  and  the  difference  between  that 
and  the  sound  value  shown  by  the  books  should  be  the  value  of  the 
stock  in  the  basement  at  the  time  of  the  fire,  or  $128,336.25.  It  was 
clear  to  the  Company  adjusters  from  the  examination  of  the  books 
that  the  Company  was  insolvent  and  that  the  stock  in  the  basement 
would  not  inventory  in  value  much  more  than  that  on  the  grade 
floor;  a  condition  so  extraordinary  as  to  require  immediate  and 
critical  investigation. 

Rumors  were  rife  shortly  after  this  visit  of  the  sale  just  before 
the  fire  of  large  quantities  of  merchandise  through  auctioneers. 
This  information  came  to  the  public  adjusters  and  also  to  the  Com- 
pany adjusters.  The  public  adjusters  presented  the  situation  to 
Markheim ;  he  denied  it,  going  so  far  as  to  make  an  affidavit,  which 
was  one  of  the  important  pieces  of  evidence  on  the  criminal  trial, 
to  the  effect  that  no  sales  of  merchandise  had  been  made  other 
than  in  the  regular  course  of  business  and  that  all  sales  appeared 
in  the  books  of  account.  The  public  adjusters  were  not  satisfied 
and  continued  their  investigation  and  in  some  way  learned  that  sales 
had  been  made  through  one  Hartman,  an  auctioneer  and  commission 

308 


Claim — Proof  of  Loss — When  is  Loss  Payable 

merchant  in  laces.  Markheim  was  confronted  with  Hartman  and 
finally  admitted  that  merchandise  had  been  sold  through  Hartman 
and  others  which  was  not  recorded  in  the  books,  and  prepared  and 
gave  to  the  public  adjusters  a  statement  of  sales  that  had  been  made 
amounting  at  cost  to  upwards  of  $30,000.  The  Public  adjusters 
refused  longer  to  represent  the  Markheim  Company  and  withdrew. 

Those  charged  with  the  responsibility  of  protecting  the  interests 
of  the  Companies,  were  satisfied  from  the  situation  disclosed  on 
the  visit  to  the  Markheim  premises  and  from  the  information  that 
had  subsequently  come  to  them  that  a  claim  that  was  in  every 
respect  false  and  fraudulent  had  been  presented.  The  District 
Attorney  through  Assistant  District  Attorney  Weller  began  imme- 
diately an  investigation  and  the  facts  that  I  have  outlined  were 
established  beyond  peradventure.  He  was  entirely  satisfied  a  crime 
had  been  committed,  notwithstanding  that  no  formal  proof  of  loss 
had  been  filed,  and  within  a  few  days  Markheim  was  indicted,  sub 
sequently  tried  and  convicted  and,  as  we  have  seen,  his  conviction 
unanimously  affirmed  by  both  the  Appellate  Division  of  the  Supreme 
Court  and  the  Court  of  Appeals. 

To  state  the  contention  of  the  People  and  that  of  the  defendant 
both  at  the  trial  and  in  the  Appellate  Courts  is  but  to  present  clearly 
the  exact  issue  involved : 

(a)  The  People  contended  that  when  the  fire  occurred  a  valid 
and  subsisting  claim  at  once  arose  against  the  Companies  interested 
in  favor  of  the  Markheim  Company ;  that  the  defendant,  its  presi- 
dent, undertook  to  present  that  claim  to  the  Insurance  Companies 
and  for  that  purpose  hired  public  adjusters,  who,  pursuant  to  the 
terms  of  the  policy,  immediately  notified  the  companies  of  the  loss; 
prepared  and  presented  under  direction  of  Markheim  the  merchan- 
dise statement,  which  was  in  fact  a  presentation  of  the  books  them- 
selves, and  Markheim  subsequently  produced  the  books  at  the  de- 
mand of  the  company  adjusters  to  confirm  the  statement  submitted, 
stating  that  they  were  correct  and  that  the  stock  remaining  in  sight 
had  but  little,  if  any,  value;  claiming,  therefore,  against  the  Com- 
panies that  the  sound  value  of  the  stock  was  $145,663.85  and  that 
the  loss  was  practically  to  that  amount,  or  much  in  excess  of  the 
total  insurance  which  was  $131,000,  and  that  every  step  that  was 
taken,  was  in  the  presentation  of  that  claim  to  the  Insurance  Com- 
panies ;  that  the  books  were  false,  that  sales  made  by  the  defendant 
had  been  suppressed  to  the  extent  of  at  least  $30,000,  of  which  no 
entry  had  been  made  in  the  books;  that  the  defendant  knew  of  the 

309 
11 


The  Fire  Insurance  Contract 

falsity  of  the  claim,  and  every  step  that  he  took,  therefore,  was  in 
the  presentation  of  what  he  knew  to  be  a  false  and  fraudulent  claim 
for  the  payment  of  a  loss  on  a  contract  of  insurance. 

(b)  The  defendant  on  the  contrary  contended  among  other 
things  that  no  claim  had  been  presented  but  all  the  steps  that  were 
taken  were  merely  preliminary.  This  and  his  other  contentions 
could  not  be  more  tritely  stated  and  answered  than  to  quote  from 
the  brief  of  the  District  Attorney  in  the  Court  of  Appeals.  After 
reciting  the  facts,  with  which  you  are  already  familiar,  he  said : 

If  this  didn't  constitute  the  presentation  of  a  false  and  fraudulent 
claim  for  the  payment  of  a  loss  on  a  contract  of  insurance  (Penal  Law, 
1202)  it  would  be  difficult  to  conceive  what  would. 

The  appellant's  counsel  contend  in  substance  that  there  can  only  be 
a  presentation  of  a  false  and  fraudulent  claim  when  no  claim  at  all  is  in 
existence.  In  other  words,  they  contend  that  if,  for  example,  there  was 
a  fire  but  no  loss  and  the  defendant  make  a  claim  for  loss,  that  would  be 
presenting  a  false  and  fraudulent  claim;  or  if  no  fire  h?id  occurred  and  he 
presented  a  claim  for  a  loss,  as  if  goods  had  been  damaged  by  fire. 

In  other  words,  they  contend  that  where  some  right  of  recovery  has 
accrued,  a  defendant  cannot  be  guilty  of  a  violation  of  the  statute  by 
putting  in  a  false  and  exaggerated  amount.     That  is  to  say  their  con- 
tention is  in  substance  that  if  a  loss,  of  say  $1,  had  occurred,  and  a  loss 
\of  $50,000  was  claimed,  it  would  not  be  the  presentation  of  a  false  claim. 

This  contention  is,  we  submit,  palpably  absurd. 

The  Appellate  Division  did  not  discuss  these  contentions  of  the 

defendant,  but  disposed  of  any  lingering  doubt  that  might  remain 

as  to  the  character  of  the  acts  of  the  defendant  where  in  its  opinion, 

through  Mr.  Justice  Scott,  it  said  at  page  859 : 

The  evidence  tended  to  show  that  the  defendant  was  president  of  a 
corporation  known  as  Markheim  &  Company,  which  carried  a  consider- 
able stock  of  goods  insured  in  43  different  insurance  companies  to  an 
aggregate  amount  of  $131,000;  that  a  fire  occurred  doing  considerable 
damage;  that  immediately  after  the  fire,  indeed  on  the  evening  of  the 
same  day,  defendant  as  president  of  the  corporation  made  a  written  con- 
tract with  a  firm  of  public  fire  adjusters  retaining  them  on  a  percentage 
basis  to  advise  and  assist  in  the  adjustment  of  the  loss  with  the  insur- 
ance companies;  that  said  adjusters  immediately  notified  in  writing  the 
companies  interested  of  the  fact  of  the  fire  and  the  loss;  that  thereupon 
a  committee  of  two  adjusters  was  appointed  *  *  *  to  represent  as 
adjusters  the  companies  affected  by  the  loss;  that  defendant,  in  order  to 
establish  a  basis  for  such  adjustment  caused  to  be  made  up  and  sub- 
mitted to  the  Committee  of  Adjusters  representing  the  insurance  com- 
panies a  statement  purporting  to  show  in  detail  the  amount  and  value 
of  the  goods  on  hand  at  the  time  of  the  fire;  that  such  statement  was 
false  and  known  to  the  defendant  to  be  false  and  was  prepared  and  pre- 
sented with  the  purpose  and  intent  of  defrauding  the  insurance  com- 
panies into  paying  a  greater  sum  than  the  loss  actually  suffered.  It 
should  be  said  at  the  outset  that  the  evidence  leaves  no  possible  doubt 
in  our  minds  of  the  defendant's  guilt. 

It  may  be  interesting  to  recall  some  of  the  evidence  adduced 

during  the   course   of   the   trial   to   show   Markheim's   method   of 

operation,  in  some  respects  rather  ingenious.     You  may  remember 

310 


Claim — Proof  of  Loss — ^When  is  Loss  Payable 

that  the  corporation  had  changed  its  name  in  February  from  Bondy, 
Markheim  &  Company  to  Markheim  Company,  Inc.  After  the 
change  was  made  Markheim  opened  personally  an  account  in  the 
Union  Exchange  National  Bank  using  the  old  name  Bondy,  Mark- 
heim &  Company,  and  in  this  account  he  deposited  a  large  part  of  the 
proceeds  of  suppressed  sales  of  merchandise  which  he  used  for  his 
own  purposes,  many  of  the  Hartman  checks  being  drawn  to  the 
order  of  Bondy,  Markheim  &  Company.  He  used  this  account,  in 
other  words,  as  a  ''clearing  house"  for  many  of  these  transactions. 
There  were  other  bank  accounts,  one  in  the  name  of  a  member  of 
his  family,  in  which  similar  transactions  to  a  large  amount  were 
traced.  In  several  instances  in  what  was  known  on  the  books  as  the 
''Exchange  Account"  would  be  found  amounts  representing  checks 
drawn  to  "Cash"  which  were  finally  traced  to  be  the  proceeds  of 
a  sale  not  entered  and  which  had  been  deposited  in  the  regular 
account  of  the  Markheim  Company  and  checks  then  or  later  drawn 
to  Markheim  at  his  request  for  the  same  amount.  It  may  be  as- 
sumed that  in  many  instances  the  reason  for  making  these  seeming- 
ly helpful  contributions  was  because  of  a  real  necessity  at  that 
particular  time  for  protecting  the  regular  bank  account  of  the 
company  against  overdraft;  the  contributions  were  but  tempo- 
rary, however,  and  were  not  permitted  to  remain  for  any  length  of 
time.  At  another  time  the  bookkeeper  was  informed  by  Markheim 
that  rnerchandise,  the  sale  of  which  had  been  regularly  entered  in 
the  books  and  for  which  he  had  received  a  check  in  payment,  had 
been  returned;  the  account  of  the  customer  was  then  credited  by 
her  with  the  return  of  the  merchandise  and  the  check  which  he  had 
received  in  payment  was  deposited  in  one  of  his  "clearing  house 
accounts"  mentioned.  Another  and  rather  interesting  instance,  in 
that  it  differed  from  the  method  ordinarily  adopted,  was  a  transac- 
tion with  Siegel  &  Company  of  Boston.  It  appeared  that  merchan- 
dise had  been  sold  to  Siegel  &  Company  but  all  the  sales  had  not 
been  entered  in  the  books.  When  the  check  for  the  Siegel  pur- 
chases was  received  it  was  naturally  for  an  amount  larger  than  the 
sales  appearing  in  the  books.  Markheim  told  the  bookkeeper  that 
it  was  an  overpayment,  and  at  his  request  she  made  an  entry  in  the 
stub  of  the  check  book  of  a  check  to  return  to  Siegel  &  Company 
the  amount  of  the  over-payment,  and  when  she  drew  the  check 
itself  she  was  asked  by  Markheim  to  draw  it  to  "Cash"  so  that  it 
might  be  put  through  the  Siegel  New  York  store.  It  is  hardly 
necessary  to  add  that  the  check  found  its  way  into  Markheim's 

311 


The  Fire  Insurance  Contract 

personal  account.  These  transactions  are  fairly  illustrative  of  the 
manner  in  which  Markheim  operated  in  suppressing  sales  and  ap- 
propriating the  proceeds.  The  bookkeeper  had  no  reason  to  ques- 
tion the  accuracy  of  the  books  and  was  not  cross-examined.  The 
defendant  did  not  take  the  stand  but  rested  upon  the  contentions 
already  set  forth. 

It  will  not  be  surprising  to  learn  that  while  on  the  criminal 
trial  the  suppression  of  sales,  for  reasons  which  the  District  At- 
torney thought  sufficient,  was  confined  to  about  $30,000,  which  had 
been  admitted  by  Markheim ;  there  was  in  fact  suppression  of  sales 
of  upwards  of  $70,000. 

The  Markheim  Company  subsequently  filed  formal  proofs  of 
loss  on  the  companies  interested,  verified  by  the  Secretary,  in  which 
it  was  claimed  that  the  sound  value  of  the  stocks  in  sight  at  the 
time  of  the  fire  was  not  $145,663.85,  but  $73,441.41,  with  a  damage 
of  $49,832.07,  and  in  the  claimed  sound  value  and  damage  was 
included  an  amount  of  $15,000  as  the  value  of  goods  burned  out  of 
sight.  It  would  appear,  therefore,  from  the  proofs  of  loss,  indulg- 
ing in  what,  under  the  circumstances,  might  be  said  to  be  a  violent 
assumption  even  for  the  purpose  of  argument  that  they  are  correct, 
that  merchandise  of  upwards  of  $70,000  at  the  least  had  been  taken 
from  the  premises  before  the  fire,  sold  and  the  sales  suppressed. 
The  Markheim  Company  was  in  fact  insolvent,  was  finajly  adjudged 
bankrupt  and  a  trustee  appointed,  who  instituted  civil  actions  against 
the  companies  interested. 

The  criminal  case  has  passed  into  history  and  another  and 
most  important  step  has  been  taken  not  only  for  the  protection  of  the 
Insurance  Companies  against  fraudulent  claims  but  indeed  for  the 
protection  of  the  entire  community.  The  efifect  of  such  a  decision 
can  hardly  be  measured ;  it  will  deter  one  so  disposed  from  presen"!^^ 
ing  or  attempting  to  present  a  fraudulent  claim  for  he  is  warned 
by  the  Markheim  case  to  have  a  care  at  the  very  outset  that  his  claim 
be  honest  and  that  in  the  State  of  New  York  at  least  a  crime  may 
be  committed  under  this  Section  of  the  Penal  Law  notwithstanding 
that  there  has  been  no  filing  of  formal  proofs  of  loss  and  it  will 
naturally  have  a  strong  tendency  to  discourage  fraud  of  «very  kind 
in  relation  to  the  insurance  contract — a  contract  with  which  the 
Public  interests  are  so  closely  related. 

While  there  had  been  much  doubt,  therefore,  as  to  what  con- 
stituted a  claim  against  an  Insurance  Company  that  has  now  been 
dispelled.     There  has  never  been  much  question  as  to  what  really 

312 


Claim — Proof  of  Loss — ^When  is  Loss  Payable 

constituted  a  satisfactory  formal  proof  of  loss,  and  the  doubt,  if  any 
there  be,  may  be  caused  in  part  at  least  by  the  decisions  involving 
the  application  of  the  doctrine  of  waiver  and  estoppel. 

It  would  seem,  a  work  of  supererogation  to  do  more  than  to 
review  briefly  a  subject  which  has  been  given  so  much  critical 
consideration  by  the  text  writers  on  Insurance  Law,  to  whose  in- 
defatigable labors  in  research,  painstaking  analytical  discrimination 
and  lucidity  of  exposition  this  modest  paper  owes  its  being. 

The  conditions  that  we  are  now  to  consider  are  those  that  apply 

only  after  the  loss  has  occurred  and  it  may  be  well  to  recall  the 

significant  language  of  McNally  v.  Ins.  Co.  (137  N.  Y.,  389),  where 

the  court  said  at  page  397 : 

Those  conditions  which  operate  upon  the  parties  and  the  contract 
prior  to  the  loss,  such  as  the  condition  and  situation  of  the  property  and 
the  relations  of  the  insured  to  it,  and  all  statements  and  representations 
preceding  the  contract,  are  matters  of  substance,  upon  which  the  liability 
of  the  insurer  depends.  Such  stipulations  are  important,  as  their  gen- 
eral object  is  to  define  and  determine  the  limits  of  the  risk  assumed  and 
to  point  out  the  conditions  and  circumstances  under  which  the  insurer 
has  agreed  to  become  liable  in  case  of  loss.  Those  conditions  are  to  re- 
ceive a  fair  construction  according  to  the  intention  of  the  parties.  Those 
conditions  which  relate  to  matters  after  the  loss,  have,  for  their  general 
object,  to  define  the  mode  in  which  an  accrued  loss  is  to  be  established^, 
adjusted  and  recovered,  at'ter  the  reciprocal  rights  and  liabilities  of  the 
parties  have  become  fixed  by  the  terms  of  the  contract,  and  are  to  re- 
ceive a  more  liberal  construction  in  favor  of  the  insured.  In  determin- 
ing the  liability  of  the  defendant  it  is  entitled  to  the  benefit  of  its  con- 
tract fairly  construed  and  can  stand  upon  all  of  its  stipulations.  But 
when  its  liability  has  become  fixed  by  the  capital  fact  of  a  loss,  within 
the  range  of  the  responsibility  assumed  in  the  contract,  courts  are  re- 
luctant to  deprive  the  insured  of  the  benefit  of  that  liability  by  any  nar- 
row or  technical  construction  of  the  conditions  and  stipulations  which 
prescribe  the  formal  requisites  by  means  of  which  this  accrued  right  is 
to  be  made  available  for  his  indemnification. 

Compliance  with  these  and  other  conditions  may  of  course  be 
waived  or  the  company  may  so  act  as  to  estop  itself  from  insisting 
upon  it.  We  shall  consider  the  subject  of  waiver  and  estoppel  only 
in  so  far  as  it  relates  to  the  conditions  which  are  the  subject  of  the 
talk  this  evening,  and  it  might  be  well  to  have  a  clear  definition  of 
those  terms,  and  we  find  it  in  Draper  v.  Oswego  Fire  Relief  Assn. 
(190  N.  Y.,  12,)  where  the  Court  in  reviewing  other  well  known 
cases,  said,  at  page  16: 

The  law  as  to  what  constitutes  a  waiver  was  correctly  laid  down  by 
the  trial  judge  substantially  in  the  language  used  by  this  court  in  Kier- 
nan  v.  Dutchess  County  Mut.  Ins.  Co.  (150  N.  Y.,  190)  and  repeated  in 
Walker  v.  Phoenix  Insurance  Co.  (156  N.  Y.,  628).  *  *  *  While 
that  doctrine  and  the  doctrine  of  equitable  estoppel  are  often  confused 
in  insurance  litigation,  there  is  a  clear  distinction  between  the  two.  A 
waiver  is  a  voluntary  abandonment  or  relinquishment  by  a  party  of 
some  right  or  advantage.     *     *     *     The  doctrine   of  equitable  estoppel, 

313 


The  Fire  Insurance  Contract 

or  estoppel  in  pais,  is  that  a  party  may  be  precluded^  by  his  acts  and 
conduct  from  asserting  a  right  to  the  detriment  or  prejudice  of  another 
party  who,  entitled  to  rely  on  such  conduct,  has  acted  upon  tt. 

Two  of  these  conditions,  the  notice  of  the  fire  and  the  proof 
of  loss,  are  what  the  law  regards  as  conditions  precedent,  that  is 
to  say,  they  are  conditions  which  precede  any  liability  and  must 
be  complied  with  by  the  insured  without  any  requirement  on  the 
part  of  the  company  before  the  loss  becomes  payable.  Other  pro- 
visions, which  have  been  aptly  termed  requirements,  are  those  with 
which  the  insured  need  not  comply  unless  requested  so  to  do,  such 
as  furnishing  magistrates'  certificates,  plans  and  specifications, 
books  and  bills,  the  examination  under  oath  and  the  appraisal;  in 
some  states  however  a  "disagreement"  as  to  the  amount  of  the  loss 
would  make  the  appraisal  too  a  condition  precedent  to  any  action  on 
the  policy. 

The;  Notice  of  Loss. 

Before  taking  up  the  subject  of  the  inventory  and  proof  of 
loss,  we  might  stop  to  consider  that  condition  of  the  policy  which 
requires  immediate  notice  of  loss  in  writing.  The  object  of  the 
notice  is  that  the  company  may  know  that  a  loss  has  in  fact  occurred, 
and  take  such  action  as  it  considers  proper  to  protect  its  interests. 
This  condition  has  been  construed  from  time  to  time  and  there  are 
many  cases  in  this  and  other  states  relating  to  it.  While  the  policy 
condition  in  terms  requires  an  immediate  notice  of  loss,  it  might  be 
said  from  an  analysis  of  the  many  decisions  on  the  subject  that 
notice  must  be  given  with  due  diligence  and  as  soon  as  circumstances 
will  permit,  and  that  what,  under  the  circumstances,  is  a  reasonable 
compliance  with  the  condition  must  be  determined  from  the  facts  of 
each  case. 

It  would  appear  (a)  that  if  the  company  knew  of  the  fire 
or  got  notice  of  it  from  any  one  it  would  be  sufficient.  For  example, 
if  an  officer  of  a  company  knows  61  the  fire  and  visits  the  place 
of  the  fire  Roumayer  v.  Ins.  Co.  (13  N.  J.  L.,  110)  (b)  that  delay 
in  giving  notice  may  not  vmder  the  circumstances  be  unreasonable. 

In  Will  &  Baumer  Co.  v.  Rochester  German  Ins.  Co.  (140 
App.  Div.,  691,)  a  proof  of  loss  was  served  within  sixty  days  after 
the  fire,  there  being  no  previous  notice  of  loss.  The  delay  was  due 
to  the  fact  that  owing  to  the  confusion  after  the  San  Francisco 
earthquake  and  fire,  plaintifY  was  for  fifty  days  unable  to  ascertain 
what  property  had  been  destroyed,  and  it  was  said,  per  Robson,  J., 
at  p.  694 : 

314 


Claim — Proof  of  Loss — When  is  Loss  Payable 

It  would  seera  that  the  useful  purpose  to  be  served  by  requiring 
plaintiff  to  give  defendant  this  notice  was  that  it  might  be  promptly 
;idY.ised  that  a  fire  had  occurred.  That  information  defendant  had  as 
early  and  quite  as  fully  and  particularly  as  had  plaintiff. 

And  in  Solomon  v.  Ins.  Co.  (160  N.  Y.  595)  where  by  reason 
of  failure  to  obtain  the  policy  for  about  fifty  days  after  fire  no 
notice  was  given  until  that  time  by  a  general  assignee  for  creditors, 
the  Court  held  the  notice  sufficient. 

(c)  That  the  company  may  of  course  waive  the  notice  or  so 
act  as  to  estop  itself  from  insisting  upon  the  breach,  as  by  denying 
liability  (Omaha  Ins.  Co.  v.  Duke,  43  Neb.  473)  ;  or  by  requiring 
corrections  in  proofs  filed  (Weed  v.  Ins.  Co.,  133  N.  Y.,  394.) 

The  Inventory. 

The  policy  requires,  as  the  next  step  we  are  to  discuss,  that 
the  insured  shall  make  a  complete  inventory,  stating  the  quantity 
and  cost  of  each  article  and  the  amount  claimed  thereon.  While 
there  is  no  specific  provision  requiring  the  insured  to  furnish  the 
inventory  to  the  company,  the  only  reasonable  inference  is  that 
that  is  the  purpose  in  having  it  made,  and  a  reasonable  interpre- 
tation of  the  policy  condition  would  require  that  the  inventory 
should  be  delivered  to  the  company.  As  a  matter  of  practice  this 
is  generally  done,  and  is  one  of  the  first  steps  taken  by  the  public 
adjuster,  and  a  copy  is  ordinarily  attached  to  the  proof  of  loss. 

It  is  provided  that  the  insured  shall  state  in  the  inventory  the 
cost  and  quantity  of  each  item  of  damaged  and  undamaged  prop- 
erty and  the  amount  claimed  and  in  the  proof  of  loss  the  cash  value 
of^eachjtem  and  the  amount  of  loss  thereon. 

The  Court  in  McManus  v.  Western  Assn.  Co.  (22  Misc.  269; 
affirmed  43  App.  Div.,  550)  pointed  out  the  difference  between  the 
two  papers. 

'  The  Proof  of  Loss. 

The  policy  conditions  on  the  subject  of  the  proof  of  loss  are 
clear  and  concise,  and  the  company  is  entitled  to  receive  from  the 
insured  so  much  of  the  information  therein  specified  as  he  can  with 
due  diligence  furnish.  A  glance  shows  the  information  to  be  of 
great  importance  to  the  company;  it  relates  to  knowledge  of  the 
origin  of  the  fire,  the  title  to  the  property,  the  cash  value  of  each 
item  and  the  amount  of  loss  thereon,  other  insurance,  etc.,  and  may 
bejnsisted  tipon,  and  the  insured  will  not  be  excused  from  comply- 
ing unless  under  circumstances  where  he  is  unable  to  do  so;  he  is 
bound  to  dp  what  is  reasonable  to  fully  comply  with  the  conditions. 

315 


The  Fire  Insurance  Contract 

A  statement  showing  the  cash  vahie  of  each  item  and  the 
amount  of  loss  thereon  is  of  course  often  impracticable  and  is 
generally  complied  with  by  submitting,  with  an  inventory  of  the 
stock  in  sight  and  the  damage  claimed,  a  statement  made  up  from 
the  books,  taking  the  latest  inventory  as  its  starting  point  and  adding 
the  purchases  and  labor  and  deducting  the  sales  with  a  proper 
allowance  for  profit,  thus  getting  the  sound  value  at  the  time  of 
the  fire  and  the  claimed  loss. 

The  Court  in  the  Davis  case  (15  Misc.,  263;  affirmed  157 
N.  Y.,  685)  refers  to  the  practice. 

Where  an  attempt  is  made  to  comply  with  the  provisions  and  a 
paper  purporting  to  be  a  proof  of  loss  is  filed  with  the  company 
within  the  time  limited  and  is  defective,  either  by  reason  of  the 
failure  to  state  the  requirements  of  the  policy  provisions  or  by  some 
defect  in  the  signature  or  oath,  then  it  is  the  duty  of  the  company  to 
object  to  the  proof,  so  that  the  insured  may  correct  it;  and  if  the 
company  fail  to  take  such  action  it  would  be  estopped  from  con- 
tending thereafter  that  the  proofs  of  loss  did  not  comply  with  the 
conditions  of  the  policy.  Cases  in  which  this  question  was  discussed 
are  the  following:  In  Weed  v.  Ins.  Co.  (133  N.  Y.,  394)  it  was 
held  that  an  objection  that  proofs  had  not  been  made  by  the  proper 
person  is  untenable  if  they  were  retained  without  objection.  And 
in  Cummer  v.  Ins.  Co.  97  App.  Div.  151 ;  affirmed  173  N.  Y.,  633)  it 
was  held  that  where  the  insurer  retains  proofs  filed  in  attempted 
compliance,  it  cannot  set  up  as  a  defense  that  they  were  incomplete. 

The  objections,  if  any,  to  the  proofs  must  be  taken  within  a 
reasonable  time,  they  should  be  specific  and  the  insured  given  a 
reasonable  time  thereafter  to  correct  the  claimed  defects ;  and  what 
is  a  reasonable  time  will  be  determined  from  the  facts  in  each  case ; 
it  might  under  some  circumstances  extend  beyond  the  sixty  day 
limit  (Planters  Mutual  Insurance  Association  v.  Hamilton,  77  Ark., 
27.)  It  would  seem  that  such  defects  as  are  not  specifically  pointed 
out  would  be  waived  (Titus  v.  Glens  Falls  Ins.  Co.,  81  N.  Y.,  410; 
Levine  v.  Lancashire  Ins.  Co.,  66  Minn..  138.) 

The  general  rule  is  that  the  mere  retention  of  an  infonlial 
paper  which  does  not  in  any  way  attempt  to  comply  with  the  condi- 
tions of  the  policy  respecting  proofs  of  loss  would  not  estop  the 
company  from  insisting  that  they  had  not  been  complied  with 
(Beatty  v.  Ins.  Co.,  66  Pa.  St.,  9)  ;  it  is  necessary  however  to  con- 
sider the  following  cases  where  it  was  held  that  the  company  may  so 
act  in  relation  to  a  purely  informal  paper  as  to  estop  itself  from 

316 


Claim — Proof  of  Loss — When  is  Loss  Payable 

insisting  upon  a  formal  proof.  The  case  of  Glazer  v.  Ins.  Co.  (190 
N.  Y.,  6)  involving  a  loss  of  household  furniture  was  tried  two 
or  three  times  and  finally  went  to  the  Court  of  Appeals.  It  appeared 
that  the  insured  had  filed  an  inventory  unverified  showing  the 
quantity  and  cost  of  the  property  destroyed  and  injured,  and  the 
amount  claimed  thereon.  The  Court  of  Appeals,  by  a  divided 
court,  held  that  it  was  a  question  of  fact  for  the  jury  to  determine 
whether  the  defendant  by  retaining  the  paper  without  any  objection 
until  the  sixty  days  had  expired,  by  using  it  for  the  purpose  of 
identifying  property  and  ascertaining  for  itself  the  amount  of  the 
damage  to  the  various  articles  covered  by  the  policy,  and  then  enter- 
ing upon  negotiations  based  upon  the  contents  of  the  paper  for  a 
settlement  of  the  claim,  led  the  plaintifif  to  believe  that  no  further 
proofs  of  loss  would  be  required  and  so  waived  their  service. 
Similar  cases  are:  Greengrass  v.  North  River  Ins.  Co.  (139  Supp., 
937) ;  Curnen  v.  Ins.  Co.  (159  App.  Div.,  493)  ;  Weber  v.  Germania 
Ins.  Co.,  (16  App.  Div.  596.) 

The  Glazer  and  similar  cases  were,  however,  decided  upon 
the  peculiar  facts  of  each  and  must  be  looked  at  from  that  view 
point.  They  will  not,  of  course,  be  held  applicable  to  the  ordinary 
case  where  the  complete  inventory  mentioned  in  the  policy  is  filed 
and  the  usual  investigations  made,  and  it  may  be  observed  that  the 
Court  in  the  Glazer  case  does  not  accurately  set  forth  the  policy 
conditions,  but  confuses  the  complete  inventory  with  the  proofs 
of  loss,  saying  at  page  10: 

'  The  provision  of  the  policy  in  respect  to  proofs  of  loss  is,  in  sub- 
stance, that  if  a  fire  occurred  the  insured  should  give  immediate  notice 
of  any  loss  to  the  company  in  writing;  make  a  complete  inventory  of  the 
property  lost  or  damaged,  stating  the  quantity  and  cost  of  each  article 
and  the  amount  claimed  thereon,  within^  sixty  days  after  the  fire,  and 
signed  and  sworn  to  by  the  insured,  Slating  the  tim5"  and"  origin  of  the 
fire  and  other  matters  not  material  to  this  appeal.  The  paper  contained 
B  complete  inventory  of  the  property  damaged  or  destroyed  and  the 
amount  claimed  on  account  of  each  article,  which  aggregated  $242,  but 
was  not  signed  or  sworn  to  by  the  insured. 

Where  other  interests  are  insured_hy  the  ppliry^  an  important 
question  arises  as  to  whether  they  can  protect  J^L^i^ interest  by  fihng 
a  proof  of  loss  where  the  insured  has  failed  to  do  so  or,  indeed, 
whether  they  are  in  such  a  case  required  to  file  any  proof.  These 
,questions  arise,  among  others,  in  three  cases.  Where  there  is  (1) 
a  mortgagee  claiming  under  a  Standard  Mortgagee  Clause;  (2)  a 
simple  loss  payable  clause  to  a  mortgagee  or  other  interests  are 
to  be  treated  by  others  later  in  these  articles  and  will  not  now 
|be  considered  further  than  to  say  that  such  interests  may  under 

317 


The  Fire  Insurance  Contract 

certain  circumstances  file  proofs  (McDowell  v.  Ins.  Co.,  207  N. 
Y.,  482;  Czerweny  v.  Ins.  Co.,  139  Supp.,  345);  and  it  might  be 
argued  that  these  and  other  cases  are  authority  for  the  proposition 
that  there  is  no  condition  of  the  policy  requiring  them  to  do  so; 
while  this  is  undoubtedly  true  regarding  the  interest  of  a  mortga- 
gee under  a  Standard  Mortgagee  Clause  (Heilbrunn  v.  Ins.  Co., 
202  N.  Y.,  610),  such  an  argument  would  do  violence  to  the  plain 
reading  of  the  policy  provisions  in  so  far  as  any  of  the  other 
interests  mentioned  are  concerned. 

The  general  opinion  of  the  text  writers  is  that  the  company 
has  the  right  to  insist  that  the  proof  of  loss  shall  be  signed  and 
sworn  to  by  the  insured.  Exceptional  cases  are  McManus  v.  Ins. 
Co.,  (22  Misc.  269;  affirmed  43  App.  Div.  550),  where  in  a  loss  on 
household  furniture  it  was  said  that  the  Company  could  not  require 
the  oath  of  members  of  the  household  owning  articles  claimed  for ; 
Sims  v.  Assurance  Co.,  (129  Fed.  (Ga)  804),  by  a  Receiver  in 
Bankruptcy  which  included  an  affidavit  by  the  agent  of  insured ;  the 
insured  having  fled  the  jurisdiction;  Matthews  v.  Ins.  Co.,  (154 
N.  Y.  449),  where  it  was  said  that  either  the  Temporary  adminis- 
trator, the  heirs,  next  of  kin,  legatees  or  devisees  might  have  filed 
proofs. 

The  Company  may,  of  course,  waive  the  signature  and  oath  of 
the  insured  or  estop  itself  from  insisting  upon  it  by  failing  to  reject 
proofs  verified  by  one  other  than  the  insured  (Kernochan  v.  Ins. 
Co.,  17  N.  Y.,  428;  Weed  v.  Ins.  Co.,  133  N.  Y.,  394). 

There  is  no  specific  requirement  in  the  policy  as  to  where  the 
proois. shall  be  filed;  the  insured  is  required^ to  render  the  statement 
to  the  Company  and  it  may  be  useful  to  note  some  of  the  decisions 
on  that  subject.  The  condition  will  receive  a  reasonable  interpreta- 
tion. In  Iowa  filing  the  proofs  with  a  local  agent  is  sufficient 
(Greenlee  v.  Ins.  Co.,  104  Iowa,  481);  in  Nebraska  with  a  state 
agent  (Ins.  Co.  v.  McLimans,  28  Nebraska,  653)  ;  and  in  Georgia 
with  an  adjuster  (Ins.  Co.  v.  Vining,  67  Ga.,  661). 

The  condition  that  proofs  of  loss  are  to  be  filed  within  sixty 
days  after  the  fire,  unless  such  time  is  extended  in  writing  by  the 
company,  has  given  rise  to  some  questions  worthy  of  review. 

The  words  "sixty  days  after  the  fire"  has  been  interpreted  by 
the  Court  to  mean  that  the_timfc_begins  to  run  f  ron;  the  termination 
of  the  fire  and  not  from  the  time  of  the  commencement. 

National  Wall  Paper  Co.  v.  Ins.  Co.,  (175  N.  Y.,  226,  at  page 
228: 

318 


Claim — Proof  of  Loss — When  is  Loss  Payable 

We  think,  therefore,  that  the  fair  and  reasonable  interpretation  of 
the  provision  is  that  the  proofs  of  loss  should  be  served  within  sixty 
davg  aft;gr  the  fire  has  terminated,  or  abated  to  such  an  extent  that  an 
inspection  of  the  property  damaged  may  be  had. 

Mailing  the  proofs  before  the  expiration  of  the  time  limit  ]s 
not  sufficient ;  the  company  must  receive  the  proofs  within  the  sixty 
days.  In  the  case  of  Peabody  v.  Satterlee  (166  N.  Y.,  174)  it  was 
held  that  mailing  proofs  of  loss  in  Buffalo  on  the  sixtieth  day 
for  delivery  in  New  York,  which  did  not  reach  the  Underwriters 
until  the  sixty-second  day,  was  not  a  compliance  with  the  condition ; 
and  it  would  be  reasonable  to  assume  from  the  reasoning  in  that 
case  that  it  would  not  be  a  sufficient  compliance  if  the  proof  were 
mailed  on  or  before  the  time  limited  in  a  city  where  the  Insurance 
Company  had  its  office  and  where  the  custom  of  the  postal  authori- 
ties is  to  deliver  the  mail  by  carriers,  but  which  did  not  in  fact  reach 
the  company  until  after  the  time  limited.  The  Court,  citing  the 
case  of  Crownpoint  Iron  Co.  v.  Aetna  Insurance  Company  (127 
N.  Y.,  608),  said,  p.  178: 

The  above  case,  while  not  presenting  the  question  now  before  us,  is 
instructive  as  deciding  that  when  the  insured  uses  the  mail  in  communi- 
cating with  the  company  it  is  nothing  more  that  if  he  had  made  the 
same  communication  by  private  messenger,  when  he  is  seeking  to  do  an 
act  that  would  be  binding  on  the  company  whether  it  was  willing  or  not. 

As  already  pointed  out,  the  policy  provides  that  the  assured  within 
sixty  days  shall  render  this  statement.  The  Century  Dictionary  defines 
the  word  "render"  as  meaning  "to  give;  furnish;  present."  Webster's 
givefs  its  meaning  as  "to  furnish;  state;  deliver."  A  proper  reading  of 
the  quoted  provision  of  the  policy  is  that  the  insured  is  to  furnish  or  de- 
liver to  the  defendants  these  proofs  of  loss,  and  this  clearly  means  that 
the  papers  shall  be  so  furnished  to  the  defendant  personally,  or  to  their 
duly  authorized  agent  if  they  have  one.  In  cases  of  this  kind  substituted 
service  or  service  by  mail  is  either  matter  of  statute  or  contract.  In  this 
case  the  contract  is  silent,  and  the  depositing  of  the  proofs  of  loss  in  the 
mail  at  Buffalo  on  the  sixtieth  day  after  the  fire  occurred  cannot  be  held 
a  compliance  with  the  provisions  of  the  policy. 

This  case  was  followed  in  Lake  Geneva  Ice  Co.  v.  Selvage 
(36  Misc.,  212),  where  the  proofs  were  mailed  in  Chicago  on  the 
sixtieth  day  for  delivery  in  New  York;  to  the  same  effect,  Slocum 
V.  Saratoga  Ins.  Co.,  (140  App.  Div.,  867).  A  somewhat  contrary 
doctrine  has,  however,  been  held  in  Illinois  (Ins.  Co.  v.  Zeitinger, 
168  III.,  286),  where  the  agent  of  the  insured's  executor,  under  a 
policy  containing  a  similar  provision  was  said  to  have  complied 
with  the  provision  by  mailing  proofs  within  sixty  days  which  were 
received  two  days  late.  And  in  Missouri  (Caldwell  v.  Ins.  Co.,  61 
Mo.  Ap.,  4),  where  proof  mailed  in  Missouri  directed  to  the  Com- 
pany at  Boston,  Mass.,  a  few  days  before  the  expiration  of  the  time 
limit  reached  the  postoffice  at  Boston  on  the  last  day,  it  was  held 
sufficient  and  the  Court  said : 

319 


The  Fire  Insurance  Contract 

The  defendant  cannot  by  delaying  to  call  for  the  proofs  under  these 
circumstances  work  a  forfeiture.  It  might  as  well  delay  for  the  calling 
of  the  proofs  on  the  succeeding  day  and  thus  work  a  forfeiture. 

The  proof  shows  that  the  defendant  had  a  box  at  the  Post  Office 
and  it  nowhere  shows  that  the  notice  of  the  Registered  letter  was  not  in 
that  box  in  time  on  Sunday  to  have  enabled  the  clerk  of  the  defendant 
to  get  the  package  on  that  day  had  he  called  for  mail  in  the  box. 

In  New  York  State  under  Section  20  of  the  General  Construc- 
tion Law,  Chapter  27,  Laws  of  1909,  if  the  sixtieth  day  occurred  on 
Sunday  it  would  be  sufficient  compliance  if  the  proofs  were  received 
by  the  Company  on  the  following  day. 

This  condition,  like  others,  may  be  waived  or  the  company  be 
estopped  from  complaining.  Cases  involving  these  questions  are 
numerous  and  we  may  stop  to  consider  a  few  of  them. 

(a)  The  mere  retention  of  the  proofs  would  not,  in  New 
York  at  least,  waive  the  time  limit. 

In  Perry  v.  Caledonian  Ins.  Co.  (103  App.  Div.,  113)  plaintiff 
sr*rved  proofs  sixty-five  days  after  the  fire  and  it  was  held  that 
the  performance  of  the  condition  was  not  waived  by  their  reten- 
tion; it  was  said,  per  Houghton,  J.,  at  page  116: 

It  is  urged  that  the  retention   of  the  proofs  of  loss   and  failure  to 
return  them  was  a"  waiver  of  earlier  service,  and  that  the  defendant  is 
now  estopped  from  claiming  that  they  were  not  regularly  served.     We 
do  not  think  this  position  is  tenable.     Silence  operates  as  an  assent  and 
creates  an  estoppel  only  where  it  has  the  effect  to  mislead.      (More  v. 
.New  York  Bowery  Fire  Ins.  Co.,  130  N.  Y.,  537).     The  plaintiff  was  in 
/  no  way  misled  by  the  retention  of  the  proofs  of  loss.     His  rights  were 
!    gone  before  he  attempted  to  serve  them.     His  position  was  made  no  dif- 
ferent because  the  company  ignored  his  statement  or  failed  to  inform 
him  that  his  proofs  of  loss  were  not  properly  furnished. 

And  in  Bell  v.  Ins.  Co.  (19  Hun.,  238),  where  the  fire  occurred 
on  January  11,  1873,  and  they  were  mailed  sixty  days  thereafter, 
but  not  received  until  after  the  expiration  of  sixty  days,  held  there 
was  no  waiver  by  retaining  them. 

(b)  The  retention  of  proofs  filed  after  the  time  limit  where 
acts  are  done  which  may  mislead  the  insured  into  believing  that 
the  objection  will  not  be  taken  may  estop  the  company  from  insist- 
ing" on  the  breach.  Brink  v.  Hanover  Fire  Ins.  Co.  (80  N.  Y.,  108), 
is  a  case  in  point  and  the  language  used  is  somewhat  disturbing,  but 
on  a  careful  examination  of  this  and  similar  cases  it  will  be  seen 
that  it  is  not  held  that  the  mere  retention  of  the  proofs  would  be 
an  estoppel,  but  there  were  other  facts  taken  together  with  the 
retention  of  the  proofs  which  were  held  sufficient  to  estop  the  com- 
pany from  claiming  a  breach  of  the  condition  and  the  language  must 
be  considered  in  association  with  the  other  facts  in  this  case.  The 
Court  said  in  the  Brink  case  at  page  113;  per  Church.  C.  J. : 

320 


Claim — Proof  of  Loss — When  is  Loss  Payable 

The  plaintiff's  claim  was  challenged  for  fraud  and  that  only.  They 
acted  upon  it  and  brought  an  action  incurring  large  expenses  in  its  prose- 
cution. Non  constat,  if  the  failure  to  file  the  proofs  in  time  had  been  in- 
sisted on,  but  that  the  plaintiff  would  have  acquiesced  in  it  and  refrained 
from  prosecuting,  and  thus  they  might  be  injured  by  the  change  of 
ground  on  the  part  of  the  defendant.  Every  consideration  of  public  pol- 
icy demands  that  insurance  companies  should  be  required  to  deal  with 
their  customers  with  entire  fairness  and  frankness.  They  may  refuse  to 
pay  without  specifying  any  ground,  and  insist  upon  any  available  ground, 
but  if  they  plant  themselves  upon  a  specified  defense  and  so  notify  the 
assured,  they  should  not  be  permitted  to  retract  after  the  latter  has 
acted  upon  their  position  as  announced,  and  incurred  expenses  in  conse^^ 
quence  of  it.  If  a  company  intends  to  avail  itself  of  the  technical  objec- 
tion that  the  proofs  are  not  filed  in  time,  common  fairness  requires  that 
it  should  refuse  to  receive  them  on  that  ground,  or  at  least  promptly 
notify  the  assured  of  their  determination,  otherwise  the  objection  should 
be  regarded  as  waived. 

Similar  cases  are  Rademacher  v.  Ins.  Co.  (75  Hun.  83)  ;  Dobson 
V.  Ins.  Co.  (86  App.  Div.,  115;  affd.  179  N.  Y.  557) : 

We  have  considered  specific  instances  of  the  application  of  the 
doctrine  of  waiver  and  estoppel  in  relation  to  the  proofs  of  loss 
where  there  has  been  some  attempt  at  compliance  and  it  might  be 
wise  to  add  a  word  as  to  the  character  of  the  actiofl_by..lhfij;iDinpany 
or  its  authorized  representatives  that  would  make  unnecessary  the 
filing  of  any  proof  of  loss:  (a)  where  the  action  of  the  company 
has  induced  the  insured  not  to  make  proofs  (b)  where  it  recognizes 
liability  and  indicates  that  proofs  will  not  be  required,  and  (c) 
where  the  cornpany  makes  it  apparent  that  the  furnishing  of  proofs 
wouldn5e"iruseless  formality— Hby  denying  liability. 

We  must  not  overlook,  however,  in  this  connection  the  pro- 
visions of  the  policy  to  the  effect  that  the  company  shall  not  be 
held  to  waive  any  of  the  conditions  or  any  forfeiture  by  any  act, 
requlj;ement  or  proceeding  on  its  part  relating  to  the  appraisal  or 
the  examination. 

This  provision  of  the  policy  has  been  held  binding  generally  in 
the  following  cases,  but  the  point  whether  an  examination  or  ap- 
praisal might  be  held  to  waive  proofs  of  loss  was  not  in  question 
and  not  considered. 

In  Gibson  Electric  Co.  v.  Ins.  Co.  (10  App.  Div.,  225;  affirmed 
159  N.  Y.,  418),  it  was  held  that,  under  a  standard  policy,  proceed- 
ing with  an  appraisal  was  not  a  waiver  of  a  forfeiture.  A  similar 
case  is  Walker  v.  Ins.  Co.  (156  N.  Y.,  628). 

The  case  of  Paltrovitch  v.  Ins.  Co.  (68  Hun.  304-308  affd. 
143  N.  Y.,  73)  would  seem  to  be  an  authority  for  the  statement 
that  the  examination  would  not  be  a  waiver  of  proofs  of  loss 
and  the  case  of  Rademacher  V:  Ins.  Co.  (75  Hun.  83),  while  very 

321 


The  Fire  Insurance  Contract 

close,  can  be  distinguished  for  the  reason  that  there  were  apparently 
acts  other  than  the  appraisal  in  question. 

In  Rhode  Island  (Fournier  v.  Ins.  Co..  23  R.  I.,  36)  it  was 
held  that  under  such  a  provision  no  waiver  of  proofs  would  result 
from  a  demand  for  an  appraisal;  while  in  Kentucky  (Smith  v. 
Herd,  60  S.  W.,  841)  involving  a  policy  containing  a  similar  pro- 
vision it  was  held  that  by  an  appraisal  there  had  been  a  waiver  of 
proofs  of  loss;  and  in  Wisconsin  (Badger  v.  Ins.  Co.,  49  Wis.,  396) 
where  there  was  no  such  provision  it  was  held  that  calling  an  ex- 
amination within  the  sixty  days  from  the  fire  was  a  waiver  of  proofs 
of  loss. 

It  may  be  said,  therefore,  that  in  New  York  State  the  pro- 
vision would  be  held  binding  and  that  no  waiver  or  estoppel  as  to 
proofs  of  loss  could  be  based  upon  examination  or  appraisal  required 
within  a  reasonable  time. 

There  are  cases  in  New  York  State  holding  that  an  examina- 
tion called  (Carpenter  v.  Ins.  Co.,  135  N.  Y.,  298)  or  an  appraisal 
instituted  (Bishop  v.  Agricultural  Ins.  Co.,  130  N.  Y.,  488)  after 
''tardy"  proofs  would  waive  the  forfeiture;  they  may  be  dis- 
tinguished, however,  for  the  reasons  (a)  they  were  decided  before 
the  Standard  Policy  took  eflfect  and  the  provisions  were  dissimilar, 
and  (b)  there  were  other  facts  taken  in  connection  with  the  ex- 
amination or  appraisal  which  were  in  fact  the  basis  of  the  court's 
decision. 

Before  leaving  the  conditions  respecting  the  proofs  of  loss,  it 
may  be  well  to  call  attention  to  the  statue  in  New  Jersey  which 
relieves  the  insured  from  filing  proofs  unless  requested  to  do  so. 
The  statute  (Chapter  340,  Laws  of  1911,  Sec.  1)  reads  as  follows: 

Sec.  1.  The  failure  of  any  person  insured  against  loss  or  damage 
by  fire  in  any  'insurance  company  doing  business  by  or  under  the  author- 
ity of  the  Department  of  Banking  and  Insurance  of  this  State  to  furnish 
proofs  of  loss  shall  not  be  or  considered  a  waiver  of  any  rights  accruing 
under  the  policy  of  insurance,  and  shall  not  debar  the  person  so  holding 
insurance  from  a  recovery  uncier  said  policy  or  the  collection  of  such 
sum  as  should  properly  be  paid  under  said  policy,  unless  after  said  loss 
sixty  days'  notice,  in  writing,  that  said  company  desires  said  proofs  of 
loss  be  furnished  the  person  so  insured. 

It  will  be  noticed  that  there  is  no  time  fixed  within  which  .the 
company  is  required  to  demand  the  proof s,  but  sixty  daysLnotice 
must  be  given;  it  will  probably  be  held,  when  the  question  is  pre- 
sented that  the  company  should  make  its  demand  within  a  reason- 
able time  and  at  least  within  sixty  days  after  the  fire,  as  under  the 

322 


Claim — Proof  of  Loss — When  is  Loss  Payable 

loss  payable  clause,  the  loss,  in  the  absence  of  a  demand  for  an 
appraisal,  would  otherwise  become  payable  sixty  days  after  notice 
of  the  fire: 

PivANS    AND    SpEICIFICATIONS;    MAGISTRATE'S    Ce:RTIFICATE. 

Among  the  requirements  are  found  that  of  the  Magistrate's 
certificate  and  the  production  of  plans  and  specifications  and  while 
we  know  that  these  are  not  a  part  of  the  proofs  of  loss  they  may 
be  required  and  thus  become  requirements  with  which  the  insured 
must  comply.  Much  has  been  written  regarding  the  Magistrate  s 
certificate  and  in  some  communities  it  is  still  a  requirement  of  some 
importance  to  the  Company;  it  is  not  often  insisted  upon  in  New 
York  City. 

The  production  of  plans  and  specifications  is  often  a  require- 
ment of  great  importance  and  frequently  demanded.  These  and 
similar  requirements  are  subject  to  the  rule  of  reason.  Wherever 
the  question  has  been  discussed  it  resolves  itself  into  what  is  reason- 
able. The  demand  must  be  made  within  a  reasonable  time  and  a 
reasonable  compliance  with  due  diligence  must  be  made  and,  until 
had,  no  suit  may  be  maintained  as  we  shall  see  when  we  reach  that 
provision  of  the  policy.  There  is  nothing  new  in  the  books  on  this 
subject  and  we  might  in  passing  restate  some  of  the  decided  cases 
giving  the  best  illustration  of  the  manner  in  which  the  provisions 
relating  to  the  magistrate's  certificates  have  been  construed. 

The  demand  must  of  course  be  a  specific  one  apprising  the 
insured  what  will  be  required.  Moyer  v.  Ins.  Co.  (176  Pa.  St., 
579).  The  magistrate  or  notary  must  be  disinterested  and  he  may 
be  disinterested  though  he  is  a  creditor  of  the  assured,  Dolliver  v. 
Ins.  Co.  (131  Alass.,  39);  but  not  if  he  is  a  relative,  Ins.  Co.  v. 
Bank  (62  Fed.,  222)  ;  nor  if  he  is  the  insured  although  he  has 
assigned  the  policy,  Stevens  v.  Ins.  Co.  (32  New  Brunswick,  394). 
A  magistrate  lives  nearest  the  place  of  the  fire,  if  either  his  office 
or  his  residence  is  nearest  to  it,  Paltrovitch  v.  Ins.  Co.  (143  N.  Y., 
72>).  The  affidavit  of  the  magistrate  must  contain  a  venue  or  it  will 
be  fatally  defective,  McManus  v.  Western  Ins.  Co.  (22  Misc.,  269). 
If  the  certificate  states  that  the  insured  has  sustained  the  loss 
claimed  it  is  sufficient.  Brown  v.  Hartford  Ins.  Co.  (52  Hun.  260; 
affirmed  without  opinion  132  N.  Y..  539).  If  required  within  sixty 
days  after  the  fire  the  certificate  must  be  furnished  within  the  sixty 
days,  Gottlieb  v.  Ins.  Co.  (89  Hun.  36).  If  the  nearest  magistrate 
refuses  to  issue  a  certificate  that  of  the  next  nearest  may  be  secured, 

323 


The  Fire  Insurance  Contract 

Lang  V.  Ins.  Co.  (12  App.  Div.,  39).  If  the  company  desires  to  raise 
the  objection  that  the  certificate  is  not  made  by  the  magistrate  or 
notary  Hving  nearest  the  place  of  the  fire  is  should  state  the  name 
of  the  one  living  nearer  the  fire  so  that  the  insured  may  obtain  his 
certificate,  Paltrovitch  v.  Ins.  Co.,  (143  N.  Y.,  73). 

The;  Examination  Under  Oath;  The  Books  and  Bills. 

The  examination  under  oath  of  the  insured  and  the  production 
of  books  of  account  and  bills  are  two  very  important  requirements 
of  the  policy  in  the  investigation  of  the  loss  and  its  determination. 
It  may  be  said  that  in  some  cases  the  examination  is  imperative,  in 
others  necessary  and  in  most  cases  which  seem  to  require  any  in- 
vestigation very  useful.  There  has  not  been  much  discussion  in  the 
courts  of  these  provisions  of  the  policy  for  the  reason  that  they  are 
generally  complied  with.  It  may  be  said  generally  that  such  an  ex- 
amination must  be  called  within  a  reasonable  time  and  conducted 
in  what  under  the  circumstances  of  each  particular  case  is  a  reason- 
able manner.  Many  questions  relating  to  such  an  examination  arise 
as  to  which  no  answer  may  be  found  in  the  decided  cases  and  one 
must  be  guided  by  the  rule  of  reason.  What  is  a  reasonable  place 
to  hold  such  an  examination,  or  rather  what  is  a  reasonable  place 
to  require  the  insured  to  attend  for  such  examination  is  often  asked. 
A  glance  af  the  cases  will  show  some  difference  of  opinion  but 
no  fixed  rule.  This  question  came  up  recently  in  our  Courts  in  the 
case  of  Kline  Brothers  &  Company  v.  Factors  Insurance  Co.  of 
Memphis,  Tenn.  (156  A.  D.,  945)  where  the  policies  covered 
property  in  Quincy,  Florida,  the  property  of  a  corporation,  and  were 
issued  by  companies  not  admitted  in  that  state.  The  insurer  called 
an  examination  to  be  held  at  Cleveland,  Ohio,  where  the  corporation 
maintained  an  office,  or  in  the  alternative  at  New  York  where  its 
books  and  contracts  were.  The  corporation  refused  to  submit  to 
examination  at  any  place  other  than  at  Quincy  and  the  insurer  did 
not  wish  to  conduct  an  examination  there  as  it  had  no  license  to  do 
business  in  Florida.  A  jury  found  that  the  demand  made  by  the 
Insurer  was  reasonable  and  that  the  insured  had  not  complied  with 
the  condition  of  the  policy  requiring  examination.  The  judgment 
entered  on  the  verdict  of  the  jury  was  affirmed  without  opinion  in 
the  Appellate  Division  and  an  appeal  is  now  pending  in  the  Court 
of  Appeals.  In  Missouri  it  is  said  that  when  the  insured  rei^ded  in 
New  York  and  insured  his  property  in  Missouri  in  a  Missouri  Com- 
pany he  could  be  compelled  to  submit  to  examination  where  the 

324 


Claim — Proof  of  Loss — When  is  Loss  Payable 

insured  property  was  located,  Fleisch  v.  Ins.  Co.  (58  Mo.  Ap.,  596), 
and  similarly,  in  another  case,  Murphy  v.  Ins.  Co.  (61  Mo.  Ap., 
323),  it  was  held  that  insured  was  not  required  to  produce  his  books 
at  the  office  of  the  adjuster  six  miles  from  the  place  of  the  fire  the 
court  saying: 

In  our  opinion  the  provision  should  not  ordinarily  be  considered 
as  embracing  any  other  places  than  at  or  near  the  scene  of  loss. 

In  Illinois  on  the  contrary  it  was  held  that  insured  living  in 
Illinois  claiming  for  property  located  in  Missouri  and  insured  in 
a  Missouri  Company  could  not  be  required  to  submit  to  examination 
in  Missouri,  Ins.  Co.  v.  Simpson  (43  111.  Ap.,  98).  In  Pennsylvania, 
the  courts  have  decided  that  it  was  reasonable  to  require  that  where 
the  fire  occurred  in  the  place  of  business  of  the  insured  at  Lancaster 
he  could  be  compelled  to  produce  his  books  in  an  adjacent  county 
where  the  insurer  maintained  its  office,  Seibel  v.  Ins.  Co.  (46  Atl. 
851).  In  Nebraska  the  courts  have  said  that  the  place  of  examina- 
tion must  be  one  conveniently  reasonable  and  in  the  county  where 
the  insured  resides,  Aetna  Ins.  Co.  v.  Simmons  (49  Neb.,  811). 

It  will  be  seen  that  it  is  impracticable  to  deduce  any  fixed  rule 
from  such  decisions  as  have  been  rendered  and  one  might  advise 
that  the  company  should  in  making  its  demand  Jlj^  place  that  under 
the  circumstances  would  appeal  to  the  ordinary  man  as  being  a 
reasonable  place,  reasonably  convenient  to  ^)olh  insured  and  insurer 
and  not  imposing  any  undue  hardship  on  either.  If  I  were  asked 
to  make  any  suggestion  on  the  subject  I  should  say  that  the  ex- 
amination should  be  required  only  when  necessary  for  the  protection 
of  the  company's  rights  and  then  one  should  pursue  the  lines  of 
least  resistance  with  an  eye  single  to  the  accomplishment  of  the 
desired  object.  ' 

A  question  even  more  important  comes  up  frequent!y~and'irnot 
easy  of  solution — Who  may  be  examined  under  this  provision  of  the 
policy?  The  policy,  it  is  true,  states  that  it  is  the  insured  and  the 
inquiry  arises  whether  the  company  has  the  right  to  examine  any 
person  other  than  the  insured.  One  gets  but  little  light  from  any 
of  the  books  on  this  subject  and  it  may  be  said  that  it  is  still  an 
open  question.  In  a  recent  case  in  the  New  York  City  Court, 
Friednian  v.  Ins.  Co.  (New  York  Law  Journal,  May  20,  1913;  aff'd 
without  opinion  at  the  Appellate  Term  of  the  Supreme  Court  in 
May,  1914)  it  was  said  by  the  court,  in  denying  a  motion  to  set  aside 
a  verdict  where  the  jury  had  been  permitted  to  consider  whether  the 
company  was  justified  in  insisting  upon  the  examination  of  the  son 
of  the  insured,  in  view  of  the  insured's  statement  that  he  knew 

325 


The  Fire  Insurance  Contract 

nothing  about  his  books  and  that  his  son  knew  all  about  them,  that 
the  jury  was  entitled  to  consider  whether  or  not  the  failure  to 
produce  the  son,  who  was  under  the  control  of  the  insured,  con- 
stituted performance  of  the  terms  of  the  contract  of  insurance  on 
the  part  of  the  plaintiff  and  a  verdict  for  the  defendant  would  not 
be  disturbed.  While  there  does  not  seem  to  be  any  other  decision 
on  the  subject  which  a  diligent  search  of  the  books  would  disclose, 
it  is  not  unreasonable  to  assume  that  whenever  the  question  is  pre- 
sented it  will  be  determined  somewhat  from  the  standpoint  of  com- 
mon sense.  It  was  intended,  1  take  it,  that  the  company  should  by 
that  provision  have  the  opportunity  to  satisfy  itself  as  to  the  facts 
and  circumstances  surrounding  the  fire  and  claim  and  that  such  an 
inquiry  under  the  provisions  would  be  useful  for  that  purpose,  not 
futile  or  fruitless. 

There  are  many  instances  where  the  insured  knows  nothing 
of  the  property  involved  or  of  the  circumstances  concerning  the 
loss,  but  has  left  the  care  of  the  entire  matter  to  some  other  p^^rson 
acting  for  him  and  under  his  control ;  and  it  would  seem  under  such 
circumstances  that  a  reasonable  interpretation  of  the  provision 
would  require  thai  an  examination  of  that  person,  the  insured's 
alter  ego  as  it  were,  should  be  permitted.  'What  is  true  of  the  en- 
forcement of  other  provisions  of  the  policy  is  also  true  of  this  one, 
that  each  case  would  depend  upon  its  particular  facts  and  what 
under  the  circumstances  would  be  reasonable  would  control.  It 
may  be  said,  however,  in  this  connection  that  the  company  has  the 
absolute  right  to  the  examination  of  the  insured ;  and  it  rnay  be  of 
interest  to  consider  the  effect  of  an  offer  of  a  Receiver  in  Bank- 
ruptcy to  submit  to  examination  in  the  absence  of  the  insured  and 
as  a  substitute  for  him.  That  particular  situation  arose  in  Georgia, 
and  the  Court  held  (Sims  v.  Assurance  Society,  129  Fed.  804)  that 
such  a  Receiver  could  not  in  respect  to  the  right  of  the  company  to 
an  examination  under  oath  take  the  place  of  the  insured.  A  case 
involving  a  somewhat  similar  principle  arose  in  South  Carolina 
(Pearlstine  v.  Ins.  Co.,  70  S.  C,  75). 

The  general  statement  is  made  from  time  to  time  that  on  such 
an  inquiry  only  material  questions  need  be  answered;  this  is  un- 
questionably so,  but  it  would  seem  that  a  rather  wide  latitude 
should  be  given  in  view  of  the  nature  of  the  inquiry  and  its  logical 
relation  to  those  conditions  of  the  policy  providing  for  the  informa- 
tion required  by  the  inventory  and  the  proofs  of  loss  and  for 
forfeiture  in  case  of  any  fraud  or  false  swearing  and  would  make 

326 


Claim — Proof  of  Loss — When  is  Loss  Payable 

material  any  inquiry  "touching  any  matter  relating  to  the  insurance 
or  the  subject  thereof  whether  before  or  after  a  loss."  | 

The  materiality  of  the  question  must  of  course  be  determined 
in  the  first  instance  by  the  insured;  there  is  no  process  through 
which  he  may  be  compelled  to  answer.  And  what  is  a  material  ques- 
tion, of  course,  will  in  the  last  analysis  be  decided  by  the  courts 
and  only  when  that  question  arises  in  an  action  brought  to  recover 
the  loss.  What  is  and  what  is  not  a  material  inquiry  upon  such  an 
examination  may  be  a  question  of  jaw  for  the  court,  or  of  fact  for 
a  jury,  depending  upon  the  facts  and  circumstances  of  the  case. 
Costfor  instance  may  not  always  be  a  material  inquiry  (Porter  v. 
Ins.  Co.,  164  N.  Y.,  504)  ;  ordinarily  it  is.  The  policy  itself  makes 
it  an  important  one  when  by  its  provisions  the  insured  is  required 
*^to  make  a  complete  inventory  stating  the  quantity  and  cost  of  each 
item  and  the  amount  claimed  thereon,"  and  in  the  celebrated  case 
of  Claflin  V.  Ins.  Co.  (110  U.  S.,  81,  the  United  States  Supreme 
Court  held  that  questions  as  to  the  manner  of  payment  for  articles 
claimed  for  were  material,  and  that  intentionally  false  answers 
avoided  the  policy  notwithstanding  the  contention  that  the  answers 
were  made  not  to  prejudice  the  insurance  companies  but  to  mislead 
other  persons. 

The  insured  must  of  course  comply  with  a  requirement  that 
he  subscribe  the  examination  but  there  must  be  a  specific  demand. 

There  are  some  other  and  very  practical  questions  relating  to 
these  examinations  which  come  to  perplex  the  company  adjusters 
at  least,  and  before  leaving  the  subject  we  might  refer  to  them. 
They  are  (a)  when  such  examination  should  be  called  and  (b) 
whether  more  than  one  company^may^join  in  the  call  for  it. 

From  an  analysis  of  what  has  been  written  on  the  subject  it 
would  seem  (a)  that  the  examination  must,  of  course,  be  called  at 
a  reasonable  time ;  and  what  is  a  reasonable  time  would  depend  en- 
tirely^upon  the  circumstances  of  the  case.  Where  no  demand  for 
appraisal  is  made  the  examination  should  be  called  at  a  reasonable 
time  within  sixty  days  after  the  filing  of  proofs  and  in  many  cases 
there  are  often  surmCihding  circumstances  which  reasonably  justify 
the  continuance  of  the  examination  beyond  the  time  limited. 
Where,  however,  an  appraisal  is  had  and  an  examination  is  neces- 
sary, a  request  during  the  course  of  the  appraisal,  or  within  sixty 
days  after  the  appraisal  award  would  appear  to  be  reasonable. 
There  does  not  seem  to  be  any  case  which  is  decisive  upon  this 
particular  question,  and  the  rule  of  reason  must  control,  (b)  Cases 

327 


The  Fire  Insurance  Contract 

involving  a  joint  demand  for  appraisal  are  somewhat  analogous  and 
while  there  is  a  great  difference  of  opinion,  it  would  be  reasonable 
to  assume  that  a  joint  demand  would  be  proper  where  the  provisions 
of  the  respective  policies  are  exactly  similar.  In  a  case  arising  in 
Ohio  (Insurance  Company  v.  Hamilton,  59  Federal,  258),  a  joint 
demand  for  appraisal  was  held  improper;  the  respective  policy 
provisions  differed.  In  Michigan,  where  all  the  policies  were 
similar,  Wicking  v.  Ins.  Co.  (118  Mich.,  640),  the  practice  was 
approved;  but  in  Kentucky  (Ins.  Co.  v.  Asher,  100  S.  W.,  233), 
and  in  Tennessee  (Ins.  Co.  v.  Robertson,  106  Tenn.,  557)  the  de- 
cisions are  to  the  contrary. 

While  the  point  is  interesting  it  is  not  of  great  moment  in  its 
relation  to  the  examination  at  least  where  in  case  of  objection  a 
separate  and  similar  demand  on  the  part  of  each  company  would  be 
productive  of  the  desired  result. 

What  has  been  said  of  the  examination  may  with  equal  and 
greater  force  be  said  of  the  exhibition  and  production  of  books, 
bills,  etc.,  as  required  by  the  policy  provisions ;  the  insured  is  bound 
to  comply  with  such  a  requirement  in  good  faith,  with  due  diligence, 
and  to  make  every  reasonable  effort  to  furnish  to  the  company  the 
requisite  information. 
Whe:n  th^  Loss  is  Payable:  and  When  is  Suit  Sustainable:. 

It  might  occur  to  one  that  there  was  some  inconsistency  in  the 
construction  which  the  Courts  have  placed  upon  that  provision 
of  the  policy  where  it  is  said  that  the  "loss  shall  not  become  pay- 
able until  sixty  days  after  the  notice,  ascertainment,  estimate  and 
satisfactory  proof  of  the  loss  herein  required  have  been  received 
by  this  company,  including  an  award  by  appraisers,  when  appraisal 
has  been  required."  At  first  reading  the  words  "satisfactory  proof 
of  the  loss"  it  would  seem,  ought  to  include  the  examination  of  the 
insured  and  the  production  and  exhibition  of  his  books,  bills,  etc. 
The  courts  have  in  fact  construed  this  provision  otherwise.  The 
rule  is  that  while  the  loss  is  payable  at  a  certain  specified  time  no  suit 
is  sustainable  either  at  law  or  in  equity  until  the  insured  has  com- 
plied  with  othe£ requirements  of  the  company  reasonab^^i-made. 

In  McAUister  v.  Niagara  Fire  Insurance  Co.  (156  N.  Y.,  80) 
which  involved  a  policy  in  the  standard  form,  the  court  held  that 
the  election  to  rebuild  which  is  provided  for  in  the  policy  "on  giv- 
ing notice  within  thirty  days  after  the  receipt  of  the  proof  herein 
required  of  its  intention  so  to  do"  must  be  exercised  within  thirty 
days  from  the  receipt  of  the  formal  proofs  of  loss,  following  Clover 

328 


Claui — Proof  of  Loss — ^When  is  Loss  Payable 

V.  Greenv!  ich  Fire  Ins.  Co.  (101  N.  Y.,  277),  where  it  was  held  in 
an  action  on  a  policy  not  in  the  standard  form  but  of  somewhal 
similar  text  that  the  proofs  intended  are  the  formal  proofs  of  loss 
uncond/tionally  required  to  be  made  by  the  Insured.  In  McNally  v. 
Phoenix  Ins.  Co.  (137  N.  Y.,  389)  which  did  not  involve  a  policy 
in  the  standard  form  it  was  held  that  a  magistrate's  certificate  was 
not  p7,rt  of  the  proofs  and  the  loss  became  payable  sixty  days  after 
the  fiiing  of  the  formal  proofs  of  loss.  To  a  similar  eflfect  is 
Lawience  v.  Niagara  Ins.  Co.  (2  App.  Div.,  267;  affirmed  154  N. 
Y.,  7j2). 

The  result  from  the  present  condition  of  the  Law  in  this  State 
at  1(.  ist  would  seem  to  be : 

(/)  That  the  loss  becomes  payable:  (a)  within  sixty  days 
afi2r_jiQii£^  and  the  filing  of  formal  proofo  which  comply  wiHi 
the  requirements  of  the  policy  if  in  the  meantime  no  appraisal  or 
ascertainment  of  the  loss  be  had.  (&)  Where  there  has  been  an 
a\vard  the  loss  is  payable  sixty  days  from  the  making  of  the  award 
unless  proofs  of  loss  were  filed  after  the  making  of  the  award 
when  th6  loss  will  not  then  be  payable  until  sixty  days  from  such 
filing,  (c)  If  the  loss  be  determined  by  agreement  between  the 
insured  and  the  company,  it  will  be  payable  sixty  days  from  said 
determination  unless  proofs  of  loss  were  filed  subsequent  to  that 
time  in  which  case  it  would  not  become  payable  until  sixty  days 
from  the  time  of  filing. 

(^)  That  suit  is  sustainable  only  after  the  loss  becomes  pay- 
able and  the  insured  has  fully  complied  with  such  requirements  as 
have  been  demanded  within  a  reasonable  time.  If  therefore  the 
time  limited  has  passed  and  the  l.oss  becomes  payable  the  insured 
upon  complying  with  the  requirements  could  sue  immediately. 

The  courts  of  other  states  have  adopted  somewhat  similar 
reasoning.  In  Illinois  (Huchberger  v:  Ins.  Co.,  12  Fed.  Cases 
793),  it  was  held  that  the  sixty  days  ran  from  filing  proofs,  not 
from  the  conclusion  of  an  examination;  and  in  Kansas  (Ins.  Co. 
V.  McLead,  57  Kansas,  95),  the  time  was  held  to  run  from  filing 
proofs,  not  from  the  production  of  vouchers  demanded,  and  in  New 
Jeisey  (Ins.  Co.  v.  Gibbs,  56  N.  J.  L.,  579)  it  was  held  that  suit 
could  be  commenced  at  the  expiration  of  sixty  days  after  furnish- 
ing formal  proofs,  notwithstanding  that  that  period  had  not  elapsed 
from  the  time  of  furnishing  a  magistrate's  certificate.  We  must 
keep  in  mind,  however,  what  has  already  been  said  above  that 
there  are  decisions  in  some  of  the  States  that  a  '^disagreement'' 

329 


I  The  Fire  Insurance  Contract 

! 

as  to  the  amount  of  the  loss  makes  the  appraisal  condition  operative 
and  a  condition  precedent  to  any  action  on  the  policy  without  any 
specific  requirement  for  appraisal  on  the  part  of  the  company 
(Murphy  v.  Insurance  Company,  61  Mo.  App.  323;  Ins.  Co.  v.  Erie 
Brewing  Co.,  30  Ohio  Circuit  Court  309). 

The  proofs  of  loss  must,  of  course,  be  satisfactory  in  the  sense 
that  they  are  a  substantial  compliance  with  the  policy  conditions, 
and  if  those  furnished  are  clearly  defective  and  are  rejected,  the 
sixty  day  period  would,  naturally,  run  from  the  furnishing  of 
proper  proofs. 

Kimball  v.  Ins.  Co.  (21  N.  Y.,  Superior  Ct.,  495),  where  it  wa*: 
said  by  Hoffman,  J.,  at  page  501 : 

If  the  defect  in  the  preliminary  proofs  furnished  the  19th  of  No- 
vember, was  not  waived,  then  the  action  ought  not  to  have  been  com- 
menced until  the  21st  of  March,  1858.    The  question  is  of  moment. 

To  the  same  effect  are:  Ins.  Co.  v.  Hocking,  115  Pa.,  398; 
Marino  v.  Ins.  Co.,  227  Pa.,  120. 

It  is  hardly  necessary  to  add  that  a  denial  of  liability  would  of 
course  waive  the  sixty  day  limitation  and  suit  would  be  at  once_ 
sustainable. 
^  The:  12  Months  Limitation. 

We  have  now  reached  that  provision  of  the  policy  which  is 
the  one  remaining  of  the  subject  under  discussion  in  this  chapter, 
where  it  is  provided  that  no  suit  shall  be  sustainable  unless  com- 
menced within  twelve  months  after  the  fire,, and  it  may  be  said  that 
there  is  no  ambiguity  in  that  language.  It  has  been  strictly  con- 
strued by  the  courts  and  unless  the  company  has  extended  the  time 
limited,  or  done  something  to  estop  itself  from  asserting  it,  the 
right  of  action  is  absolutely  gone  at  the  end  of  the  period,  except 
in  the  one  case  which  is  provided  for  by  statute  in  New  York  State 
(Code  Civil  Procedure,  Sec.  405)  extending  the  time  for  another 
twelve  months  where  action  has  been  brought  within  the  time  limited 
but  the  action  has  terminated  other  than  by  voluntary  discontinu- 
ance, dismissal  for  neglect  to  prosecute  or  a  final  judgment  on  the 
merits  or  a  reversal  on  appeal  where  no  new  trial  is  awarded.  It 
was  at  one  time  questioned  whether  the  limitation  in  the  policy  was 
affected  by  this  code  provision  but  was  settled  in  the  case  of  Belling- 
er V.  Ins.  Co.  (51  Misc.,  463,  affd.  113  A.  D.,  917),  where  it  was 
held  that  the  section  did  apply  to  the  policy  limitation. 

The  time  begins  to  run  from  the  day*  on  which  the  fire  oc- 
curred, and  it  may  happen  that  when  an  appraisal  award  is  noT 
made  until  after  the  expiration  of  the  period  a  suit  will  be  sustained. 

330 


Claim — Proof  of  Loss — When  is  Loss  Payable 

In  Austen  v.  Ins.  Co.  (16  App.  Div.,  86),  a  suit  brought  within  a 
month  after  an  award  and  more  than  twelve  months  from  the  fire, 
was  held  timely;  the  delay,  it  was  said,  being  due  to  dilatory  action 
on  the  part  of  the  appraisers.  And  in  Williams  v.  Ins.  Co.  (90 
App.  Div.,  413)  a  similar  action  was  sustained. 

There  are  cases  (Smith  v.  Glens  Falls  Ins.  Co.,  62  N.  Y.,  85; 
Ins.  Co.  V.  Hatton,  55  S.  W.,  681)  holding  that  where  a  compromise 
agreement  fixing  the  loss  has  been  entered  into  and  a  promise  of 
payment  made  the  policy  limitation  would  not  apply.  These  cases 
have  no  application  to  the  usual  agreement  fixing  the  loss  subject 
to  the  terms  of  the  policy,  which  is  of  course  controlled  by  the 
policy  limitation  (Steinberg  v.  Boston  Ins.  Co.,  144  App.  Div.,  110; 
Stuart  V.  Reserve  Fund  Ass'n,  7S  Hun.  191). 

Another  statutory  provision  in  this  state  that  must  be  considered 
with  the  question  under  discussion  is  that  contained  in  our  Code 
Civil  Procedure,  (Sec.  399),  which  makes  delivery  of  process  for 
service  to  a  Sheriflf  within  the  time  limited  and  service  within  sixty 
days  after  the  time  limited  an  "attempt"  to  begin  an  action  and  a 
sufficient  compliance.  This  statute  has  been  held  to  apply  to  an 
action  on  an  insurance  policy.  (Hamilton  v.  Ins.  Co.,  156  N.  Y., 
327). 

When  the  company  elects  to  rebuild  under  the  policy  provisions 
it  is  said  that  it  thereby  enters  into  a  new  contract,  a  building  con- 
tract (Morrell  v.  Ins.  Co.,  33  N.  Y.,  429;  Wynkoop  v.  Ins.  Co.,  91 
N.  Y.,  478;  Heilmann  v.  Ins.  Co.,  75  N.  Y.,  7)  and  in  an  action 
brought  to  recover  for  breach  of  such  a  contract,  it  was  held  by  the 
Court  of  Appeals  of  the  District  of  Columbia  (Winston  v.  Ins.  Co., 
32  App.  Cases,  D.  C,  61)  that  the  twelve  months'  limitation  con- 
tained in  the  policy  which  was  substantially  similar  to  that  in  the 
standard  form  had  no  application. 

The  company  may,  of  course,  extend  the  time  or  waive  the 
time  limitation  (Magner  v.  Mutual  Life  Ins.  Co.,  17  App.  Div.,  13; 
162  N.  Y.,  657). 

There  remains  one  important  question  which  requires  critical 
analysis,  and  that  is  the  effect  of  this  time  limitation  when  an  in- 
terest other  than  that  of  the  insured  is  also  covered.  Such  interests 
we  know  are  to  be  the  subject  of  other  chapters  and  I  might 
simply  state  that  the  Court  of  Appeals  has  by  inference  at  least 
said  that  it  has  no  application  to  a  mortgagee  under  a  Standard 
Mortgagee  Clause  (Heilbrunn  v.  Ins.  Co.,  202  N.  Y.,  610).  It  may 
be  of  interest  to  note,  however,  that  this  Court  in  the  case  of  Mc- 

331 


The  Fire  Insurance  Contract 

Ardle  v.  Ins.  Co.  (183  N.  Y.,  368)  where  payment  had  been  made 
to  the  insured  notwithstanding  a  loss  payable  clause  to  another  as 
"interest  may  appear"  held  that  suit  by  the  person  to  whom  the  loss 
was  payable  was  not  sustainable  under  the  policy  limitation,  for  the 
reason  that  it  was  commenced  more  than  twelve  months  after  the 
fire. 


332 


XVIII 
THE  APPRAISAL 

Willis  0.  Rolb 

Manager,  New  Yorlc  Fire  Insurance  Exchange 

Twenty-one  years  ago  last  September,  when  I  was  a  special 
agent  and  adjuster  in  the  Central  West,  I  wrote  a  paper  on  "The 
Conduct  of  an  Appraisal"  for  the  1893  Meeting  of  the  Fire  Under- 
writers' Association  of  the  North-West,  at  Chicago.  The  pamphlet 
edition  of  the  paper  is  about  out  of  print,  and  it  would  therefore 
be  quite  safe  to  crib  freely  from  that  early  publication  in  the  prepa- 
ration of  the  present  paper,  and  I  have  not  hesitated  to  consult  it 
with  that  end  in  view.  For  one  reason  or  another,  however,  it 
has  seemed  best  to  do  the  work  over  again  to  a  considerable  extent. 

My  study  of  the  older  production  has  been  rather  interesting, 
for  this  reason:  In  1893  the  Standard  Policy  had  been  in  use  only 
half-a-dozen  years,  even  in  New  York,  and  of  course  for  a  shorter 
time  in  any  other  State.  The  analysis  then  made  of  its  provisions 
as  applied  to  appraisals  was  therefore  based  chiefly  on  decisions 
made  under  older  policy  forms  and  on  my  own  best  guess  at  the 
decisions  likely  to  be  made  under  the  new  features  of  the  new 
form.  Yet  on  re-reading  the  paper  today  I"  find  scarcely  a  point  on 
which  I  am  disposed  to  modify  the  opinion  I  then  expressed.  This 
is  not  so  much  because  the  courts  have  agreed  to  follow  my  reason- 
ing as  because  they  have  continued  to  disagree  on  the  points  that 
were  then  in  doubt,  and  so  left  me  free  to  adhere  to  my  own  views. 
At  that  time  I  made  a  prefatory  remark  that  I  can  still  safely 
repeat,  viz. : 

So  far  as  the  present  paper  touches  on  the  law  of  the  insurance 
appraisal,  it  must  be  understood  to  be  the  production  of  one  who  be- 
lieves that  as  to  many  branches  of  the  topic  there  is  no  settled  la'w 
at  all. 

And  I  do  not  mean  today  to  devote  much  time  to  analyzing  and 
balancing; — ''distinguishing,"  our  lawyer  friends  would  say — the 
controlling  or  conflicting  court  precedents  applicable  to  the  several 
heads  of  my  subject,  preferring  to  state  my  own  conclusions  from 
my  study  of  the  cases,  and  merely  to  indicate  where  it  seems  neces- 


•This  chapter,  having  been  written  in  1914,  deals  with  the  New  York  Standard  Policr 
of  that  time  and  has  not  been  modified  to  fit  the  differing  phraseology  of  the  New  York 
Standard  Policy  which  came  into  use  January  1.  1918. — The  Author. 


The  Fire  Insurance  Contract 

sary  which  of  those  conclusions  are  based  on  concurrent,  which  on 
non-concurrent,  and  which  on  wholly  missing  court  decisions. 

The  language  of  the  New  York  Standard  form  of  policy,  so 
far  as  it  touches  the  subject  of  appraisal,  is  as  follows  : 

Lines  1-6,  after  stating  cash  value  basis  of  ascertaining  loss,  say: 
"Said  ascertainment  or  estimate  shall  be  made  by  the  insured,  or,  if  they 
differ,  then  by  appraisers,  as  hereinafter  provided  *  ♦  *.  It  shall  be 
optional  *  *  with  this  company  to  take  all,  or  any  part,  of  the  articles  at 
siich  ascertained  or  appraised  value,  and  also  repair,  rebuild,  or  replace 
the  property  lost  or  damaged  with  other  of  like  kind  and  quality  within 
a  reasonable  time,  on  giving  notice,  within  thirty  days  after  the  receipt 
of  proof  hereinrequired,  of  its  intention  so  to  do;  but  there  can  be  no 
abandonment  to  this  company  of  the  property  described." 

Lines  86-95.  "In  the  event  of  disagreement  as  to  the  amount  of 
loss  the  same  shall,  as  above  provided,  be  ascertained  by  two  competent 
and  disinterested  appraisers,  the  insured  and  this  company  each  select:;, 
ing  one,  and  the  two  so  chosen  shall  first  select  a  competent  and  dis- 
interested umpire;  the  appraisers  together  shall  then  estimate  and  ap- 
praise the  loss,  stating  separately  sound  value  and  damage,  and,  failing 
t6  agree,  shall  submit  their  differences  to  the  umpire;  and  the  award 
in  writing  of  any  two  shall  determme  the  amount  of  such  loss;  the 
parties  thereto  shall  pay  the  appraiser  respectively  selected  by  them  and 
shall  bear  equally  the  expenses  of  the  appraisal  and  umpire. 

This  company  shall  not  be  held  to  have  waived  any  provision  or 
condition  of  this  policy  or  any  forfeiture  thereof  by  any  requiremen-t, 
act,  or  proceeding  on  its  part  relating  to  the  appraisal. or  to  any  ex- 
amination herein  provided  for;  and  the  loss  shall  not  become  payable 
until  sixty  days  after  the  notice,  ascertainment,  estimate,  and  satisfac- ' 
tory  proof  of  the  loss  herein  required  have  been  received  by  this  com- 
pany, including  an  award  by  appraisers  when  appraisal  has  been  re- 
quired." I 

The  first  thing  to  be  said  about  the  general  provision  of  the 
Standard  Policy  for  an  appraisal  to  determine  the  amount  of  loss, 
in  case  of  disagreement,  is  that  it  is,  by  the  unanimous  holding  of 
the  courts,  a  valid  and  enforceable  one,  and  would  be  so  adjudged 
even  in  a  State  where  the  use  of  this  form  of  policy  is  not  required 
by  law,  but  is  purely  voluntary.  The  old  jealousy  of  the  lawyers 
and  judges  lest  such  a  provision  for  settling  out  of  court  might,  as 
they  called  it,  "oust  the  courts  of  their  jurisdiction"  had  some  years 
before  the  Standard  Policy  was  drafted  ceased  to  prevent  a  fire  in-' 
surance  appraisal  award,  reached  in  due  form,  from  being  conclu- 
sive, where  these  two  conditions  were  observed :  first,  that  only  the 
amount  of  the  loss,  not  any  question  of  liability  or  policy  construc- 
tion, was  submitted  to  the  appraisers,  and  second,  that  the  appraisal 
award,  in  case  of  disagreement,  was  expressly  made  a  condition 
precedent  to  the  right  of  recovery  at  law.  It  was  my  fortune  to  be 
personally  involved,  as  an  adjuster,  in  one  of  the  cases  that  went  to 
the  Supreme  Court  of  the  United  States  from  the  pre-Standard 
Policy  days  and  helped  to  fix  the  law  in  this  respect  (Hamilton  vsJ 
the  Liverpool  &  London  &  Globe  Ins.  Co.  136  U.  S.  242).     In  the 

334 


The  Appraisal 

loss  underlying  this  litigation — that  of  the  "Bull  Dog  Tobacco 
Works"  in  Covington,  Ky. — policies  of  widely  differing  forms  were 
involved,  and  some  appraisal  provisions  were  held  good  and  others 
not.     Fortunately  that  is  a  state  of  things  long  outgrown. 

In  one  respect  the  Standard  Policy  is  weaker  than  some  forms 
that  immediately  preceded  it.  It  does  not,  as  they  did,  make  ap- 
praisal a  separate  and  specific  "condition  precedent,"  but  includes 
it  with  other  requirements.  "No  suit  or  action  on  this  policy,  for 
the  recovery  of  any  claim,  shall  be  sustainable  in  any  court  of  law 
or  equity  until  after  full  compliance  by  the  assured  with  all  the  fore- 
going requirements."  (Lines  106  and  107).  It  was  a  Minnesota 
court,  I  think,  that  first  determined  that  this  made  no  difference,, 
and  that  is  now  the  universal  doctrine.  The  holder  of  such  a  policy 
who  sEould,  after  a  loss  and  after  a  disagreement  with  the  com- 
pany's  representative  as  to  the  amount  of  such  loss,  refuse,  when 
requested,  to  submit  the  determination  of  that  amount  to  appraisal, 
as  provided  in  the  policy,  would  forfeit  his  right  of  recovery, 
though,  of  course,  such  forfeiture  might  afterward  be  waived  by 
acts  of  the  company.  What  would  be  the  effect  if,  after  first  re- 
fusing an  appraisal,  the  insured  afterward  repented  and  offered  or 
requested  one,  would  probably  depend  on  whether  the  refusal  had 
prejudiced  the  company,  or  the  delay  made  appraisal  more  difficult 
or  disadvantageous  to  it.  But  the  company,  on  its  part,  can  not 
refuse^ appraisal,  and  then  afterward  require  it  and  treat  failure  to 
comply  as  a  bar  to  action;  that  is,  of  course,  supposing  a  disagree- 
ment had  already  occurred  when  the  first  demand  was  made. 

It  is  by  no  means  certain  that  the  insured  would  be  relieved 
from  the  necessity  of  an  appraisal  merely  by  the  company's  failure 
to  demand  it.  The  policy  does  not  provide  for  an  appraisal  only  on 
demand"( written  or  otherwise),  but  absolutely  requires  that  method 
of  adjustment,  in  case  of  disagreement,  and  this  requirement  must 
be  complied  with  as  fully  as  any  other.  In  lines  93-95,  to  be  sure, 
it  is  stipulated  that  "the  loss  shall  not  become  payable  until  *  *  * 
after  *  *  *  satisfactory  proof  of  the  loss  herein  required  [has]  been 
received  by  this  company,  including  an  award  by  appraisers  when 
appraisal  has  been  required."  But  even  here  '^required"  may  as 
easily  mean  "required  by  the  happening  of  a  disagreement"  as  "re- 
quired by  this  company ;"  and  in  any  case  this  whole  provision  for 
proofs  of  loss  could  be  waived  without  waiving  the  right  to  an  ap- 
praisal. It  is  primarily  the  concern  of  the  insured  to  see  that  an 
appraisal  is  had  in  case  of  disagreement,  in  order  that  he  mny  not 

335 


y 


The  Fire  Insurance  Contract 

lose  his  standing  in  court.  A  good  many  cases  to  the  contrary  can 
be  cited,  but  in  all  of  them  '"request"  appears  to  have  been  a  policy 
condition  for  appraisal.  At  the  same  time,  no  careful  adjuster,  I 
suppose,  whether  he  wanted  an  appraisal,  or  the  benefit  of  the  in- 
sured's refusal  of  one,  would  stop  short  of  explicitly  requiring  it, 
and  without  unreasonable  delay  after  the  disagreement  arose,  and 
in  writing  if  necessary. 

Another  thing  tolerably  clear  also  is  that  the  right  to  an  ap- 
praisal is  not,  under  this  contract,  enforceable  only  after  the  mak^ 
,  ing  of  proofs,  as  used  to  be  the  case,  but  arises  as  soon  as  a  dis- 
^  agreement  occurs,  whether  that  be  before  or  after  proofs  are  fur- 
nished. The  party  seeking  appraisal  should  make  it  clear  as  a 
matter  of  record  that  a  disagreement  has  actually  arisen,  to  make 
his  demand  operative. 

But  there  are  some  kinds  of  disagreement  as  to  amount  of  loss 
which  will  not  sustain  a  demand  for  appraisal  at  all.  If  the  only 
question,  for  example,  is,  which  of  the  two  standards,  market 
value  or  cost  of  production,  is  the  measure  of  loss,  or  in  other" 
words,  what  the  expression  ''actual  cash  value"  means,,  such  a  dif- 
ference does  not  call  for  appraisal.  So  of  a  disagreement  as  to 
the  intent  of  the  stipulation  that  "the  loss  *  *  *  shall  in  no  case 
exceed  what  it  would  then  cost  the  insured  to  repair  or  replace," 
where  "then"  might  mean  just  before  or  just  after  the  fire  with  a 
great  difference  in  its  effect  on  the  amount  of  the  claim :  any  such 
disagreement  would  have  to  be  settled  otherwise  than  by  the  sort 
of  appraisal   called   for  in   the  policy.  J 

The  demand  for  an  appraisal  on  the  par/  of  the  company  does 
^  not  involve  an  admission  of  liability  undeq  the  policy,  nor  need 
such  an  admission  be  made  in  order  to  enforce  the  demand.  The 
company  has  a  right  to  an  appraisal  before  electing  what  to  do  with 
reference  to  any  known  or  suspected  forfeiture.  The  contrary 
holding  in  some  early  cases  was  under  a  different  policy  provision 
on  the  subject. 

In  this  whole  matter  of  the  demand  for  an  appraisal,  one 
thing  must  not  be  forgotten,  and  that  is,  that  if  demand  is  made 
at  all,  it  must  be  made  in  accordance  with  the  terms  of  the  policy, 
not  otherwise.  It  should  not,  for  instance,  be  coupled  with  a 
demand  that  any  particular  form  of  agreement  for,  subrnjssion 
be  signed,  even  if  that  form  be  in  strict  accordance  with  the  policy 
provisions,  nor  with  a  demand  that  any  particular  form  of  evidence 
should  be  submitted  to  the  appraisers.     The  plaintiff  in  the  case 

336 


The  Appraisal 

of  Hamilton  v.  Liverpool  &  London  &  Globe  Ins.  Co.,  just  re- 
ferred to,  really  lost  his  case  because  he  insisted  on  a  provision  in 
advance  that  after  the  appraisers  had  examined  the  tobacco  alleged 
to  be  damaged  by  smoke  he  should  have  the  right  to  sell  this  to- 
bacco at  auction,  or  "on  the  breaks,"  as  it  is  called,  with  a  notice  to 
purchasers  of  the  previous  exposure  of  the  tobacco  to  smoke  dam- 
age, and  introduce  before  the  appraisers  the  evidence  of  the  price 
thus  obtained.    It  is  just  possible  he  could  have  done  all  this  if  he 
had  not  stipulated  for  it  in  advance  out-side  the  language  of  the  *^ 
policy,  but  no  additional  contract  can  be   forced  upon  either  the 
company  or  the  policy-holder  in  this  connection.     They  have  the 
duty  of  "selecting  appraisers,  and  they  may  do  that  without  naming 
them  in  writing  at  all,   so   far  as  policy   requirements   go.     The 
award  must  be  in  writing,  but  the  nomination  of  appraisers  need 
not   be.     Convenience   rather   requires   some   written   evidence   of 
these  nominations,  and  ordinarily  there  is  no  difficulty  in  getting 
an  agreement  signed,  if  the  appraisal  is  consented  to  at  all,  but  the      >^ 
demand   for  appraisal   should  not  include   demand   for   any   such 
signature  as  a  right.     So,  a  joint  demand  for  appraisal  by  several 
companies  jointly  interested  in  a  loss  is  not  wise,  even  if  the  policy 
terms  of  all  agree.     No  one  of  the  companies  has  any  right  to  a 
joint   appraisal,   even  though   such   an   appraisal,   if   consented  to, 
would  probably  be  valid.     This  brings  into  view  a  defect  of  this 
policy  form  which  it  shares  with  older  forms.     While  limiting  the 
liability  of  the  company  tu  its  pro  rata  share  of  the  loss,  as  dis- 
tributed over  all  the  insurance  on  the  property,  no  provision  what- 
ever is  made  for  common  action  in  adjustment.     Doubtless  a  man 
could  be  compelled  to  have  as  many  appraisals  as  he  held  policies, 
and  on  his  part  he  could  compel  each  company  to  have  its  separate 
appraisal.     So  also  each  company  reserves  the  right  to  replace,  and    ^ 
the  right  to  lake  any  pari   of  the  damaged  property  at  its  ascer- 
tained or  appraised  value,  and  in  case  of  insurance  by  more  than 
one  company  these  several   rights   of   the   several   companies   are 
clearly  conflicting.    This  is  one  of  the  incongruities  of  the  contract 
tliaTonly  common  sense  and  sweet  reasonableness  on  the  part  of 
insurers  and  insured  can  prevent  from  becoming  wholly  absurd. 

The  policy  does  not  provide  for  several  different  appraisals  on 
different  subjects  of  insurance.  Where  the  property  is  insured  in 
separate  items,  there  is  little  doubt  that  a  disagreement  as  to  loss  on 
any  one  item  will  support  a  demand  for  appraisal  on  it,  though  a 
refusal  of  such  a  demand  by  the  insured  would  not  bar  his  right  of 

337 


/ 


The  Fire  Insurance  Contract 

action  under  other  items  of  the  poHcy,  if  he  abandoned  claim  for  the 
item  in  question.  But  the  case  of  the  blanket  policy,  common  where 
full  co-insurance  is  required,  and  covering  in  one  item  building, 
machinery  and  stock,  might  be  troublesome.  It  is  doubtful  whether 
a  valid  demand  for  appraisal  could  be  made  on  only  one  portion  of 
the  property  so  insured,  unless  the  loss  on  the  rest  were  already 
agreed  on,  so  that  the  appraisal  would  really  conclude  or  "ascertain" 
the  loss.  And  if  more  than  one  portion,  as  building  and  machinery, 
were  in  dispute,  it  might  be  unsafe  to  plant  oneself  on  a  demand  for 
separate  appraisals,  and  wiser  to  request  simply  an  appraisal  to 
ascertain  the  loss,  as  provided  in  the  policy.  Appraisal  once  granted, 
there  is  usually  little  difficulty  in  getting  as  many  separate  submis- 
sions as  convenience  and  the  nature  of  the  loss  require;  and  such 
separate  appraisals,  their  awards  aggregating  the  whole  amount  of 
the  loss,  would  doubtless  be  valid.  But  a  good  many  variations  from 
policy  requirements,  in  the  way  of  details  added  or  omitted  or  varied, 
might,  if  agreed  to,  be  permissible  in  the  conduct  of  an  appraisal 
which  yet  could  not  be  safely  insisted  on  by  either  party  in  making 
a  formal  demand  under  the  contract. 

There  is  no  longer  any  doubt,  though  there  still  was  when  my 
1893  paper  was  written,  that  an  appraisal  can  be  demanded,  as  a 
means  of  ascertaining  the  whole  loss,  where  the  loss  is  total,  or  where 
part  of  the  insured  property  is  destroyed,  and  part  damaged,  as  well 
as  where  only  the  amount  of  damage  to  property  saved  is  in  dispute. 
The  older  court  decisions  inclined  to  hold  that  in  case  of  total  de- 
struction, especially  of  merchandise,  there  was  nothing  to  appraise, 
though  except  in  valued-policy  law  States  they  usually  upheld  build- 
ing loss  appraisals,  even  where  the  destruction  was  complete.  But 
all  authorities  now  agree  that  the  Standard  policy  provision  for  an 
appraisal  of  the  loss  does  not  mean  merely  an  appraisal  of  damage 
to  property  in  sight. 

So  much  for  the  circumstances,  and  for  the  manner,  in  which  an 
appraisal  may  be  demanded.  The  next  thing  to  consider  is  the  form 
of  the  agreement  or  submission.  I  have  just  noted  that  no  written 
agreement  is  really  necessary,  or  provided  for  by  the  policy,  and  that 
not  even  the  nomination  of  appraisers  is  specifically  required  to  be 
made  in  writing.  But  usually  both  parties  prefer  such  an  agreement 
in  writing,  as  providing  evidence  of  the  nominations  made,  as  de- 
scribing for  the  guidance  of  the  appraisers  the  property  on  which  the 
loss  is  to  be  appraised,  and  as  furnishing  blanks  for  recording  the 

338 


The  Appraisal 

choice  of  an  umpire  and  making  the  return  of  the  award,  the  last  of 
which  alone  is  required  by  the  policy  itself  to  be  in  writing. 

The  form  of  agreement  should  not  contain  any  form  of  state- 
ment by  either  the  appraisers  or  the  umpire  as  to  their  qualifications 
(or  lack  of  disqualifications),  or  any  declaration  or  affidavit  as  to 
their  purpose  to  conduct  the  appraisal  properly.  The  first  of  these 
points  is  wholly  for  the  nominating  parties  to  assume  responsibility 
for,  and  the  second  is  an  impertinence  and  a  supererogation . 

As  a  matter  of  fact,  I  do  not  mean  to  draft  and  submit  to  you 
here  an  ideal  form  of  appraisal  agreement.  I  did  so,  I  believe  in  my 
1893  paper,  but  there  is  no  evidence  that  any  one  ever  used  it,  and 
since  that  time  a  good  many  quite  satisfactory  forms,  copyrighted 
and  uncopyrighted,  have  been  put  in  circulation.  I  have  but  this 
admonition,  that  the  agreement  should  be  as  nearly  as  possible  the 
poHcy,  the  whole  policy,  and  nothing  but  the  policy,  so  far  as  the 
latter  is  an  instruction  for  appraisers,  making  allowance  only  for  the 
necessity  of  putting  it  into  contract  form.  Incidentally,  I  think  I 
should  always  quote  in  the  agreement  the  clause  giving  the  company 
the  right  to  take  the  whole  or  any  part  of  the  property  at  appraised 
value,  because,  strangely  enough,  it  is  the  only  one  in  the  policy  that 
even  implies  that  an  appraisal  should  be  made  in  detail  rather  than 
in  bulk. 

How  shall  this  agreement  be  signed  ?  As  to  the  insurance  com- 
panies, signature  by  their  representatives  is  rarely  a  matter  of  dis- 
pute. A  company's  name  signed  by  one  not  specifically  authorized 
to  act  for  it  would  not  give  the  insured  ground  for  declaring  an 
award  not  binding,  if  the  action  of  the  signer  were  ratified  by  the 
company  afterward ;  since  the  fact  that  it  would  not  have  bound  the 
company  had  it  chosen  not  to  ratify  does  not  release  the  other  party. 
A  company  not  signed  for  is  of  course  not  bound  by  the  award,  nor 
is  the  insured  as  to  such  company.  The  signature  by  or  for  the 
insured  is,  of  course,  subject  to  the  ordinary  law  of  evidence  and 
authorization,  as  to  the  binding  force  of  the  signature  of  an  officer 
for  a  corporation  or  of  a  member  for  a  firm,  etc. 

At  this  point  in  my  1893  paper  I  recall  that  I  discussed  the 
question  whether  a  mortgagee  or  otlier  payee  is  bound  by  the  result 
of  an  appraisal  to  which  he  has  not  been  a  party,  and  whether  his 
signature. and  participation  are  proper  and  necessary  in  an  appraisal 
under  a  policy  held  by  him.  At  that  time  I  held  that  the  provision 
of  lines  56-59  allowing  of  the  endorsement  of  a  mortgagee's  or  like 
interest  draws  so  clear  a  distinction  between  the  terms  '^mortgagee" 

339 


The  Fire  Insurance  Contract 

and  ''insured"  that  the  later  requirement  that  the  insured  shall  select 
an  appraiser  leaves  the  mortgagee  out.  Then  I  added,  with  that  fine 
premonitory  sense  of  danger  that  stands  out  so  clearly  in  all  my 
earlier  writings  on  insurance, — ''at  the  same  time  it  is  best,  until  the 
lawyers  have  had  their  final  hearing  on  this  question,  to  secure  the 
signature  of  the  payee  as  well  as  of  the  insured  to  an  appraisal 
agreement."  Well,  a  lot  of  water  has  flowed  over  the  dam  since 
then.  A  couple  of  years  ago  the  Court  of  Appeals  of  New  York,  in 
the  case  of  Heilbrun  vs.  The  German  Alliance  Insurance  Company, 
had  a  mortgagee-clause  payee  suing  to  recover  where  the  insured 
had  made  no  proofs  and  where  the  year  limit  had  elapsed  before 
suit  was  entered ;  and  it  practically  held  that  no  standard  policy  pro- 
vision governing  the  adjustment  of  the  loss  applies  or  can  be  made 
to  apply  to  the  mortgagee  save  those  contained  in  the  standard  mort^ 
gagee  clause,  which  is  to  all  intents  and  purposes  an  independent 
contract. 

Now  as  to  the  appraisers.  The  policy  specifies  only  two  neces- 
sary qualifications  in  an  appraiser:  he  must  be  ".competent"  and 
"^i^iaterested."  "Competent"  means  qualified,  fit,,  capable.  Whether 
a  man  is  competent  or  not  depends  on  what  he  has  to  do.  An 
appraiser  has  to  appraise,  and  "appraise"  means  to  fix  the  value,  or, 
in  the  case  of  a  loss,  to  fix  the  amount' of  it.  The  word  "arbitrate" 
does  not  occur  in  the  New  York  standard  form  of  policy  at  all.  It 
is  always  "appraise,"  "appraiser,"  "appraisal."  A  man  might  be  a 
competent  arbitrator  for  an  arbitration  at  common  law  or  under  any 
general  statute,  and  yet  not  be  a  competent  appraiser  of  a  fire  loss, 
under  the  terms  of  our  policy  form.  The  latter  office  undoubtedly 
requires  some  special  knowledge  of  the  subject  to  be  considered.  In 
practice,  a  considerable  liberality  must  be  shown  in  objecting  to  a 
nominee  on  the  ground  of  lack  of  competence,  and  if  an  imperfectly 
qualified  appraiser  were  accepted  with  a  knowledge  of  his  limitations 
the  award  could  not  afterward  be  challenged  because  of  his  incom- 
petence. But  there  is  little  doubt  that  a  man  having  no  knowledge 
whatever  of  his  own  about  the  sort  of  loss  he  is  selected  to  appraise 
could  for  that  reason  be  successfully  objected  to  in  the  outset,  or  if 
accepted  in  ignorance  of  the  facts,  his  award  set  aside. 

But  the  appraiser  must  also  be  "disinterested."  That  means, 
among  other  things,  that  he  must  have  no  interest  in  the  property 
destroyed  or  damaged,  nor  in  the  sum  to  be  paid  on  account  of  the 
loss.  Probably  an  ordinary  creditor  could  not  be  objected  to,  if 
nominated  by  the  insured  as  appraiser,  unless  his  chance  of  recov- 

340 


The  Appraisal 

ering  his  debt  depended  in  a  measure  on  the  amount  to  be  paid  the 
insured  by  the  company.  A  mortgagee  or  garnisher  would  hardly 
be  eligible.  A  relative  might  or  mi^vMiot,  according  as  the  rela- 
tionship did  or  did  not  imply  "interest."  An  appraiser  the  size  of 
whose  fee  depended  upon  that  of  the  award  would  not  be  "disin- 
terested."  ~But  "disinterested"  also  means,  in  a  measure,  not  biased 
or  prejudiced.  It  would  not  be  admissible  for  either  party  to  insist 
on  selectingas  appraiser  a  person  known  to  be  strongly  prejudiced 
against Ihe  other  party.  Conversely,  a  person  whose  relation  to  the 
party  selecting  him  was  such  (as  for  instance  that  of  clerk  or  em- 
ploye)  that  he  could  not  but  be  presumed  to  be  biased  in  his  favor, 
would  not  be  a  proper  appraiser. 

This  brings  us  to  the  consideration  of  the  so-called  "profes- 
sional appraiser" — the  man  Who  has  appraised  a  good  many  losses 
by  fire,  usually,  though  not  always,  for  insurance  companies,  and 
who  devotes  a  considerable  portion  of  his  time  to  that  work.  Is  he 
a  proper  appraiser,  "competent  and  "disinterested  ?"  Competent  he 
usually  is.  His  very  existence  as  a  type  is  due  to  a  demand  for 
special  competence.  A  good  many  fire  losses  require  for  their  proper 
adjustment,  whether  by  appraisal  or  otherwise,  not  so  much  a  knowl- 
edge of  materials  and  prices  as  a  knowledge  of  the  effects  of  fire, 
and  the  possibility  and  expense  of  removing  them  or  repairing  the 
damage  so  caused.  And  it  is  idle  to  say  that  experience  does  not 
add  to  one's  competence  to  judge  of  such  matters.  Not  every  builder 
able  to  figure  the  new  cost  of  a  building  is  a  good  judge  of  the 
extent  of  damage  to  it  by  an  irregular  and  obstinate  fire.  He  must 
have  had  special  experience  to  estimate  correctly  such  a  loss.  So 
with  the  machinist,  the  manufacturer,  the  merchant.  Each  may  be 
a  good  judge  of  construction  or  prices  in  his  specialty  without  hav- 
ing much  knowledge  of  fire  or  water  damage  to  the  goods  he  makes 
or  handles.  On  the  score  of  competence,  therefore,  the  profes- 
sional appraiser  has  unusual  claims  to  consideration.  He  should  be 
qualified,  not  disqualified,  by  his  experience.  But  is  he  disinter- 
ested, and  so  eligible?  That  appears  to  be  a  question  of  fact,  not 
one  of  law.  The  mere  circumstance  that  he  has  appraised  many 
losses  previously,  even  if  a  good  share  of  them  were  for  the  same 
company,  should  not  of  itself  disqualify  him.  If  that  fact  were 
frankly  stated  in  the  outset,  and  he  proved  his  disinterestedness,  his 
lack  of  bias  or  prejudice,  by  his  conduct  in  the  appraisal,  no  objec- 
tion could  lie  against  him  or  his  award.  But  if  an  adjuster  misrep- 
resented him  as  wholly  disinterested,  concealing  the   fact  of  his 

341 

12 


S: 


The  Fire  Insurance  Contract 

frequent  service  as  appraiser,  and  subsequently  his  conduct  proved 
to  be,  in  fact,  that  of  a  prejudiced  person,  or  probably,  if  the  in- 
sured could  fortify  his  objection  by  evidence  of  an  habitual  display 
of  prejudice  by  the  appraiser  in  previous  cases,  the  nomination  could 
be  rejected  or  the  award  set  aside  as  the  case  might  be. 

In  a  recent  case  decided  by  the  Appellate  Term  of  the  Supreme 
Court  in  this  State  it  was  held  that  where  the  company  nominated 
an  appraiser  who  was  not,  in  fact,  wholly  disinterested  the  insured 
was  not  obliged  to  object  to  the  nomination  or  call  the  attention  of 
the  company  to  the  disqualification,  but  might  ignore  entirely  ihe 
nomination  and  the  demand  for  an  appraisal  and  sue  on  his  policy. 
This  decision,  which  had  the  additional  defect  of  seeming  to  affirm 
the  wholly  unsound  doctrine  that  previous  service  in  appraisals  for 
the  same  company  is  in  itself  a  disqualification,  is  not  likely  to  be 
relied  upon  as  a  precedent. 

The  Massachusetts  Standard  policy  provides  that  the  company 
and  the  insured  shall  each  choose  one  '^referee"  (as  an  appraiser  is 
therein  designated)  out  of  three  to  be  named  by  the  other,  the  two 
so  chosen  to  select  a  third,  but  that  no  person  shall  be  chosen  or 
act  as  referee  against  the  objection  of  either  party  who  has  acted  in 
a  like  capacity  within  four  months. 

The  appraisers  once  chosen,  their  first  duty  is  the  selection  of 
an  umpire,  and  it  is  never  wise,  perhaps  never  legally  safe,  so  to 
vary  the  submission  as  to  allow  of  a  postponement  of  this  selection 
until  the  umpire's  services  are  needed,  instead  of  requiring  it,  as 
the  policy  does,  at  the  outset. 

The  q-ualifications  of  the  umpire  are  defined  in  the  same  words 
as  those  of  the  appraiser ;  he  must  be  "competent  and  disinterested," 
and  an  award  participated  in  by  him  could  be  set  aside  for  his 
proven  lack  of  either  qualification,  unless  the  objecting  party  were 
estopped  by  having  allowed  the  appraisal  to  go  on  after  knowledge 
of  such  defect  came  to  him. 

Under  the  rider  clause  imposed  in  this  State  by  the  act  of  1912 
the  duty  of  selecting  an  umpire  devolves  on  any  Court  of  record  in 
the  country  in  which  the  property  is  located,  in  case  the  two  ap- 
praisers shall  have  failed  or  neglected,  for  ten  days  after  both  have 
been  chosen,  to  agree  upon  and  select  an  umpire,  provided  either  the 
insured  or  the  company  applies  for  such  court  action.  And  I  see 
no  reason  to  doubt  that  if  the  Court  nominated  as  umpire  a  person 
who  could  be  shown  to  be  either  incompetent  or  interested,  the  nomi- 

342 


The  Appraisal 

nation  could  be  objected  to  or  the  award  set  aside,  just  as  if  the 
appraisers  and  not  the  Court  had  made  the  blunder. 

The  interruption  of  an  appraisal  by  the  withdrawal  of  either 
appraiser  would  not  excuse  either  of  the  two  contracting  parties 
(unless  the  withdrawal  were  directed  or  caused  by  the  other),  from 
the  duty  of  having  another  appraisal,  though  of  course  the  one  then 
under  way  could  not  be  completed.  The  withdrawal  of  an  umpire 
would  probably  only  require  his  replacement  by  another,  even  if  con- 
siderable progress  had  been  made  in  the  appraisal,  and  he  had  partici- 
pated in  it,  before  such  withdrawal ;  but  it  might  be  wise  to  re-submit 
all  matters  of  difference  to  the  new  umpire  unless  the  former  one 
had  left  some  evidence  of  his  decision  on  points  brought  before  him. 

Whether  the  insured  or  the  company  can  withdraw  from  or 
revoke  an  appraisal  once  agreed  on,  and,  if  so,  with  what  effect  on 
the  respective  rights  of  the  parties,  is  an  interesting  question.  Doubt- 
less either  can  do  so,  and  in  order  to  avoid  an  estoppel  should  do  so, 
whenever  he  becomes  aware  of  such  a  fault  In  the  qualification  or 
conduct  of  an  appraiser  as  would  render  an  award  invalid.  But 
this  would  not  excuse  him  from  using  his  endeavors  to  procure  an- 
other submission,  unless  the  other  party  were  to  blame  for  the  mis- 
carriage of  the  first,  which  would  usually  be  hard  to  prove.  Doubt- 
less, also,  either  party,  without  any  cause  whatever,  can  at  any  time 
before  the  award  is  rendered,  withdraw  from  the  appraisal  and  so 
prevent  the  award  itself,  even  if  afterward  completed,  from  having 
any  binding  force.  But  in  that  case  he  would  irretrievably  lose 
his  right  under  the  policy,  whether  of  recovery  or  defence,  unless 
the  other  party  afterward  waived  the  forfeiture  by  some  act  of  his 
own.  The  policy  requirement  is  not  merely  for  consent  to  an  ap- 
praisal, but  for  the  actual  and  completed  ascertainment  of  the  loss 
by  that  method.  And  to  prevent  the  consummation  of  an  appraisal 
is,  in  its  effect,  precisely  the  same  as  to  decline  it  in  initio.  Cases  in 
which  the  submission  was  held  revocable  at  will,  without  penalty  or 
forfeiture,  or  at  the  risk  only  of  a  suit  for  damages,  do  not,  I  think, 
apply  to  the  New  York  standard  form  of  policy. 

When  they  have  begun  their  work  of  estimating  and  appraising 
the  loss,  the  appraisers  have  very  large  powers  indeed.  The  policy 
itself  has  but  two  stipulations,  that  they  shall  state  separately  sound 
value  and  damage,  and  that,  failing  to  agree,  they  shall  submit  their 
differences  to  the  umpire;  and  these  two  stipulations  should  neither 
be  ignored  nor  modified.  But  the  precise  way  in  which  they  shall 
proceed  with  their  task  is  not  prescribed  by  the  policy,  nor  will  the 

343 


\ 


The  Fire  Insurance  Contract 

courts  set  any  narrow  limits  to  their  discretion  and  powers.  They 
are  not  bound  by  the  rules  of  evidence  followed  in  courts  of  law  or 
in  ordinary  arbitrations  either  at  common  law  or  under  general 
statutes.  They  can  judge  for  themselves  what  testimony  is  neces- 
sary for  their  guidance.  Of  course  reasonable  discretion  must  be 
used.  The  rejection  and  exclusion  of  clearly  pertinent  and  material 
testimony  or  evidence  would  probably  endanger  an  award.  An  ap- 
praiser who,  when  the  proper  determination  of  the  loss  required 
a  personal  examination,  made  no  such  examination,  but  relied  on 
bills,  books,  or  inventories  alone,  would  be  guilty  of  misconduct 
avoiding  an  award.  Doubtless,  also,  in  case  a  portion  or  all  of  the 
property  were  entirely  destroyed,  the  appraisers  could  not  safely 
refuse  to  consider  the  evidence  of  bills,  inventories,  and  the  like, 
though  they  could  judge  for  themselves  of  the  weight  of  such  evi- 
dence, taken  in  connection  with  the  other  evidence  at  hand.  Look- 
ing at  the  ashes  alone  would  not  be  a  sufficient  effort  to  "ascertain 
or  estimate"  the  loss  on  destructible  property.  But  if,  for  example, 
the  property  were  wheat  in  an  elevator,  and  the  appraisers,  either 
from  their  own  knowledge  or  by  inquiry  of  experts,  were  satisfied 
that  the  fire  would  not  have  reduced  the  bulk  of  a  burned  pile  of 
wheat,  even  while  destroying  its  value,  they  might  refuse  to  consider 
any  outside  testimony  as  to  amounts,  and  rely  wholly  on  the  evidence 
of  the  debris. 

The  appraisal  may  be  in  detail  or  in  bulk,  so  far  as  the  contract 
is  concerned,  except  in  so  far  as  details  may  be  necessary  because 
of  the  reserved  option  of  the  company  to  take  ''any  part"  of  the 
damaged  property  at  its  appraised  value.  The  policy,  while  provid- 
ing for  the  furnishing  of  an  inventory  by  the  insured  to  the  company 
after  the  fire,  does  not  make  such  an  inventory  a  part  of  the  sub- 
mission to  appraisers.  But  the  latter  can  require  any  such  schedules, 
inventories,  or  specifications,  as  the  cfise  admits  of  to  be  prepared 
and  furnished  them.  They  can  also,  if  the  case  admits  of  that,  make 
their  own  schedules  and  ignore  those  furnished  them.  If  there  were 
any  express  understanding  that  the  schedules  furnished  by  the  in- 
sured were  accepted  and  agreed  upon  by  both  parties  as  correct  in 
respect  of  kind  and  quality,  and  the  only  question  were  of  damage, 
items  could  not  safely  be  added  to  or  cut  out  from  the  schedules; 
but  otherwise,  the  appraisers,  on  satisfactory  and  reasonable  evi- 
dence, might  find  that  some  items  had  not  been  in  existence,  and  so 
cut  them  out,  or  that  they  had  been  omitted,  and  so  add  them  to  the 
schedules. 

344 


The  Appraisal 

But  some  things  they  can  not  do.  They  can  not  decide  wh^t 
items  in  the  schedule  are,  and  what  are  not,  covered  by  the  policy. 
That  must  be  done  by  the  parties  themselves,  either  before  or  after 
the^appraisal,  preferably,  though  not  necessarily,  before,  or  at  least 
before  the  award.  A  machinist  may  think  he  knows  what  the  word 
"tool"  means,  but  as  an  appraiser  he  can  not  pass  on  that  question 
conclusively;  a  builder's  opinion  as  to  whether  a  furnace  is  part  of  a 
dwelling  may  be  valuable,  but  it  is  not  decisive  in  an  appraisal.  Some 
other  points  not  suitable  for  submission,  and  so  not  determinable 
by  appraisers,  have  already  been  referred  to,  as  whether  cost  or 
market  price  shall  prevail,  if  the  two  are  different,  etc.  Errors  of 
judgment  within  their  province  as  appraisers  will  not  invalidate 
or  disturb  an  award,  but  errors  of  law  or  policy  construction  would 
require  correction,  though  probably  not  the  entire  abandonment  of 
the  award.  ^  (' 

Schedules,  whether  furnished  by  the  insured  or  not,  shoiild 
where  practicable  be  returned  by  the  appraisers  in  detail  with  their 
^ward,  a  copy  going  to  each  party.  And  besides  being  arranged  in 
columns  for  "sound  value"  and  "damage,"  the  items  should  be  so 
grouped  that  the  appraisers  can  append  their  names  to  the  footings 
of  the  amounts  they  have  agreed  on,  and  the  umpire,  with  or  without 
either  or  both  the  others,  sign  a  separate  list  of  findings  on  items  of 
difference  submitted  to  him.  This  is  not  specifically  required  by  the 
policy,  but  is  the  fullest,  fairest  and  best  form  of  award  possible. 
Undoubtedly  both  parties  have  an  equitable  right  to  know  the  result 
of  the  appraisal  in  such  detail  as  will  enable  them  to  correct  clerical 
errors,  dispose  of  any  question  of  disputed  liability  on  particular 
items,  and  assure  themselves  that  their  joint  instructions  have  been 
followed. 

These  signed  schedules  will  be  a  sufficient  award,  but  for  com- 
pleteness they  should  be  attached  to  the  submission  agreement  and  at 
the  bottom  of  the  latter  a  formal  award  signed. 

If,  after  an  award  were  completed,  either  party  should  specify 
items  where,  from  ignorance  or  accident,  the  appraisers  had,  in  his 
belief,  seriously  erred,  it  would  be  the  course  of  equity,  though  not 
of  legal  necessity,  to  allow  them  to  consider  the  items  again,  in  the 
light  of  any  new  information  furnished,  and  if  they  found  in  this 
reconsideration  reason  for  changing  the  total  footings  reached,  to 
permit  that  to  be  done.  But  if  they  adhered  to  their  original  con- 
clusion, it  could  hardly  be  asked  that  any  other  ex  parte  evidence 
should  be  allowed  to  affect  the  result  of  an  appraisal  so  had.- 

345 


The  Fire  Insurance  Contract 

The  option  to  take  at  its  appraised  sound  value  the  whole  cr 
any  part  of  the  property  damaged,  instead  of  paying  the  amount  of 
loss  thereon  as  fixed  by  the  appraisers,  is  a  valid  option,  but  in  one 
case  in  this  State  the  right  to  repair,  rebuild  or  replace  with  property 
of  like  kind  and  quality  has  been  held  to  be  waived  by  entering  into 
an  appraisal.    I  question  the  soundness  of  that  holding. 

So  far  we  have  been  considering,  and  may  now  be  deemed  to 
have  practically  traversed,  the  legal  and  formal  aspects  of  an  ap- 
praisal under  a  fire  insurance  policy.  But  there  are  also  involved 
some  questions  of  policy,  expediency,  tact,  manners  and  other  minor 
morals,  that  require  some  separate  discussion.  It  is  a  pretty  clear 
teaching  of  adjustment  experience  that  an  appraisal  should  by  no 
means  be  had  merely  because  it  can  be  had  under  the  policy.  In  very 
many  cases  it  is  better  to  get  along  without  it.  The  demand  for  an 
appraisal,  especially  in  the  country  or  small  town,  is  often  viewed  as 
a  technicality,  and  for  this  reason  it  is  a  provision  that  should  not 
be  overworked,  but  left  for  real  emergencies,  as  is  the  intention  of 
the  contract.  In  losses  on  personal  property,  and  especially  on  stocks 
of  goods,  the  question  when  to  appraise  calls  for  the  best  judgment 
of  the  adjuster  about  as  often  as  any  one  problem  of  his  office.  I 
suppose  adjusters  generally  think  that  more  appraisals  are  made  nec- 
essary by  the  intractability  of  claimants  than  by  the  nature  of  the 
property  or  the  character  of  the  damage  to  it.  But  intractability  is  a 
relative  fault,  and  may  be  due  to  a  correlative  incapacity  in  the  ad- 
juster. Tact,  frankness,  dispassionateness,  and  an  evident  desire  to 
deal  fairly,  on  the  gart  of  the  company's  representative,  often  fur- 
nish a  cheap  and  valuable  substitute  for  a  hard-fought,  catch-as- 
catch-can  appraisal.  Often,  but  not  always.  There  are  claimants 
on  whom  all  the  Christian  virtues,  though  displayed  in  full  .panoply, 
are  without  efifect.  And  these  should  have  the  coldly  legal  appraisal 
award  as  their  lot  and  portion  forevermore. 

Where  the  loss  is  upon  an  unusual  kind  of  property,  whose  sus- 
ceptibility to  damage  is  a  matter  of  expert  knowledge  only,  a  guess- 
ing match  with  the  insured  is  likely  to  be  unsatisfactory,  and  ap- 
praisal the  better  course.  There  are  things  even  adjusters  do  not 
know,  and  I  am  not  sure  but  that  they  err  nearly  as  often  in  not 
appraising  certain  stock  and  machinery  losses,  of  which  they  can 
have  but  little  knowledge  of  their  own,  as  they  do  in  unnecessarily 
appraising  the  plainer  sort  of  building  losses.  The  adjuster  who 
settles  his  own  losses  on  his  own  knowledge  and  enlightened  judg- 
ment does  well;  but  the  habitualjlmnp  settlement''  adiu^j£i_iiLthe 

346 


The  Appraisal 

long  £un_doesill,  because  he  doesn't  know  what  his  "lumps"  contain, 
and  that  is  something  it  commonly  pays  to  find  out. 

What  is  true  of  the  need  of  discretion  in  determining  when  to 
have  and  when  to  avoid  an  appraisal  is  true  of  it  in  still  greater  de- 
gree in  connection  with  the  choice  of  an  appraiser  and  the  instruc- 
tions given  him  for  the  conduct  of  the  appraisal.  Perhaps  there  are 
few  more  difficult  questions  propounded  to  the  adjuster,  especially 
to  the  adjuster  operating  most  of  the  time  in  villages  and  small 
towns,  than  the  frequently  recurring  question  whether  to  use  a 
local  and  presumably  more  or  less  inexperienced  appraiser  or  to  send 
away  for  a  more  competent  man  who  will  almost  certainly  be  re- 
ceived with  suspicion  by  the  assured  and  his  appraiser.  I  have 
answered  that  question  both  ways  in  my  time  and  have  been  both 
pleasantly  and  unpleasantly  surprised  by  the  outcome  of  each  method 
of  treatment.  Good  guessing  and  good  judgment  are  both  needed 
here.  Something  depends  on  the  character  of  the  loss,  something  on 
the  character  of  the  assured,  and  a  great  deal  on  the  character  of  the 
appraisers  between  whom  one  must  choose. 

In  a  city  like  New  York  of  course  the  choice  of  an  appraiser  or 
umpire,  like  that  of  a  juryman,  is  a  wholly  different  matter  from  the 
same  choice  in  a  rural  community.  Here  everybody  is  prepared  to 
do  business  with  strangers  and  is  ready  to  accept  as  an  appraiser 
even  the  man  he  has  lived  next  door  to  for  thirty  years  without 
speaking  to  him,  and  whom  he  had  always  supposed  to  be  a  moving 
picture  actor  instead  of  a  merchandise  expert. 

The  appraiser  must  never  be  allowed,  much  less  led,  to  forget 
that  he  is  a  judge,  not  an  advocate.  When  an  appraiser  begins  to 
say  "we"  in  talking  of  the  insurance  companies  who  employ  him,  or 
to  act  habitually  as  an  agent  and  advocate  instead  of  an  appraiser; 
when  he  has  the  habit  of  calling  himself  an  adjuster,  and  of  boasting 
of  his  exploits  in  cutting  down  claims,  he  should  be  chloroformed 
and  retired  from  active  service  at  once.  This  frame  of  mind  is 
usually  produced  in  the  appraiser  by  his  contact  with  a  certain  class 
of  adjusters  rather  than  by  his  own  viciousness.  And  it  is  to  such 
adjusters  and  such  appraisers  that  we  owe  a  good  share  of  the 
hostile  and  sometimes  absurd  legislation  with  which  insurance  com- 
panies are  from  time  to  time  favored.  The  whole  procedure  for  the 
adjustment  of  losses,  as  provided  for  in  the  Standard  Policy,  is  a 
branch  of  the  general  administration  of  justice  between  man  and 
man,  and  ao  part  of  that  procedure  so  nearly  resembles  the  most  dig- 

347 


The  Fire  Insurance  Contract 

nified  of  courts — the  court  of  equity — as  the  appraisal.  And  this 
essential  character  should  never  be  belied  either  by  its  constitution 
or  by  its  conduct.  C~r 

An  appraisal  which  both  in  form  and  in  spirit  has  been  con 
ducted  within  the  lines  we  have  been  following  will  pretty  surely 
meet  St.  Paul's  test  of  a  good  Christian:  "Having  done  all,  to  stand." 
And  an  appraisal  that  departs  at  all  widely  from  these  lines  will  not 
stand — ought  not  to  stand.  The  best  award  is  a  fair  award;  any 
other  is  a  bad  award:  worse,  almost  surely  worse,  in  the  long  run, 
for  the  apparent  gainer  than  for  the  apparent  loser  by  it. 


348 


XIX 

ADJUSTMENT  OF  BUILDING  LOSSES 

William  E.  Freeman 

The  Hon.  Frank  Hasbrouck,  Superintendent  of  Insurance  of 
the  State  of  New  York,  in  a  recent  address  said : 

"Among  the  people  in  general  there  is  an  abject  (disheartening) 
ignorance  of  insurance  principles  and  purposes." 

There  are  very  few  of  those  who  have  fire  losses  who  know 
very  much,  if  anything,  about  the  policy  contract  and,  not  having 
read  the  policy  conditions,  they  do  not  realize  or  fully  understand 
what  "indemnity"  means  and  so  when  a  fire  loss  occurs  they  neglect 
their  first  duty,  whi^^  ^'^  ^^  p^ntf^^  ^1^^  P^^P^rtY  ^^^m  further  damag^e 
as  far  as  possible.  They  not  uncommonly  refer  the  adjustment  of 
the  claim  to  a  public  adjuster  or  some  other  third  party  and  rely  upon 
them  to  take  care  of  their  claim  for  them  instead  of  notifying  and 
dealing  directly  with  the  insurance  company.  The  lack  of  personal 
contact  between  insured  and  insurer  is  doubtless  the  prime  cause  for 
the  seeming  lack  of  confidence  in  the  companies. 

A  claimant  may  be  ignorant  of  his  rights  under  the  policy,  but 
he  need  have  no  fear  for,  in  the  hands  of  an  honorable  adjuster 
representing  an  honorable  company,  he  will  be  perfectly  secure  in 
obtaining  them.  The  motto  "Do  unto  others  as  you  would 
have  them  do  unto  you"  should  always  be  the  actuating  motive  of 
every  adjuster. 

In  buitding  losses  as  in  other  losses  there  are  dishonest  claim- 
ants who  have  a  peculiar  code  of  morality,  which  holds  that  trying 
to  get  all  one  can  out  of  an  insurance  company  is  not  really  unmoral 
and  is  quite  permissible^ 

It  has  been  said:  "Public  sentiment  is  to  the  effect  that  the 
man  who  has  a  fire  from  any  cause  whatever,  should  loot,  to  the 
extent  that  he  is  able,  the  treasury  of  the  it^urance  company  pro- 
tecting him." 

In  some  msicfices  it  has  been  found  that  an  insurer  procured 
an  estimate  of  the  loss  for  his  own  information  which  was  not  to 
be  shown  to  the  company's  representative,  and  obtained  another 
for  an  exaggerated  amount  to  be  presented  to  the  company's 
adjuster. 

349 


The  Fire  Insurance  Contract 

I  have  a  photograph  of  a  letter  from  a  claimant,  requesting  a 
builder  to  "rise  his  figures  from  $2,560.00  to  $3,560.00"  and  to  get 
another  builder  to  "rise  his  figures  from  $2,560  to  $3,650"  as  "then 
they  would  be  O.  K." 

Sonie_f^iiL-€laimants  will  not  or  do  not  want  to  understand 
that  the  insurance  contract  is  one  of  indemnity  and  not  ol  proIiTp* 
apparently  Testram  their  consciences,  try  to  get  all  they  can,"clalm 
loss  of  rent,  interruption  of  tenant's  business  by  elevator  service 
being  stopped,  pay  of  a  watchman  after  a  fire,  and  other  conse- 
quential losses  not  covered  by  the  policy,  as  well  as  the  cost  of 
repairs  needed  but  not  the  result  of  the  fire. 

In  tenement  houses  where  the  bells  have  not  been  In  use  for  a 
long  time  and,  in  some  cases,  where  the  directory  at  the  door  was 
damaged  or  torn  away  before  the  fire,  claim  is  made  not  infre- 
quently for  repairs  or  for  the  replacing  of  the  entire  system.  If 
such  claims  are  made  intentionally  they  are,  of  course,  dishonest, 
the  damage  not  being  the  result  of  a  fire. 

Cases  have  been  known  where  a  landlord  leases  a  building 
for  a  term  of  years,  the  lessee  to  make  all  repairs  which  he  neglects 
to  do.  A  fire  occurs  and  the  owner  not  uncommonly  leaves  the 
matter  of  adjustment  in  the  hands  of  the  lessee  for  adjustment  and 
the  lessee,  or  tenant,  puts  in  a  claim  for  redecorating  or  repair- 
ing of  the  entire  building,  thinking  to  have  this  work  done  (which 
he  should  have  had  done  himself)  at  the  expense  of  the  insurance 
companies. 

Not  many,  however,  who  are  so  unfortunate  as  to  have  a  fire 
loss  belong  to  the  doubtful  or  dishonest  class.  I  am  glad  to  say 
that  the  majority  of  claimants  are  honest  and,  as  such,  are  entitled 
to  fair  and  honorable  dealing. 

One  must  bear  in  mind  that  it  is  but  human  nature  to  value 
one*s  own  possessions  more  highly  than  those  of  another  and  that 
it  is  fair  to  assume  that  it  is  not  necessarily  evidence  of  a  dis- 
honest motive  when  a  claimant  presents  figures  for  his  loss  which 
are  greatly  in  excess  of  those  that  the  adjuster  of  the  company  has 
in  mind.  To  the  claimant  his  home  was  his  palace  and  in  his 
honest  opinion  no  "cash  value  at  the  time  of  the  fire"  or  "cost  of 
repairs"  can  replace  the  old  home  or  put  it  back  as  it  was  before 
the  fire. 

350 


Adjustment  of  Building  Losses 

It  is  such  a  situation  as  this,  where  tact  and  diplomacy  are 
required,  that  brings  out  the  genius  of  the  real  adjuster  in  order 
that  a  settlement  satisfactory  to  the  insured  and  equitable  to  the 
company  may  be  obtained. 

To  treat  a  claimant  properly,  even  though  his  demands  may  be 
unreasonable,  is  as  important  in  the  adjustment  of  a  fire  claim  as 
the  ability  of  an  adjuster  to  estimate  the  amount  of  loss. 

The  real  adjuster  must  combine  the  happy  faculty  of  being 
able  to  estimate  accurately  the  measure  of  damage  and  at  the  same 
time  convince  the  insured  of  the  adequacy  and  accuracy  of  the  fig- 
ures which  are  being  offered  in  settlement  of  a  loss. 

In  construing  the  policy  rontynrt,  always  give  it  its  broadest 
meaning  For  it  must  be  remembered  the  Courts  have  ruled  that  "The 
puTTcy  although  of  standard  form  was  prepared  by  the  insurers  who 
are  presumed  to  have  had  their  own  interests  primarily  in  view  and 
hence  when  the  meaning  is  doubtful  it  should  be  construed  most 
favorably  to  the  insured  who  had  nothing  to  do  with  the  preparation 
thereof." 

A  fire  insurance  contract  is  essentially  a  contract  of  indemnity, 
the  insurers  undertaking  to  indemnify  an  insured  for  all  direct  loss 
or  damage  by  fire  to  the  property  specified  and,  as  such,  it  entitles 
the  company  to  deduct  from  original  or  new,  cost  for  any  deprecia- 
tion, since  the  purpose  to  be  accomplished  is  not  profit  but  reinstate- 
ment as  at  the  time  of  the  fire. 

If  there  be  a  salvage  let  it  come  as  a  result,  not  as  an  object  of 
settlement.  The  sharp  adjustment  of  an  honest  claim  is  the  poorest 
investment  an  adjuster  can  make  for  himself  or  for  the  pompany 
he  represents. 

The  company  is  not  liable  under  a  building  policy  for  trade  fix:_ 
tures  in.^ialled  by  a  tenant  or  a  lessee  which  are  removable,  but 
where  a  lessee  has  substituted  larger  glass  in  show  windows  and  has 
redecorated  the  building  or  has  altered  counters,  shelving  and  light- 
ing fixtures  which  are  of  a  permanent  character  and  not  removable 
upon  the  termination  of  tenancy,  but  are  to  revert  to  the  owner  of 
the  building,  these  are  not  to  be  considered  as  removable  trade  fix- 
tures as,  unless  there  is  an  agreement  to  the  contrary,  ownership 
rests  in  the  building  owner  from  the  moment  that  such  improve- 
ments are  affixed  to  the  realty. 

3Si 


/ 


The  Fire  Insurance  Contract 

Unless  specifically  excluded  from  cover,  the  cost  of  excava- 
tions and  foundations  of  a  building  must  be  taken  into  considera- 
tion when  obtaining  the  sound  value  of  it  and  damage  to  these  by 
fire  is  covered  under  the  fire  insurance  contract,  subject  to  any 
application  of  the  coinsurance  or  average  clause,  if  such  a  clause 
appears  in  the  policy. 

There  are  several  "foundation  exclusion"  clauses  in  use  in 
various  parts  of  the  country  which  are  intended  to  exclude  founda- 
tions and  cost  of  excavations  from  the  coverage  of  the  policy. 

The  New  York  Fire  Exchange  clause  excludes  "cost  of  excava- 
tions and  foundations  of  building  below  the  level  of  the  ground." 

The  Philadelphia  clause  excludes  ''foundations  of  building  be- 
low the  ground  or  street  level." 

While  in  some  cities  a  clause  is  used  which  excludes  "founda- 
tions which  are  below  the  surface  of  the  ground." 

The  building  code  of  the  City  of  New  York  reads : 

"Foundation  walls  shall  be  construed  to  include  all  walls  and  piers 
built  below  the  curb  level  or  the  nearest  tier  of  beams  to  tlie  curb  which 
serve  as  supports  for  walls,  piers,  columns  or  other  structural  parts  of 
building  or  structure." 

Although  these  clauses  vary  in  their  wording,  the  intent  is  the 
same. 

In  some  of  the  western  forms  excavations  and  foundations 
"below  the  under  surface  of  the  lowest  basement  floor"  are  ex- 
cluded, in  which  event  all  above  the  lowest  basement  floor  would  ac- 
tually come  under  the  cover  of  the  policy  for  estimate  as  to  sound 
value  and  loss. 

In  cases  where  the  extent  of  the  damage  by  fire  necessitates 
the  employment  of  an  architect  to  draw  up  plans  and  specifications 
for  filing  with  the  Building  Department  and  for  supervision,  the 
cost  of  such  architect's  fee  is  a  proper  charge  to  be  added  to  the 
estimate  of  the  actual  work  of  rebuilding  or  repairing. 

Claim  is  frequently  made  for  architect's  fees  both  in  small  and 
large  losses.  These  are  certainly  uncalled  for  in  minor  losses.  It 
would  seem  that  unless  such  fees  are  especially  provided  for  in  the 
poHcy  forms,  they  are  not  a  liability  of  the  insurers,  and  if  allowed, 
the  adjuster  should  be  satisfied  that  an  architect  is  to  be  actually 
employed  and  paid 

352  


Adjustment  of  Building  Losses 

Unless  specifically  mentioned  in  the  form  attached  to  the  policy 
contract,  fences,  yard  fixtures  and  outhouses  are  not  covered  under 
a_biiilding  policy. 

When  fences  are  covered  by  specific  mention,  it  must  be  borne 
in  mind  that  insured  has  probably  but  a  part  ownership  in  same. 
By  reference  to  the  revised  ordinances  of  the  City  of  New  York, 
it  is  noted  that : 

"All  partition  fences  shall  be  maintained  by  the  owners  of  the  land 
on  each  side. 

Each  party  shall  make  and  keep  in  repair  one-half  thereof  when  it 
can  be  conveniently  divided. 

When  any  partition  fence  cannot  be  conveniently  divided,  the  same 
shall  be  made  and  kept  in  repair  at  the  joint  and  equal  expense  of  the 
owner  on  each  side." 

In  some  instances,  a  claim  from  an  insured  for  damages  to  a 

building  occasioned  by  fire,  includes  items  for  certain  repairs  that 

are  required  by  the  building  or  other  civil  department,  to  be  made 

in  accordance  with  existing  municipal  laws.     Assured  often  feel 

justified  in  making  such  claims  because  of  official  notices  received 

from  Municipal  Building  Departments  as  to  present  requirements. 

The  New  York  standard  policy  provides  that  (lines  31-32), 
''This  company  shall  not  be  liable  for  loss  caused  directly  or  indi- 
rectly_J^.*  *  *  by  order  of  any  civil  authority;"  and  (lines  38-41- 
42),  "This  company  shall  not  be  liable  *  ♦  ♦  beyond  the  actual 
value  destroyed  by  fire,  for  loss  occasioned  by  ordinance  or  law 
regulating  construction  or  repair  of  buildings,  etc." 

Under  this  clause,  the  insurance  companies  are  not  liable  for 
the  increased  cost  of  repairing  a  building  due  to  work,  beyond  actual 
reconstruction  as  prior  to  the  fire,  which  is  made  necessary  by  rea- 
son of  the  building  laws,  and  any  such  items,  therefore,  must  be 
deducted  from  such  claim,  as  an  insurance  company  is  only  liable 
for  the  direct  loss  or  damage  occasioned  by  the  fire  in  such  cases. 

The  standard  policies  of  some  other  states  diflfer  in  this  respect, 
and  notably  that  of  Massachusetts,  where  the  above  quoted  condi- 
tions are  omitted. 

In  the  case  of  the  Boston  Advertiser  Building  v.  twelve  com- 
panies— Sun,  London  and  others,  the  appraisers  awarded  $30,610, 
as  indemnity  in  case  they  had  no  right,  as  a  matter  of  law,  to  con- 
sider said  building  laws,  but  if  they  had  a  right,  as  a  matter  of  law, 
to  consider  said  building  laws,  they  awarded  $45,792.  The  Supreme 
Court  of  Massachusetts  decided  that  loss  attributable  not  to  the  fire 

353 


The  Fire  Insurance  Contract 

but  to  the  building  laws  of  Massachusetts,  and  that  it  was  coveied 
by  the  eleven  companies  using  the  Massachusetts  form,  but  not 
covered  by  the  one  company  using  the  New  York  Standard  form, 
saying  that  as  to  the  New  York  policy,  the  loss  should  be  estimated 
as  if  there  were  no  building  laws  affecting  the  situation.  In  other 
words,  such  portion  of  the  damage  as  arises  from  the  existence  of 
the  building  laws,  is  not  to  be  considered  as  a  loss  or  damage  by  hre, 
but  is  to  be  excluded  from  consideration.  Eleven  companies  paid 
on  the  basis  of  $45,792  and  one  company  (New  York  form)  on  the 
basis  of  $30,610. 

A  disastrous  fire  occurred  in  a  building  insured  for  $50,000. 
Proofs  for  a  total  loss  under  the  insurance  were  served  claiming  a 
damage  of  $53,495.  Not  intending  to  rebuild  or  replace  the  building 
without  making  extensive  alterations,  assured  claimed  that  the 
walls  should  come  down  to  the  level  of  the  third  floor,  although 
there  was  abundant  evidence  that  the  north  and  the  west  walls  were 
intact,  and  that  the  requirements  of  the  building  department  should 
have  been  modified,  as  indeed  they  were  afterwards  modified.  Esti- 
mates were  submitted  by  the  companies'  builders  as  to  the  amount 
for  which  the  companies  were  liable— $19,000  and  $21,249.83,  re- 
spectively, and  by  one  of  the  builders  for  less  tearing  down  than 
originally  required  by  the  building  department  but  more  than  he 
thought  necessary,  $29,444.83- 

All  of  the  companies  with  one  exception,  compromised  on  the 
basis  of  $33,000,  the  other  company,  after  suit  was  commenced, 
settled  on  basis  of  $28,000, — the  assured  paying  all  costs. 

As  to  the  repairs  by  outside  contractors,  acting  under  orders 
from  the  Department  of  Buildings  immediately  after  a  fire,  and 
without  the  owner  having  any  notice  or  option  respecting  same,  not 
one  dollar  of  that  cost  can  be  collected  from  the  owner  or  the  in- 
surers. 

The  Building  Department  should  pay  for  these  "emergency  re 
pairs"  out  of  a  fund  specially  created  for  that  purpose  from  the 
fines  and  penalties  collected  for  violations  of  the  Code. 

As  the  object  of  the  work  is  the  protection  of  life  and  limb 
the  city  naturally  and  properly  charges  itself  with  all  of  the  cost. 

This  has  been  apparently  definitely  settled  through  several 
cases  which  have  been  decided,  the  litigation  having  been  carried 
through  the  Appellate  Division  of  the  Supreme  Court  of  New  York 

354 


Adjustment  of  Building  Losse<= 

County,  for  details  of  which  I  refer  you  to  the  circular  letter  of  the 
Committee  on  Losses  and  Adjustments  of  the  New  York  Board  of 
Fire  Underwriters  to  members  under  date  of  May  10th,  1909.  The 
legal  position  is  sq  well  explained  in  an  earlier  circular  letter  of  the 
Committee  dated  August  15th,  1905,  that  I  quote  from  it — 

''Repair  \vorl^_pn  fire-damaged  buildings  done  by,  or  under 
order^of^  or  at  the  instance  of  the  Department  of  Buildings  falls 
into  two  classes,  and  is  authorized  by  entirely  different  sections  o.f 
the  Jjuildin^  Code,  according  as  it  is  done  after  or  before  the  service 
of  a  notice  and,  in  default  of  the  owner's  action  in  conformity 
therewith  by  1  P.  M.  the  day  after  such  service,  the  holding  of  a 
survey  and  the  issue  of  a  precept  from  a  court  of  competent  juris- 
diction. Work  done  by  the  owner  pursuant  to  such  notice,  or  done 
either  by  the  owner  or  under  direction  of  the  Department  of  Build- 
ings, after  such  survey  has  been  held  and  such  precept  issued,  is  at 
the  owner's  cost  beyond  a  question,  and  he  may  or  may  not  be  able 
to  collect  the  whole  cost  thereof  from  his  insurers.  In  so  far  as  the 
work  so  done  was  necessary  to  be  done  in  order  to  repair  the  fire 
damage,  and  in  so  far  as  it  was  done  at  a  proper  and  reasonable  cost 
for  such  work,  it  is  a  part  of  his  fire  loss  under  his  policies;  while 
in  so  far  as  it  was  done  to  comply  with  municipal  requirements  for- 
bidding rebuilding  according  to  original  specifications,  or  merely 
to  avoid  risk  to  life  and  limb,  and  in  so  far  as  it  was  done  at  a  rate 
of  cost  beyond  what  the  restoration  of  the  building  itself  required, 
the  loss,  or  the  excess  of  loss  here  specified,  was  caused  by  muni- 
cipal regulation,  not  by  fire,  and  is  specifically  excepted  from  the 
cover  of  a  fire  insurance  policy.  Whether  the  cost  of  such  repairs 
is  in  whole  or  in  part  recoverable  is  therefore  a  matter  for  adjust- 
ment either  by  agreement  or  by  appraisal.  As  a  matter  of  fact, 
underwriters  invariably  deal  very  liberally  with  their  policyholders 
in  this  respect,  recognizing  that  the  latter  are  practically  helpless  to 
delay  such  repairs  for  any  very  fulj  inspection  by  company  adjusters 
or  builders.  * 

But  as  to  the  repairs  made  by  outside  contractors,  acting  under 
orders  from  the  Department  of  Buildings,  immediately  after  the 
fire,  and  without  the  owner  having  any  notice  or  option  respecting 
same,  the  case  is  very  dififerent  indeed.  These  are  "emergency  re- 
pairs," pure  and  simple,  and  not  one  dollar  of  their  cost  can  be  col- 
lected from  the  owner ;  and  for  that  reason  the  latter  cannot  collect 
anything  on  account  thereof  from  his  insurers,  even  though  a  con- 
siderable part-af"the  work  so  done  would  in  any  case  have  had  to 

355 


The  Fire  Insurance  Contract 

be  done  in  order  to  make  proper  repairs ;  having  no  loss  on  the  item 
the  owner  can  collect  nothing  therefor  from  his  insurers.  And  the 
reason  he  has  no  loss  on  it  is  that  the  Building  Code  provides  foi 
the  payment  of  these  "emergency  repair"  bills  out  of  a  fund  spe- 
cially created  for  that  purpose  from  the  fines  and  penalties  collected 
for  violations  of  the  Code,  and  makes  no  provision  whatever  for 
assessing  any  part  thereof  on  the  property  owner.  As  the  object 
of  the  work  is  the  protection  of  life  and  limb,  and  as  the  cost  of  it, 
done  for  that  purpose  and  with  great  rapidity,  even  if  done  efficient- 
'  ly,  is  far  in  excess  of  the  owner's  need  for  the  mere  purpose  of  re- 
pairing his  building,  the  city  naturally  and  properly  charges  itself 
with  that  cost,  and  with  all  of  the  cost^ince  no  separation  of  these 
two  elements  is  possible." 

^'A  comparison  of  the  provisions  of  sections  153-155  of  the 
Building  Code,  dealing  with  notice,  survey,  precept  and  Court  pro- 
ceedings, with  those  of  sections  157-158,  covering  action  in  cases 
of  ^'actual  and  immediate  danger,"  and  providing  for  the  fund 
from  which  the  cost  of  such  action  is  to  be  defrayed,  will  confirm 
the  foregoing  construction  of  the  law,  which  your  Committee  have 
thought  it  proper  to  bring  to  the  notice  of  all  members  ot  the  Board 
in  this  way." 

Insurance  against  damage  by  lightning  does  not  include-wind- 
storms.  A  severe  windstorm  tore  off  the  tin  roof  of  a  building 
from  front  to  rear,  and  that  was  the  only  damage  done  to  the  build- 
ing, even  the  telephone  wires  not  being  at  all  damaged.  The  insur- 
ance company  was  sued  for  damage  by  lightning.  The  record  of 
the  Weather  Bureau  was  brought  into  Court,  showing  that  at  the 
time  of  the  damage  there  was  a  terrific  windstorm,  the  wind — 
amounting  to  a  gale — blowing  at  the  rate  of  ninety  miles  an  hour. 
The  claimant  lost  his  case. 

A  small  frame  church,  built  on  posts  without  other  foundation, 
was  wrecked  during  a  violent  windstorm  accompanied  by  severe 
lightning.  Claim  was  made  under  the  fire  insurance  policies  that 
the  damage  was  the  result  of  a  lightning  stroke.  It  was  found  that 
sheds  and  fences  some  distance  from  the  church,  on  the  side  the 
storm  had  come  from,  had  been  wrecked  and  that  standing  trees 
even,  several  hundreds  yards  distant,  on  the  opposite  side,  had  been 
blown  down  or  broken  off  in  a  distinct  path,  a  hundred  yards  or 
more  wide,  in  line  with  the  church  and  sheds  beyond.  After  careful 
consideration  and  consultation  with  the  Archbishop  of  the  Diocese, 

356 


Adjustment  of  Building  Losses 

the  priest  in  charge  of  the  parish  was  authorized  to  withdraw  the 
claim  for  total  loss  which  had  been  made  and  to  accept  the  com- 
promise settlement  offered  by  the  insurance  company  of  $300,  which 
represented  the  amount  of  damage  a  lightning  stroke  might  have 
caused.  In  this  case  there  were,  as  was  to  be  expected,  more  or 
less  conflicting  stories  by  those  living  near  as  to  the  lightning  they 
saw,  though  no  one  was  able  to  say  he  had  seen  the  church  struck. 
The  timbers  of  the  church  showed  no  evidences  of  the  splitting  and 
tearing  action  of  a  lightning  stroke,  they  were  nowhere  discolored 
by  it  and  no  fire  ensued. 

The  action  of  lightning  on  a  building  which  has  been  struck 
is  commonly  well  marked.  The  resulting  damages  may  never  be 
twice  alike,  lightning  plays  strange  freaks,  but  what  has  happened 
can  usually  be  plainly  traced  in  the  melting  of  solder  used  in  the 
plumbing  or  metal  roof,  the  splitting  and  rending  of  beams  or 
masonry,  evidently  violently  knocked  off  plaster  and .  split  siding, 
even  when  there  is  no  discoloration  such  as  not  uncommonly  occurs 
though  no  fire  has  ensued.  Factory  chimneys,  church  spires,  and 
other  lofty  ornamental  features  above  the  roofs  of  public  buildings, 
unless'  scientifically  guarded  against  lightning,  and  flag-poles  are 
probably  most  subject  to  lightning  damage.  The  recent  practice  of 
setting  flag-poles  in  the  ground  in  front  of  buildings  or  in  school 
yards,  instead  of  on  their  roofs,  is  much  to  be  commended. 

In  case  of  damage  to  electrical  equipment  by  electricity,  whether 
natural  or  artificial, 'if  the  policy  contains  the  "Dynamo  Clause"  it 
should  be  borne  in  mind  that  the  fire  insurance  companies  are  not 
liable  for  the  electrical  injury  or  disturbance,  and,  if  fire  ensues  are 
liable  only  for  the  fire  damage  to  other  apparatus  than  that  where 
the  disturbance  originated,  notwithstanding  any  provision  to  the 
contrary  in  the  usual  lightning  clause,  if  any  is  attached. 

Adjustments. 

The  instructions  to  all  adjusters  as  to  seeing  the  policies  first, 
by  the  Loss  Committee,  November  9th,  1904,  are  so  complete  that  I 
call  attention  to  them,  and  advise  adjusters  to  read  them  carefully. 
There  is  often  trouble  in  seeing  building  policies  first,  as  they  are 
generally  in  the  possession  of  mortgagees,  who  sometimes  refuse  to 
allow  the  policies  to  leave  their  hands,  although  the  policy  is  the 
contract  and  not  the  records  of  the  company ;  the  adjuster  can,  how- 
ever, examine  the  company  registers  and  should  not  rely  on  dupli- 

357 


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The  Fire  Insurance  Contract 

cate  policies,  which  do  not  give  the  full  forms  and  omit  endorse- 
ments made  after  their  issue.  The  original  policies  should  always 
be  examined  before  a  loss  is  adjusted. 

The  first  duty  of  the  adjuster  is  to  ascertain  if  possible  the 
^ause  of  the  fire,  and  whether  it  is  a  loss  for  which  the  company  is 
Hable.  If  in  doubt,  he  may,  without  committing  the  company,  say 
he  neither  admits  nor  denies  liability,  and  have  the  claimant  sign 
with  the  company  a  non-waiver  agreement,  which  provides  that, 
any  action  taken  is  simply  and  only  to  arrive  at  an  agreement  as  to 
the  amount  of  the  loss  or  damage,  and  does  not  waive  any  of  the 
rights  of  either  party. 

Special  attention  should  be  given  to  ascertain  if  the  fire  was 
caused  by  any  inherent  defect  in  the  building  or  in  the  construction 
of  the  chimneys.  If  no  natural  physical  cause  can  be  given  to  ac- 
count for  the  origin  of  the  fire,  an  investigation  should  be  made  of 
the  moral  and  financial  status  of  an  insured. 

Should  your  investigations  indicate  fraucj  as  to  the  origin  of 
the  fire,  or  if  the  claim  of  the  insured  arouses  your  suspicions,  it  is 
always  advisable  in  such  event  to  "make  haste  slowly." 

If  you  have  any  suspicions  as  to  the  origin  of  the  fire,  or  of 
V  the  claimant,  it  is  always  advisable  to  be  exceedingly  cautious  so 
as  not  in  any  way  to  create  a  waiver,  or  to  make  use  of  any  expres- 
sions as  to  there  being  no  liability  under  the  policy,  as  an  inadvertent 
expression  of  this  nature  can  many  times  be  used  by  a  fraudulent 
claimant  to  the  detriment  of  the  insurance  company.  Always  con- 
duct your  investigations  along  the  broadest  possible  lines__and  give 
^n  insured  the  benefit  pj  a  doubt.  Give  each  case  frank  and  open 
treatment  lor  "a"  conscientious  straight-forward  investigation  inva- 
riably brings  forth  successful  results.       i 

Upon  receipt  of  notice  of  loss,  it  is  always  advisable  to  give 
same  immediate  attention,  and  especially  is  this  necessary  in  the 
event  of  partial  damage  to  a  building.  It  may  be  that  the  roof  is 
burned  off  or  badly  damaged,  thus  exposing  the  interior  of  the 
building  to  the  possibility  of  added  damage  by  the  elements.  If  at- 
tended to  at  once,  the  repairs  may  be  made  at  comparatively  small 
cost  but  which,  if  neglected,  might  develop  into  quite  a  serious  loss. 

Through  ignorance,  many  of  those  who  have  fires  have  failed 
to  study  the  conditions  of  their  policies  and  consequently  when  a 
loss  occurs  neglect  their  first  duty, — which  is  to  protect  the  property 
from  further  damage,  so  that  it  is  always  advisable  to  get  to  the 

358 


Adjustment  of  Building  Losses 

scene  of  the  fire  as  soon  as  possible  in  order  that  the  double  purpose 
is  served,  of  giving  an  insured  prompt  service  and,  at  the  same  time, 
saving  the  company  the  possibility  of  increased  damage  by  the 
elements. 

It  is  advisable  that  temporary  repairs  should  only  be  allowed 
when  urgent  and  then  the  amount  of  cost  of  such  temporary  repairs 
should  be  agreed  upon  if  possible  in  advance. 

The  insured  is  not  entitled  to  the  cost  of  new  for  old  and  the 
actual  amount  of  loss  to  be  paid  an  insured  should  be  computed  on 
the  cost  of  the  necessary  repairs  less  any  depreciation  on  account 
of  age  or  condition. 

In  the  larger  cities  it  is  the  custom  for  the  company's  adjuster 
to  obtain  an  estimate  of  the  cost  of  repairs  from  a  responsible 
builder  or  contractor  and,  in  fact,  it  is  advisable  to  do  this  wherever 
possible  as  the  company's  representative  then  has  an  actual  figure 
or  bid  to  present  to  the  insured  for  the  repairing  of  the  damage 
occasioned  by  the  fire,  but  it  is  also  advisable  and,  in  fact,  necessary 
that  an  adjuster  have  what  may  be  termed  "a  working  knowledge" 
of  making  building  estimates,  and  he  should  always  keep  in  touch 
with  the  varying  costs  of  building  materials  and  labor  in  order  that 
he  may  be  in  a  position  to  intelligently  discuss  the  estimates  he  has 
obtained  in  comparison  with  those  obtained  by  the  assured. 

Always  insist  upon  having  an  estimate  m^d^  i"  detail  |>oth  from 
the  builder  or  contractor  you  employ  as  well  as  from  the  builder  or 
contractor  employed  by  the  insured,  for  in  this  manner  one  can  be 
checked  by. the  other  and  an  adjustment  arrived  at,  fair  alike  to  the 
insured  and  the  company.  Estimates  in  detail  should  be  procured 
from  a  competent  and  responsible  builder  who  is  a  good  judge  of 
the  extent  of  a  damage  by  a  regular,  irregular  or  obstinate  fire,  and 
also  has  a  fair  knowledge  of  the  insurance  contract.  He  should  be 
competent  to  detect  the  items  which  the  company  should  not  allow, 
.4«  well  as  those  for  which  an  exaggerated  price  is  made,  and  be 
willing  to  make  the  repairs  for  the  assured  at  the  price  named  by 
him,  after  agreeing  on  the  specifications  of  work  to  be  done. 

The  estimates  for  the  assured  in  ninety  per  cent,  of  losses  will 
differ  largely  from  the  company's  builder,  because  the  assured's 
specifications  will  probably  include  other  repairs  beside  those  neces- 
sitated by  the  fire,  and  such  should  not  be  at  the  expense  of  the 
insurance  companies.  Too  often  these  estimates  seem  to  provide 
for  large  profits  for  either  the  assured,  his  contractor,  or  both;  and 
seldom  ^ojhey  contain  an  allowance  for  depreciation. 

359 


The  Fire  Insurance  Contract 

In  some  instances,  especially  in  outlying  sections  of  the  country, 
it  will  be  perhaps  difficult  to  obtain  a  builder's  estimate  without  con- 
siderable expense  or  delay,  in  which  case  it  would  be  necessary  for 
the  adjuster  to  make  an  estimate  of  the  building  himself,  going  over 
the  various  items  and  details  with  the  insured. 

In  such  ckses,  if  there  is  any  doubt  as  to  local  costs  of  material 
and  labor,  make  inquiry  regarding  same  at  the  nearest  available 
point  before  proceeding  to  the  actual  scene  of  the  fire. 

Most  country  buildings  will  be  found  to  be  what  is  termed 
"balloon  construction"  and  the  value  of  such  buildings  can  be  ob- 
tained by  taking  correct  measurements  of  the  floor  or  ground  space 
and  the  height  of  each  story,  making  due  allowance  for  windows, 
doors  and  other  openings. 

Make  a  rough  plan  of  all  floors  of  the  building  and  a  sketch  of 
its  elevations.  Measurements  should  be  taken  and  due  allowance 
made  for  closets,  doors,  shelving,  etc. 

The  costs  of  doors,  windows,  etc.,  should  be  worked  out  sep- 
arately and  added  to  the  cost  of  framing  and  floors. 

The  number  of  yards  of  plastering  required  can  be  found  from 
the  floor  plans  and  the  height  of  the  rooms. 

To  obtain  the  number  of  rolls  of  paper  required  for  side  walls 
of  rooms  that  are  papered,  one  can  take  the  number  of  yards  of 
plastering  required  for  each  room,  deduct  therefrom  the  ceiling  area 
and  divide  the  remainder  by  four. 

For  interior  painting  it  will,  of  course,  be  necessary  to  take  the 
measurements  of  the  surface  to  be  covered. 

For  outside  work,  this  can  be  obtained  from  the  area  of  the 
cornice  and  siding. 

Allowance  has  to  be  made  for  gutter  work  and  spouting,  the 
cost  of  w^hich  can  be  obtained  by  measuring  the  eaves  and  height  of 
the  building. 

The  measurements  for  chimneys  must  be  obtained  from  the 
ground  and  floor  plans.  The  number  of  bricks  required  can  be 
obtained  from  the  measurements  thus  obtained  on  a  basis  of  allow- 
ing seven  (7)  bricks  per  superficial  foot  for  an  eight  mch  wall,  etc. 

It  is  always  advisable  to  spend  the  necessary  time  to  carefully 
figure  out  in  detail,  as  a  costly  mistake  might  be  made  on  either  side 
by  endeavoring  to  make  a  lump  estimate.  It  has  been  said,  *'The 
lump  adjuster  does  ill  because  he  doesn't  know  what  his  lumps 
contain." 

360 


Adjustment  of  Building  Losses 

Repairs  may  be  made  by  the  companies  by  mutual  agreement, 
but  as  a  rule  it  is  preferable  to  agree  upon  the  amount  of  damages 
and  cost  of  repairs  and  to  allow  the  insured  to  employ  his  own 
builder  to  do  his  work.  Unless  a  special  agreement  is  made  that 
assured  is  to  contribute  toward  the  repairs  an  amount  equal  to  the 
agreed  depreciation  of  the  fire  damaged  portion  of  the  building,  the 
company  will  be  obliged  to  reconstruct,  giving  new  for  old,  without 
any  abatement  in  the  loss.  If  the  insurers  in  an  attempt  to  restore 
the  property  do  more  than  their  contract  obligates  them  to  do,  they 
cannot  claim  allowance  for  excessive  value. 

In  cases  where  by  mutual  agreement  the  company  agrees  to 
make  repairs,  it  is  always  advisable  to  have  a  full  detail  of  what  is 
to  be  done  and  a  referee  appointed  in  the  agreement  so  that  there 
can  be  no  misunderstanding  or  quibbling  after  the  work  has  been 
finished.  When  the  work  has  been  completed  to  the  satisfaction  of 
an  insured,  it  is  incumbent  upon  the  adjuster  to  obtain  a  release  or 
satisfaction  piece  signed  by  an  assured.  It  is  the  wise  course  to  ask 
insured  to  file  formal  proofs  before  attempting  to  make  repairs,  for 
it  is  often  difficult  to  obtain  them  after  repairs  are  completed,  and  if 
the  company  is  to  pay  the  bills  it  is  entijtled  to  insured's  statements 
as  to  ownership  and  compliance  with  policy  conditions  before  it  has 
parted  with  its  money. 

If  the  policy  carries  a  coinsurance  clause,  satisfy  yourself  that 
there  is  enough  insurance  to  comply  with  it,  or  by  making  the  repairs 
the  companies  will  lose  the  value  of  the  protection  of  this  clause. 

Appraisals. 

If  the  insured  and  the  adjuster  cannot  agree  upon  the  amount 
of  work  to  be  done,  and  the  insured  will  not  correct  or  modify 
specifications,  or  if  they  do  agree  as  to  the  work  to  be  done,  and  the 
insured  is  not  willing  either  to  make  a  contract  with  the  company's 
builder  for  him  to  make  the  repairs  at  the  price  he  names,  or  accept 
a  reasonable  settlement,  then  an  appraisal  becomes  desirable. 

Under  the  decisions  of  the  courts  a  mortgagee  may  be  the  in- 
sured or  is  held  to  have  a  separate  contract,  and  may  not  be  bound 
by  an  appraisal  to  which  he  waaJiDt^  party,  and  therefore  it  is  best 
to  secure  the  signature  of  the  payee  as  well  as  the  assured  to  an 
appraisal  agreement,  particularly  if  the  policy  contains  other  than 
the  simple  loss  payable  clause. 

Primarily,  it  is_  the  .concern  of  the  assured  to  see  that  an  ap- 
praisal is  had,  in  order  that  he  may  not  lose  his  standing  in  court, 

361 


The  Fire  Insurance  Contract 

but  where  the  company  requests  an  appraisal,  if  he  destroys  evi- 
dence so  that  an  appraisal  cannot  be  had,  he  has  no  standing  in 
court  and  can  collect  nothing. 

The  right  to  appraise  arises  as  soon  as  disagreement  occurs, 
whether  before  or  after  proofs  are  furnished,  and  the  nomination 
of  appraisers  need  not  be  in  writing.  The  appraisers  must  be  com- 
petent and  disinterested.  The  word  disinterested  does  not  mean 
simply  a  lack  of  pecuniary  interest,  but  requires  the  appraiser  to  be 
one  who  is  not  biased  or  prejudiced. 

Under  the  policy  conditions  the  holding  of  an  appraisal  is  not 
an  admission  of  liability  on  the  part  of  the  company,  but  it  is  usually 
advisable  to  request  formal  proofs  of  loss  before  entering  on  an 
appraisal. 

The  appraisers,  in  their  award,  are  bound  to  deduct  for  depre- 
ciation the  difference  between  new  work  and  old. 

No  award,  signed  by  either  the  two  or  three  appraisers  can  be 
set  aside,  unless  there  has  been  fraud  or  palpable  error. 

It  may  not  be  amiss  to  refer  to  the  so-called  -'5%  waiver 
clause"  attached  to  many  coinsurance  or  average  clauses.  The 
clause  usually  reads :  "In  case  of  claim  for  loss  on  the  property  de- 
scribed herein  not  exceeding  five  per  cent.  (5%)  of  the  maximum 
amount  named  in  the  policies  written  thereon  and  in  force  at  the 
time  such  loss  shall  happen,  no  special  inventory  or  appraisement  of 
the  undamaged  property  shall  be  required. 

If  the  insurance  under  this  policy  be  divided  into  two  or  more 
items,  these  clauses  shall  apply  to  each  item  separately." 

This  does  not  waive  the  application  of  the  coinsurance  con- 
dition, but  provides  only  that  no  appraisal  will  be  required  of 
the  undamaged  property,  i.  e.,  to  alone  establish  the  whole  sound 
value,  if  the  loss  is  less  than  5%  of  the  existing  insurance.  If  the 
building  is  notably  under  insured  and  you  agree  upon  the  amount 
of  loss  before  you  agree  upon  the  sound  value,  which  the  assured  is 
obliged  to  state  in  his  proofs  of  loss,  if  the  assured  is  willing  to 
underestimate  and  misstate  the  sound  value,  you  can  hardly  then 
ask  for  an  appraisal,  although  you  argue  that  the  amount  of  the 
company's  liability  is  not  fixed  until  the  question  of  the  application 
of  the  coinsurance  condition  is  determined.  Satisfy  yourself  that 
there  is  enough  insurance  to  make  the  coinsurance  clause  inopera- 
tive, or  be  sure  to  reach  a  satisfactory  agreement  as  to  the  sound 

362 


Adjustment  of  Building  Losses 

value  at  the  same  time  you  agree  as  to  the  amount  of  loss.  Do  not 
leave  the  sound  value  to  be  determined  later.  If  a  disagreement 
as  to  the  amount  of  loss  exists,  the  appraisal  condition  of  the  policy 
governs  and  an  award  will  properly  fix  the  whole  sound  value  as 
well  as  the  damage. 

Appointment  of  Umpire;. 

The  appraisers  must  first  appoint  an  umpire  before  proceeding 
with  the  appraisal.  N.  Y.  Laws  of  1913.  (PoHcy  lines  86-91). 
"When  the  appraisers  shall  have  failed  or  neglected  for  a  space  of 
ten  days,  after  both  have  been  chosen,  to  agree  and  select  an  umpire, 
it  shall  be  lawful  for  either  the  insured  or  the  company  to  apply  to 
any  court  of  record  in  the  county  in  which  the  property  is  located, 
on  five  days'  notice  in  writing  to  the  other  party  of  his  or  its  inten- 
tion to  do  so,  to  appoint  a  competent  and  disinterested  umpire." 

The  umpire  has„no__Qtlier  authority  than  to  pass  upon  such 
items  as  the  appraisers  cannot  agree  tiponr  He  cannot  review  what 
tTie^appraisers  have  already  agreed  upon,  nor  should  he  make  a  lump 
figure  for  the  whole  loss  or  damage. 

Difficult  Cases. 

Stone  work  chipped  or  spawled  by  fire  outside  of  a  building — 
the  structural  strength  not  weakened  in  the  least  degree — can  often 
be  repaired  so  that  the  small  damage  cannot  be  seen. 

Claim  is  often  made  for  new  stone  work.  In  one  of  my  cases 
a  claim  involviing^  the  building  of  a  scaffolding  from  the  sidewalk 
to  the  twelfth  floor,  the  appraisers  awarded  the  full  cost  (some 
$600)  which  the  companies  paid.  Needless  to  say,  the  stone  work 
was  neither  removed  nor  repaired  and  the  claimant  pocketed  the 
amount  awarded.'  In  such  cases,  I  have  found  it  often  more  prudent 
to  compromise,  even  where  an  unjust  claim  was  made. 

In  another  case,  water  from  one  sprinkler  went  down  the  side 
of  an  elevator  shaft.  The-  cables  were,  as  normally  they  should  be, 
permeated  with  grease  and  practically  impervious  to  cold  water. 
Claim  was  made  for  new  cables.  A  joint  electrical  test  was  made 
by  the  company's  electrician  and  the  electrician  of  the  assured,  who 
each  agreed  that  no  damage  could  be  found,  but  the  elevator  expert 
claimed  that  a  damage  might  show  up  at  some  future  time.  Seven 
months  after  the  claim  was  made,  the  cables  showing  no  damage,  the 
claim  of  $58.00  was  compromised.  Seventeen  months  after  the  fire, 
the  cables  were  still  in  use. 

363 


The  Fire  Insurance  Contract 

A  fire  occurred  in  a  large  old  building  occupied  as  stores  and 
offices.  The  authorities  refused  to  allow  any  electrical  repairs  to 
be  made,  but  compelled  the  removal  of  all  the  electrical  work  in  the 
main  building — extending  to  the  Edison  main  in  the  street.  Claim 
was  made  for  loss  and  damage,  in  all  $23,084.  Award  of  appraisers 
$9,848  based  on  equipment  as  it  existed  at  time  of  fire. 

Another  claim  in  an  old  building  was  made,  involving  among 
other  things,  new  work  for  old.  The  insured,  when  an  appraisal  was 
suggested,  demanded  that  the  company  take  their  adjuster  off  and 
substitute  another  in  his  place,  which  was  refused,  and  the  insured 
told  that  his  loss  would  be  adjusted  by  the  company's  adjuster  on 
its  merits,  a  settlement  of  the  claim  of  over  $18,000  v/as  made  with 
the  mortgagee  at  $10,000. 

Claim  was  made  on  estimate  presented  of  $1,100.  Appraisal 
being  insisted  upon,  a  second  estimate  w^as  presented,  dated  the  same 
day  as  the  first,  for  $720 ;  the  loss  was  settled  at  $670. 

Another  case — estimate  presented  for  $1,350;  second  estimate, 
$1,275;  third  estimate,  $880;  and  award  of  appraisers,  $475. 

Of  18  claims^  in  a  given  period,  amounting  to  $307,692,  ap- 
praisal awards  totaled  $167;287. 

A  contract  of  sale  was  made  by  a  building  company,  title  to  be 
passed  January  1st.  On  December  1st,  eleven  days  after  the  con- 
tract was  made  but  a  month  before  papers  were  to  be  passed,  a  fire 
occurred.  Claim  was  made  for  $1,900  which  included  actual  loss 
or  damage,  and  also  expense  of  putting  entire  premises  in  order  to 
the  satisfaction  of  the  new  owner-to-be.  Claim  was  settled  at  esti- 
mate of  companies'  builder  for  $950. 

A  one  and  a  half  story  farm  house,  over  a  hundred  years  old, 
was  changed  into  a  city  dwelling  and  somewhat  modernized.  The 
roof  and  sides  of  the  building  were  shingled  with  old  fashioned 
handmade  shingles,  the  floors  old  style  wide  boards,  and  the  parti- 
tions old  style  also.  The  fire  destroyed  part  of  the  roof  and  of  the 
attic.  Estimates  were  presented  by  the  assured,  respectively,  $2,030, 
$1,960,  $1,923,  $1,900,  and  $1,875,  all  of  them  included  obtaining 
plans  and  permits  from  the  Building  Department,  and  one  of  them 
"  in  accordance  with  the  plans  prepared  by  a  named  architect."  The 
estimate  for  the  companies  allowing  for  depreciation,  was  $1,025. 
Proofs  were  served  claiming  sound  value  $5,000,  loss  $2,000.  The 
appraisers  award  was  sound  value  $3,750,  loss  $1,233,  which  in- 
cluded accrued  damage  by  rain  and  wind  after  the  fire,  and  after 
estimate  for  the  companies  was  made. 

364 


Adjustment  of  Building  Losses  ^* 

Estimate  for  assured  was  $13,650  exaggerated  claim  being 
made  for  damages  not  caused  by  the  fire.  Estimate  for  the  com-' 
panies  was  $4,531.  Award  signed  by  the  two  appraisers  and  the 
umpire — $5,946.  Each  of  the  appraisers  and  the  contractor  who 
made  the  estimate  for  the  companies  signed  a  written  agreement  to 
make  the  repairs  (saying  there  was  a  Hberal  profit  for  them),  for 
the  amount  of  the  award.  Complaint  was  made  to  the  companies 
interested  of  the  so-called  conduct  of  the  appraisal  and  of  the  ad- 
juster for  insisting  on  an  appraisal. 

An  exaggerated  claim  of  $36,968  award  of  appraisers  $24,266. 
There  was  a  long  delay  in  arriving  at  award  owing  to  appraiser 
for  assured  adjourning  the  meetings  time  after  time,  while  he  con- 
sulted with  claimant,  giving  as  one  excuse  that  the  assured  had  a 
rent  policy  and  was  in  no  hurry  because  his  rent  claim  was  accruing. 
As  a  matter  of  fact,  the  rent  loss  had  been  adjusted  nearly  two 
months  before  the  award  was  arrived  at.  The  policies  having  a  100 
per  cent,  co-insurance  clause  and  the  sound  value  being  more  than 
the  insurance,  the  assured  could  not  collect  his  whole  loss  from  the 
companies.  The  appraiser  for  the  assured  contended  that  if  he  had 
known  there  was  a  100  per  cent,  co-insurance  clause,  he  would  have 
had  the  sound  value  made  smaller,  and  acting  for  the  insured,  actu- 
ally asked  the  companies  interested  to  reform  their  policies  and  have 
them  read  80  per  cent,  instead  of  100  per  cent. 

A  tenant  leased  a  building  in  which  there  was  and  had  been  for 
some  time  a  large  stable  and  wagon  elevator.  He  made  all  the 
repairs  for  some  years,  and  finally  claimed  the  elevator  as  his  prop- 
erty, and  insured  it  as  such  in  his  contents  policies,  which  read 
"including  freight  elevator."  The  owner  of  the  building  also  in- 
sured "elevators  with  appurtenances  and  connections."  The  tenant 
without  notice  to  any  of  the  companies,  repaired  the  damage  caused 
by  the  fire,  amounting  to  $145,  and  claimed  that  amount  of  the 
companies  insuring  contents,  which,  of  course,  they  did  not  allow; 
the  building  companies  paid  the  amount  as  they  properly  should. 

There  was  a  loss  in  an  apartment  house,  estimated  by  the  in- 
surance company's  contractor  at  $150.  He  made  an  appointment 
with  the  owner  to  go  over  with  him  the  details  of  his  claim  of  $525, 
but  was  met  by  the  lessee,  who  said  he  was  "the  same  as  the  owner," 
as  he  had  a  three  years'  lease  and  that  he  must  be  satisfied  and  not 
the  owner,  that  the  work  must  be  done  to  his  satisfaction;  that  he 
directed  the  making  of  the  estimate  and  specifications  presented  by 
the  owner,  that  he  was  sure  that  he  could  get  the  owner  (o  take 

365 


The  Fire  Insurance  Contract 

$300,  if  the  company  would  make  that  offer,  and  that  if  they  would 
not  make  that  offer,  he  would  sue  the  company.  Needless  to  say 
the  adjuster  refused  to  treat  with  the  lessee,  or  to  recognize  him  in 
the  settlement,  which  was  made  at  about  the  estimate  made  by  the 
company's  builder,  after  an  appraisal  had  been  demanded. 

A  new  building  fell  soon  after  the  owner  had  loaded  it  with  a 
large  stock  of  merchandise.  It  was  proved  on  the  trial  that  the 
owner,  after  having  plans  and  specifications  made,  which  would 
have  made  it  a  safe  building,  discharged  the  architect,  and  employed 
an  ordinary  contractor  to  change  the  plans,  and  lessen  the  cost, 
thereby  so  weakening  the  structural  strength  as  to  render  it  unsafe. 
There  was  abundant  evidence  that  the  building  fell  before  fire  en- 
sued, and  the  insurance  companies  had,  as  supposed,  a  clear  case. 
But,  on  the  evidence  of  one  witness,  the  last  called,  that  he  saw 
smoke  coming  out  before  the  building  fell,  a  large  verdict  was  ren- 
dered for  the  claimant.  After  the  trial  was  ended,  it  was  found  that 
if  the  witness  saw  smoke,  he  must  have  seen  through  two  brick 
walls.  Verdict  for  the  claimant,  but  settled  by  compromise  at  con- 
siderably less  than  the  award  of  the  jury. 

Awnings. 

Claims  for  damages  to  awnings  and  buildings  arc  numerous,  the 
cause  being  easily  attributable  to  tenants  throwing  cigarette  butts  or 
matches  out  of  windows  above.  A  few  dollars  may  cover  the  dam- 
age to  the  awning,  but  the  tenant  is  likely  to  make  the  unreasonable 
claim  that  the  entire  room  or  rooms  must  be  redecorated  although 
there  is  but  a  small  blister  or  discoloration  of  one  window  frame, 
and  the  owner  may  insist  upon  the  tenant  being  satisfied,  at  an 
expense  of  many  times  the  amount  of  the  actual  loss. 

Damage  to  awnings  stored  in  the  cellar,  and  the  additional 
damage  to  the  building  caused  by  heat  and  water,  are  often  caused 
by  delivery  boys  with  cigarettes  and  matches.  In  a  recent  case,  126 
awnings  out  of  200  were  destroyed,  and  with  an  additional  damage 
to  the  building  the  loss  to  the  insurance  companies  was  nearly  four 
hundred  dollars. 

Awnings  are  subject  to  rapid  depreciation,  but  it  is  very  difficult 
to  obtain  adequate  allowance  for  age,  fading  and  wear. 

Cellar  bins  are  used  by  numerous  tenants  for  storage  of  unused 
or  discarded  furniture,  mattresses  and  other  inflammable  material. 
A  lighted  candle,  or  a  match,  "Looking  for  something,"  may  start 
a  fire,  resulting  in  a  serious  loss  to  the  building  and  contents.  There 
are  manv  of  these  fires.     Inspection  of  these  Nns  by  official  in- 

366 


Adjustment  of  Building  Losses 

specters,  or  by  the  companies  insuring  the  building,  would  undoubt- 
edly lessen  the  number  and  extent  of  these  careless  fires,  particu- 
larly if  some  proper  permanent  lighting  arrangement  should  be  in- 
sisted upon. 

In  a  recent  case,  an  old  mattress  took  fire  but  did  not  have  a 
chance  to  burn  up  as  the  janitress  extinguished  it.  There  was  no 
damage  to  the  building  by  fire,  but  the  Fire  Department  caused  a 
damage,  including  two  skylights  four  floors  above  the  cellar. 

Of  the  losses  of  comparatively  small  amount,  in  dwellings  and 
apartment  houses,  we  meet  as  causes — children  with  matches,  awn- 
ings from  cigarette  butts  or  matches,  holiday  or  Friday  candles,  and 
taking  candles  or  lighted  matches  to  "find  something,"  in  clothing 
closets  and  basement  storerooms ;  wood  too  near  ranges  or  stoves, 
curtains  too  near  gas  jets,  drinking  or  careless  janitors,  store  de- 
livery boys  smoking  cigarettes  near  dumb-waiter,  and  especially  the 
practice  of  storing  discarded  furniture  and  mattresses  in  cellar  bins. 

In  manufacturing  risks  and  in  ofiice  buildings,  rubbish  under 
stairs  or  in  hallways,  packing  boxes  and  excelsior  accumulations, 
carelessness  of  cleaners  with  oily  rags,  causing  spontaneous  com- 
bustion, and  especially  carelessness  with  cigarette  butts  or  matches, 
cause  many  fires. 

Adjusters. 

It  has  been  truly  said  that  the  adjuster's  acquaintance  with  the 
conditions  of  the  contract  and  with  Insurance  Law  should  be  so 
good  that  no  lawyer's  opinion  on  any  point  of  purely  Insurance  Law 
should  have  any  weight  with  him  unless  accompanied  by  the  reason- 
ing or  precedents  on  which  it  rests.  He  should  have  executive 
abiHty,  a  judicial  mind  and  an  even  temper;  he  should  be  fearless 
in  the  face  of  unjust  or  arbitrary  criticism  and  not  over-sensitive 
about  it. 


367 


XX 

ESTIMATES  ON  BUILDING  VALUES  AND 
BUILDING  LOSSES 

William  J.  Moore,  General  Contractor 

Construction. 

Buildings  in  New  York  City  are  classified  by  the  Building  De- 
partment as  follows:   Fireproof,  non-fireproof  and  frame. 

Fireproof  Buildings. 

Fireproof  buildings  or  structures  are  those  which  are  con- 
structed throughout  of  materials  that  will  resist  the  action  of  fire, 
and  which  have  walls  built  of  masonry  or  reinforced  concrete ;  col- 
umns and  beams  of  iron  or  steel;  floor  filling,  either  of  terra  cotta 
arches  or  concrete. 

When  a  building  exceeds  a  height  of  150  feet,  all  exterior  win- 
dow frames  and  sash  are  required  to  be  of  metal,  or  of  wood  cov- 
ered with  metal.  ~ 

When  the  height  of  building  does  not  exceed  150  feet,  the  doors, 
window  frames,  trim,  casings  and  other  interior  finish,  when  filled 
solid  at  the  back  with  fireproof  material,  may  be  of  wood.  No 
wooden  doors  or  windows  are  allowed  in  any  building  exceeding  the 
height  of  150  feet. 

The  Ivaw  requires  that  every  building  hereafter  erected  shall  be 
a  fireproof  building,  as  follows :  Every  public  building  over  20  feet 
high,  in  which  persons  are  harbored  to  receive  medical,  charitable 
or  other  care  or  treatment,  or  in  which  persons  are  held  or  detained 
under  legal  restraint ;  every  other  public  building  over  40  feet  high  or 
exceeding  5,000  square  feet  in  area;  every  residence  building,  except 
tenements,  over  40  feet  in  height  and  having  more  than  15  sleeping 
rooms;  every  tenement  house  exceeding  six  stories  or  parts  of  stories 
as  provided  in  the  Tenement  House  Law ;  every  residence  building 
having  more  than  15  sleeping  rooms  and  exceeding  2,500  square  feet 
in  area,  unless  divided  by  interior  partition  walls  of  approved  ma- 
sonry or  reinforced  concrete  into  sections  of  less  than  2,500  square 
feet  area;  every  other  residence  building  over  75  feet  in  height; 
every  building  over  four  stories  in  height  used  as  a  factory  as  defined 
in  the  Labor  Law;  and  every  building  or  structure  within  the  fire 
limits  or  the  suburban  limits  used  as  a  grain  elevator  or  a  coal 
pocket. 

368 


Estimates  on  Building  Values  and  Losses 

Non-Fireproof  Buildings. 

Non-fireproof  buildings  or  structures  are  those  which  do  not 
conform  to  the  requirements  for  fireproof  buildings  or  structures, 
but  which  are  enclosed  with  walls  of  approved  masonry  or  reinforced 
concrete. 

Frame  Buildings. 

Frame  buildings  or  structures  are  those  of  which  the  exterior 
wallsor  ^ny  parts  thereof  are  of  wood,  or  which  do  not  conform  to 
the  requirements  for  fireproof  or  non-fireproof  buildings. 

There  are  two  distinct  methods  of  framing  a  building;  one  with 
plate  tenoned  into  the  post  and  pinned,  and  known  as  the  * 'brace 
construction,"  the  other,  what  has  become  known  as  "balloon  con- 
struction." 

Throughout  the  country  most  frame  buildings  are  of  balloon, 
construction,  and  I  believe  that  laws  should  be  passed  requiring  that 
in  every  case  of  balloon  construction,  fire  stops  be  put  in  at  each 
tier  of  beams,  as  this  would,  to  a  great  extent,  prevent  the  spreading 
of  fire.  Experience  shows  that,  without  this  precaution,  when  a  fire 
extends  to  the  space  between  the  studs,  it  will  either  run  to  the 
top  of  the  space,  and  there  mushroom ;  or  drop  to  the  bottom  of  the 
space  and  work  its  way  upward,  spreading  laterally  as  it  goes ;  or  it 
may  do  both. 

In  New  York  City  within  the  fire  limits,  frame  buildings  arc 
prohibited.  Outside  the  fire  limits,  and  throughout  the  suburban 
districts,  most  of  the  buildings  are  frame. 

Plans  and  Specifications. 

Before  erection,  construction  or  alteration  of  any  building  is 
commenced,  the  owner  or  lessee  or  agent  in  connection  with  the  pro- 
posed construction  or  alteration,  or  the  architect  or  builder,  shall 
submit  to  the  Superintendent  of  Buildings  a  detailed  statement  in 
triplicate  of  the  specifications  on  appropriate  blanks  to  be  furnished 
to  applicants  by  the  Bureau  of  Buildings,  and  a  full  and  complete 
copy  of  the  plans  of  such  proposed  work,  and  such  structural  detail 
drawings  of  said  proposed  work  as  the  Superintendent  of  Buildings 
may  require. 

In  New  York  City  and  most  of  the  other  cities  of  our  State  are 
Building  Departments  whose  officers  go  thoroughly  over  plans  of 
buildings.  Here  the  Building  Department  is  under  the  head  of  a 
Superintendent  with  a  corps  of  engineers  who  thoroughly  inspect 
the  plans  and  pass  upon  them,  before  a  permit  is  given. 

369 


The  Fire  Insurance  Contract 

The  Building  Department  is  a  great  help  to  the  builders  of  New 
York  and  also  to  the  Insurance  Companies.  In  case  of  a  building 
damaged  by  fire,  where  it  is  impossible  to  get  plans  of  construction, 
plans  may  be  seen  at  the  Building  Department  without  privilege  of 
removal  and  they  will  be  found  to  be  complete. 

Of  the  small  communities,  the  majority  at  present  have  no 
Building  Departments  and  the  people  are  allowed  to  build  almost  as 
they  see  fit. 

Vai^ue  of  Buildings. 

The  building  contractor  and  estimator  engaged  in  computing  the 
costs  of  our  modern  buildings  must  eliminate  the  item  of  guessw^ork 
from  the  estimates  as  far  as  possible.  This  is  not  an  easy  matter,  as 
building  construction  methods  can  hardly  be  reduced  to  the  scientific 
basis  of  factories  and  shops,  with  their  fixed  surroundings  and  con- 
trol of  weather  vagaries.  When  the  many  unforeseen  conditions 
entering  into  the  cost  of  modern  buildings  are  taken  into  considera- 
tion this  is  readily  seen — weather,  rain,  snow,  cold,  etc.,  all  capable 
of  causing  inestimable  damage  and  expense. 

In  arriving  at  the  value  of  a  building,  it  is  absolutely  necessary 
that  we  obtain  correct  measurements  of  ground  space  and  the  height 
of  each  story. 

In  fireproof  buildings  obtain  the  correct  length,  size  and  weight 
of  iron  columns,  girders,  beams  and  how  constructed,  and  the  orna- 
mental iron  work  including  stairs.  Mason  Work — obtain  the  meas- 
urement and  thickness  of  walls,  and  of  what  materials,  noting  par- 
ticularly the  stone  work  or  terra  cotta  trimmings;  the  floor  arches, 
their  construction,  thickness,  and  of  what  materials.  Partitions — 
their  thickness,  also  thickness  of  cinder  fill  to  level  arches  and  be- 
tween sleepers.  Plastering — number  of  yards,  cornices  and  other 
mouldings,  if  any.  Tiling — the  square  feet  of  flooring  and  walls. 
Roofing — the  number  of  square  feet  and  of  what  material.  Cornices 
— if  of  stone,  terra  cotta,  copper  or  galvanized  iron.  Skylight — 
whether  copper,  iron  or  galvanized  iron  and  how  glazed.  Carpenter 
Work — bucks,  sleepers,  underflooring,  finished  floors,  doors,  win- 
dows, and  other  sundries,  each  in  detail.  Plumbing — sewer,  upright 
lines,  fixtures,  of  what  description  and  make,  their  connections,  etc. 
Pleating — note  particular  make  of  boiler,  piping,  radiators,  and  their 
connections,  including  the  finishing  of  same.  Electric  Light  Wiring 
— number  of  outlets,  switches,  feed  lines  and  cut-out  boxes,  being 

370 


Estimates  on  Building  Values  and  Losses 

very  particular  about  the  fixtures.  Painting  and  decorating.  Fire- 
proof doors  and  windows.  Elevator.  Bell  Wiring  and  any  other 
sundries  that  go  to  make  up  a  building. 

After  obtaining  correct  quantities  in  all  the  various  items,  which 
go  to  make  up  a  building,  place  correct  price  on  same,  taking  into 
consideration  the  increase  of  cost  of  materials  at  the  present  day. 
This  cost  is  fluctuating.  Wood  materials,  such  as  beams,  flooring 
and  studding  have  increased  in  three  months,  ten  per  cent.  Iron 
Work  has  increased  in  cost,  thirty  dollars  per  ton.  Copper  has  dou- 
bled in  price.  Metal  lath  in  plastering  has  increased  six  cents  a 
yard.  Cement  has  increased  twenty-five  cents  a  bag.  Materials  for 
making  paint  have  increased  fifty  per  cent.,  and  in  some  cases  one 
hundred  per  cent. ;  but,  taking  it  in  all,  the  increase  on  materials  has 
been  an  average  of  fifteen  percent.     (April,  1916.) 

Labor  this  season  has  seen  a  great  deal  of  unrest  in  the  Build- 
ing Trades.  We  have  just  succeeded  iijestablishing  a  rate  of  $5.50 
per  day  for  our  carpenters,  an  increase  of  ten  per  cent.  Painters 
have  increased  ten  per  cent.,  and  wages  for  unskilled  laborers  have 
increased  about  fifteen  per  cent.,  so  in  all  there  is  a  general  increase 
or  an  average  on  cost  of  materials  and  labor  of  ten  per  cent. 

Non^eproof  buildings  and  frame  buildings  should  be  estimated 
on  in  the  same  careful  manner,  taking  ofif  each  item  in  detail. 

In  making  all  of  these  estimates,  it  is  absolutely  necessary  that 
the  correct  quantity  should  be  established,  distinctly  noting  the  class 
of  materials  and  seeing  that  the  correct  prices  are  put  on  each  of 
the  items.  After  figuring  the  building  out  in  detail,  every  builder 
who  goes  into  the  work  carefully  should  establish  a  sound  value  by 
cubic  feet  for  the  class  of  building,  the  details  of  which  he  has  been 
making. 

In  estimating  for  Insurance  Companies,  many  builders,  with 
their  vast  experience  in  establishing  values,  can  very  readily,  some- 
times by  looking  at  a  building,  and  at  others  by  taking  the  ground 
space  occupied  and  the  height,  give  the  valuation  of  a  building  in  a 
very  short  time.  These  cubic  foot  estimates  by  experienced  builders 
will  come  near  enough  in  most  cases  for  estimating  the  sound  value 
of  a  building,  unless  the  difference  in  the  valuation  and  the  amount 
of  insurance  carried  should  appear  to  be  very  far  apart.  In  such 
case  a  detailed  figure  should  be  made. 

In  the  cases  of  Churches  and  Public  Buildings,  it  is  almost  im- 
possible to  arrive  at  satisfactory  results  by  following  the  cubic  foot 
method,  and  the  only  reliable  way  will  be  to  estimate  the  values  in 
detail. 

371 


The  Fire  Insurance  Contract 

Most  of  the  large  estates  around  New  York  and  the  large  man- 
ufacturing plants  throughout  the  east  have  valuations  put  on  their 
plants  so  that  the  correct  amount  of  insurance  is  established. 

The  hardest  problem  I  find  in  making  valuations  of  buildings  is 
presented  by  some  of  our  large  corporations,  who,  not  with  refer- 
ence to  insurance,  but  to  leaseholds,  want  the  original  cost,  the  vis- 
ible depreciation  and  then  a  percentage  of  depreciation  to  the  build- 
ing because  of  the  neighborhood  in  which  said  building  is  situated. 

A  large  number  of  buildings  were,  a  few  years  ago,  in  first-class 
sections,  but  today  the  neighborhoods  have  changed  and  in  many 
cases  have  depreciated  so  much  that  the  buildings  and  lands  are  not 
worth  the  original  cost  of  the  buildings  alone.  As  a  rule  agreements 
in  such  cases  are  satisfactorily  achieved,  but  not  without  radical  re- 
adjustments of  value,  involving  not  only  buildings  but  the  lots  on 
which  they  stand.  _^ 

During  the  last  few  years  a  great  number  of  our  neighborhoods 
have  changed  so  rapidly  that  buildings  have  become  vacant,  not  on 
account  of  any  lack  of  condition,  but  because  newer  buildings  have 
been  put  up  in  new  locations  which  attract  the  occupants.  A  great 
deal  of  this  property  has  deteriorated  in  value  and  for  the  time 
being  the  question  is  a  very  hard  one  to  solve.  But  the  only  thing 
that  I  as  a  builder  can  da  is  to  establish  the  value  at  the  cost  of 
materials  and  labor  subject  to  a  depreciation  for  wear  and  tear  only. 

In  establishing  the  values  of  buildings  it  is  absolutely  necessary 
that  a  builder  of  experience  be  engaged. 

My  ofiice  has,  for  several  years,  been  establishing  sound  values 
on  a  large  number  of  buildings  belonging  to  various  estates  in  New 
York,  on  docks  and  buildings,  shipyards  and  large  mercantile  estab- 
lishments, throughout  the  east.  Last  year  our  work  in  this  line 
was  particularly  heavy,  and  this  notwithstanding  that  for  several 
years  back,  the  Exchange  has  not  accepted  these  estimates  for  the 
simple  reason  that  too  many  irresponsible  builders  were  making 
figures  on  cost  of  buildings,  and  whose  figures  were  simply  made  to 
suit  the  request  of  person  asking  for  them,  instead  of  being  abso- 
lutely fair  and  unbiased. 

In  appraising  after  loss  a  large  number  of  these  unfair  valua- 
tions have  come  to  my  attention.  Today,  an  owner  who  is  asking 
for  an  estimate  of  sound  value  of  building  does  not  try  to  influence 
his  builder  on  cost,  unless  it  is  after  a  fire  has  occurred. 

^72 


Estimates  on  Building  Values  and  Losses 
Loss  Estimates.  . 

In  making  an  estimate  of  loss  or  damage  to  building  by  fire  or 
water  the  first  requirement  of  a  builder,  in  my  estimation,  is  that  he 
should  be  absolutely  fair  to  the  Company  and  the  insured  alike.  In 
my  twenty-five  years  of  doing  work  for  the  Insurance  Companies  I 
have  yet  to  find  a  Company  who  ever  asked  me  to  be  unfair;  in  fact, 
I  have  been  told  by  a  number  of  the  Companies'  representatives  to 
pay  101  cents  on  the  dollar  rather  than  99  cents. 

The  making  of  estimates  of  loss  to  buildings  has  been  somewhat 
revolutionized  during  the  last  few  years.  In  former  years  all  that 
was  necessary  for  a  builder  to  do  was  to  submit  a  lump  figure  as 
his  estimate.  This,  today,  will  only  do  for  a  telephone  call  to  let 
Company  know  approximately  extent  of  loss,  but  most  Companies 
and  the  Loss  Committee  now  insist  on  details.  I,  myself,  some  years 
ago  was  opposed  to  giving  details;  but,  upon  taking  the  matter  up 
with  several  of  the  adjusters  of  the  Companies  and  talking  same 
over  in  a  sensible  manner,  I  decided  for  our  firm  that  we  would 
do  so. 

Some  of  my  competitors  said  sour  things  about  me  and  stated 
it  was  giving  too  much  information,  but  after  several  years'  trial, 
I  do  not  seem  to  have  lost  any  business  by  so  doing.  I  am  a  firm 
believer  that  small  losses  should  be  adjusted  by  the  adjuster  of  a 
C^m^any  without  sending  for  a  builder,  unless  in  case  of  a  dif- 
ference. 

A  builder  may,  with  sufficient  accuracy,  estimate  the  loss  on 
a  building  without  giving  any  details  whatever  in  his  written  estimate 
and  if  the  accuracy  of  the  estimate  is  challenged  he  may  be  able 
to  sustain  it  when  it  comes  to  discuss  the  amount  of  the  loss  with 
the  insured  or  the  insured's  builder,  or  both.  If  such  conversation 
develops  the  fact  that  he  has  underestimated  on  some  items,  it  is 
very  likely  to  develop  that  he  has  overestimated  on  others;  bui>  j»s 
he  has  given  nothing  more  than  his  estimate  of  the  cost  of  the  entire 
loss,  nobody  will  be  the  wiser. 

On  the  other  hand,  with  the  estimate  given  in  detail  (usually  in 
duplicate),  to  the  adjuster,  one  of  two  things  is  likely  to  happen: 
either  the  adjuster  before  giving  information  as  to  the  details  to  the 
insured  or  his  representative  will  detach  the  sum  set  opposite  the 
details  of  the  work  and  give  out  only  the  latter;  or  he  may,  in  dis- 
regard of  the  builder's  wishes,  give  out  a  copy  of  the  details,  includ- 
ing not  only  items  of  work  to  be  done  but  the  amounts  to  be 

373 

13 


The  Fire  Insurance  Contract 

charged  therefor.  In  either  event  the  insured  can  easily  check  the 
details  against  the  apparent  damages  and  either  call  attention  to 
omissions  or  to  errors  in  estimating  the  cost  of  the  items  of  work. 
With  this  prospect  before  him,  the  builder,  with  a  reputation  as  com- 
petent in  his  line  and  desiring  to  retain  it  undiminished,  will  neces- 
sarily take  more  time  and  use  extra  care  in  order  that  his  figures  may 
be  as  nearly  right  as  possible,  not  merely  in  the  aggregate,  but  in 
detail  as  well. 

The  giving  of  an  estimate  in  such  full  detail  as  has  for  some 
years  been  my  practice  necessarily  increases  the  cost,  not  only  be- 
cause of  the  greater  expense  of  transcribing  the  report,  but  also  be- 
cause of  the  greater  care  required  to  secure  accuracy. 

The  extra  cost  involved  is,  however,  a  good  investment  for  the 
Companies — in  the  long  run  surely.  Oftentimes  owners  are  misled 
by  the  builders  whose  estimates  they,  in  good  faith,  have  asked. 
Many  a  builder  so  employed  reasons  that  he  owes  no  obligation  to 
the  Insurance  Company  to  avoid  overcharge  and  that  if  his  estimate 
is  too  high  the  man  who  employs  him  cannot  suffer,  and  that  if  the 
owner  succeeds  in  obtaining  an  unnecessarily  liberal  allowance  from 
the  Insurance  Company,  he  (the  builder)  will  reap  the  benefit  by 
being  able  to  obtain  the  contract  at  a  higher  figure  than  the  owner 
could  afford  to  make  to  him  if,  when  the  estimate  was  asked  for  in 
the  first  place,  it  had  been  with  knowledge  that  the  cost  would  have 
to  be  met  out  of  the  owner's  own  bank  account  rather  than  that  of 
the  Insurance  Company. 

A  detailed  estimate  such  as  I  have  described  will  oftentimes  be 
the  means  of  convincing  the  owner  that  the  estimate  obtained  by 
him  was  for  an  unjustifiably  large  amount.  The  honest  insured,  in 
such  a  case,  frequently  insists  upon  full  correction  of  the  estimate 
obtained  by  him,  or  disregards  it  entirely,  obtaining  another  from 
another  builder,  who,  with  proper  instructions,  may  bring  in  an 
estimate  nearly  or  wholly  in  accord  with  that  obtained  by  the  In- 
surance Company.  Even  where  the  owner  cannot  relieve  himself, 
in  whole  or  in  part,  of  responsibility  for  the  inflation  of  the  esti- 
mate presented  by  him,  the  possession  by  the  Company's  adjuster  of 
the  details  will  often  enable  him,  without  trouble,  to  demonstrate  the 
falsity  of  the  estimate  that  has  been  presented  to  him. 

No  adjuster  should  ever  take  a  final  stand  on  the  strength  of  a 
building  estimate  without  first  submitting  to  the  insured  the  details 
of  the  work  which  the  Company's  builder  has  estimated  on,  except  in 

374 


Estimates  on  Building  Values  and  Losses 

the  case  of  some  of  the  small  losses.  No  builder  can  be  sure  that  he 
has  seen  and  estimated  upon  every  item  of  damage  to  the  building 
until  the  owner  has  approved  this  portion  of  his  work.  He  may  have 
omitted  to  estimate  upon  some  item  of  value  known  to  the  owner  or 
to  the  owner's  representative  to  have  been  destroyed,  the  existence 
of  which  may  not  even  be  faintly  suggested  by  the  condition  of 
the  building  when  the  builder  visits  it  alone,  for  the  purpose  of 
drawing  up  his  statement  of  work  to  be  done.  To  cite  familiar 
instances :  A  closet,  a  partition,  a  door,  a  skylight  or  special  deco- 
rations may  all  have  been  absolutely  destroyed  by  fire  with  nothing 
to  suggest  their  previous  existence  to  any  one  not  thoroughly  familiar 
with  the  building  immediately  before  its  damage  or  destruction  by 
fire,  and  in  such  a  case  before  the  adjuster  can  properly  say  what  he 
will  or  will  not  pay,  he  should  submit  to  the  insured  for  approval  or 
correction  the  details  of  his  builder's  estimate. 

Oftentimes  the  corrections  claimed  are  in  excess  of  those  war- 
ranted, not  always  because  of  the  insured's  desire  to  be  paid  for  that 
which  he  did  not  lose,  but  because  of  faulty  recollection  or  incom- 
plete knowledge.  For  this  and  other  reasons  it  is  often  advisable  that 
in  cases  of  diflference  as  to  the  amount  of  work  to  be  done  the  parties 
should  meet  at  the  building  and  discuss  the  corrections  claimed.  The 
parties  to  the  conference,  at  the  place  of  the  fire,  should  include  the 
adjuster,  the  builder  who  has  estimated  for  him,  the  insured,  or  his 
authorized  representative  (preferably  the  former),  and  the  builder 
on  whose  expert  knowledge  and  advice  the  insured  is  relying. 

In  making  estimates  of  small  losses  the  builder  should  be  thor- 
oughly qualified  to  make  all  the  figures,  and  know  extent  of  fire 
damage  himself,  without  any  sub-contractor.  In  large  losses  we 
have  made  it  a  rule  for  years,  in  my  office,  to  figure  off  every  item 
of  loss  in  the  various  branches  of  the  work,  then  send  our  sub- 
contractors to  estimate  on  each  item  of  damage  in  their  respective 
lines.  We  go  over  their  estimates  carefully  and  if  we  find  any 
marked  difference  between  our  figures  and  theirs,  we  send  for  them 
and  talk  the  matter  over  to  see  why  the  difference  should  be.  Many 
a  time  we  go  back  to  the  building  and  go  over  it  again  until  we  are 
satisfied  which  estimate  is  correct,  before  we  put  it  in  to  the  inter- 
ested Company  or  Companies.  I  believe  that  all  builders  doing  work 
for  the  Companies  should  do  the  same,  for  if  this  is  done  and  the 
builder  should  be  called  upon  to  make  the  repairs,  he  will  do  so 
without  hesitation,  knowing  himself  to  be  safe. 

375 


The  Fire  Insurance  Contract 

Builders  should  be  very  careful  when  estimating  to  be  sure  that 
they  are  in  the  right  premises,  as  I  know  that  occasionally  mistakes 
are  made  and  sometimes  the  Companies  have  paid  loss  on  the  wrong 
building.  If  there  is  any  question  of  location,  the  builder  should 
call  up  the  Company  and  make  sure  the  location  is  correct.  Com- 
panies could  help  builders  if  they  would  try  to  get  the  correct  num- 
ber of  the  building  instead  of  description  giving  number  of  feet,  as 
generally  the  number  of  feet  is  guesswork.  It  recalls  to  my  mind  the 
circumstance  of  a  loss  on  which  I  was  retained  at  Baltimore,  di- 
rectly after  the  large  conflagration.  A  builder  there,  who  had  been 
doing  work  for  the  various  Companies  in  Baltimore  for  a  number 
of  years,  gave  an  estimate  on  a  building  in  which  a  number  of  Com- 
panies were  interested.  As  the  figures  made  it  a  total  loss  several 
of  the  Companies  paid  their  proportions  of  the  claim  on  that  basis. 
Nnt  knowing  anything  about  the  circumstance  of  this  case  what- 
soever, I  was  called  in  one  night  and  asked  to  take  a  look  at  the 
map  and  cube  the  building.  As  I  had  been  down  there  several  days 
and  was  familiar  with  the  location,  cubing  at  the  prices  that  I  knew 
to  be  practically  correct,  I  found  that  the  building  was  not  worth 
over  60  per  cent,  of  the  insurance. 

The  Company  for  whom  I  made  the  estimate  had  not  paid  its 
proportion  of  claim  and  an  examination  of  the  building  was  made. 
The  following  day  I  sent  for  the  builder  who  had  made  the  figures, 
brought  him  to  the  building,  took  measurements,  figured  it  out  and 
could  not  find  the  value  to  exceed  the  amount  that  I  had  placed  on 
it  while  cubing  it,  but  found  that  this  man  had  figured  two  buildings 
as  one,  and  made  him  admit  so  while  there. 

The  Companies  who  had  paid  their  proportions  were  out  con- 
siderable money  and  I  do  not  believe  they  have  ever  recovered  any 
portion  of  it;  so  this  illustrates  how  necessary  it  is  to  be  sure  you 
take  in  only  what  the  Company  actually  covers. 

Some  years  ago  I  was  sent  to  a  building  in  Monroe  Street  to 
make  an  estimate  for  an  Insurance  Company.  After  turning  in  the 
estimate  I  was  called  up  by  the  Company  who  informed  me  there 
was  quite  a  diflFerence  and  requested  I  meet  the  assured  at  the 
premises.  I  was  there  as  I  thought,  the  insured  did  not  seem  to 
come,  I  called  up  the  Company,  but  he  had  called  up  before  I  had. 
It  seemed  strange,  but  I  found  out  there  was  another  building  with 
the  same  number  on  the  same  street,  and  both  had  a  fire  in  them. 
This,  as  a  great  many  know,  was  not  an  uncommon  matter  a  few 
years  ago.    It  seemed  strange,  but  I  had  found  the  smaller  fire  first. 

376 


Estimates  on  Building  Values  and  Losses 

But  builders  are  not  the  only  ones  who  get  into  the  wrong  building, 
for  I  know  an  adjuster  who  found  the  right  number  in  a  block  and 
thought  he  was  in  the  right  place,  and  did  not  discover  his  mistake 
until  he  practically  had  a  furniture  loss  closed.  After  several  hours' 
work,  on  looking  at  the  policy,  he  discovered  it  was  not  his  but  an- 
other Company's  policy.  Inquiry  of  the  lady  whom  he  had  taken 
to  be  his  insured  developed  the  fact  that  he  was  one  block  too  far 
south.  By  a  coincidence,  houses  of  the  same  number  on  the  two 
streets  had  been  damaged  by  fire  almost  at  the  same  time. 

Builders  should  be  careful  on  an  out  of  town  loss  when  a  build- 
ing may  have  been  in  course  of  construction,  to  find  out  how  far  it 
may  have  progressed.  A  peculiar  circumstance  comes  to  my  mind 
where  a  man  insured  a  building  for  $3,500  and,  after  its  destruction 
by  fire,  stated  that  the  work  had  been  completed  and  looked  for 
the  full  amount  of  the  insurance.  Upon  investigation,  something  pe- 
culiar in  the  ruins  called  to  my  attention  the  fact  that  the  building 
could  not  have  been  completed  and  in  going  among  the  neighbors 
some  distance  away  from  fire,  I  found  that  the  building  had  only 
been  lathed,  that  the  mortar  was  made  up  in  the  cellar  and  had  not 
even  been  applied.  This  man  when  it  was  called  to  his  attention 
admitted  this  fact.  When  the  amount  of  the  loss  was  finally  settled 
it  was  only  about  50  per  cent,  of  his  claim,  and  he  received  all  that 
he  was  justly  entitled  to. 

If  a  builder  omits  any  work  in  making  up  his  estimate  believing 
the  same  to  belong  to  the  tenant,  special  note  should  be  made  on  his 
estimate  so  that  the  Company  will  know  that  this  special  item  has 
been  omitted  and  the  omission  will  not  lead  to  any  misunderstanding. 

Foundations.  ^V«>^^^ 

Some  policies  exclude  foundations  and  sometimes  the  question 
comes  before  the  builder,  where  do  foundations  end  and  building 
proper  begin?  I  know  of  no  better  way  of  deciding  than  the  defini- 
tion contained  in  the  Building  Code  of  the  City  of  New  York — 
"Foundation  walls  shall  be  construed  to  include  all  walls  and  piers 
built  below  the  curb  level  or  the  nearest  tier  of  beams  to  the  curb, 
which  serve  as  supports  for  walls,  piers,  columns  or  other  struc- 
tural parts  of  a  building  or  structure." 

Pl^ASTERING. 

Sometimes  I  have  differed  with  other  builders,  but  I  am  a  firm 
believer  that  when  a  ceiling  on  wood  lath  is  very  wet  it  should  be 

377 


The  Fire  Insurance  Contract 

figured  as  to  be  taken  down  and  replaced,  because  sooner  or  later 
there  will  be  trouble  with  it,  for  the  lath  will  swell  and  clinch  will 
be  broken.  On  metal  lath  there  is  no  danger  of  it  falling,  simply 
allow  to  repair.  With  walls  it  is  different;  the  water  is  generally 
only  on  the  face  of  the  plaster,  has  not  penetrated  except  possibly 
to  a  slight  extent;  besides  all  stud  partitions  have  a  plate  at  top 
which  leaves  no  opening  for  water  to  come  through.  If  a  ceiling 
is  of  fireproof  block  or  concrete  construction,  it  should  be  tested 
and  if  sound  it  will  dry  and  remain  so  and  no  uneasiness  will  be 
caused.  In  Public  Buildings,  School  Houses  and  places  where  a 
large  number  of  people  assemble,  if  a  ceiling  is  wet  it  should  come 
down  for  the  reason  that  no  chances  should  be  taken  and  it  is  better 
to  have  it  taken  down  than  possibly  have  some  one  injured,  as  these 
ceilings  are  generally  high.  No  doubt  this  will  raise  some  question, 
but  I  find  that  when  x:  builder  hai  to  dv^  the  work  for  a  Company, 
that  builder  has  to  take  the  ceiling  down. 

In  a  recent  case  where  I  represented  the  insured  in  the  settle- 
ment of  a  loss  a  very  interesting  question  arose.  Fire  had  done 
considerable  damage  to  the  posts,  girders,  beams  and  flooring.  On 
one  of  the  floors  over  which  there  were  large  iron  tanks  resting  di- 
rectly on  the  floor,  the  occupants  who  owned  the  tanks,  had  no  in- 
surance and  stated  to  owner  the  tanks  were  all  right  and  as  soon  as 
building  was  put  back  they  were  willing  to  start  paying  the  rent.  The 
beams  and  flooring  directly  under  tanks  were  burned  and  had  to  be 
removed  and  replaced ;  to  do  this  it  was  necessary  to  break  connec- 
tions to  tanks  and  raise  them.  This  cost  considerable  money  and  had 
to  be  figured  as  part  of  loss  on  building,  and  was  finally  allowed  by 
the  interested  Companies. 

Many  interesting  questions  come  up  in  replacing  a  building,  as 
to  what  disposition  should  be  made  of  the  stock  debris.  I  know  it  to 
be  a  fact  whenever  a  builder  is  called  in  to  replace  the  building  he 
has  to  move  the  stock  debris  in  order  to  replace  his  work  and  event- 
ually has  to  remove  it  from  the  premises.  A  builder  in  estimating 
loss  should  include  an  estimate  for  removal  of  stock  debris,  keeping 
said  item  separate  for  decision  as  to  who  is  to  pay  for  it. 

Builders  representing  Insurance  Companies  should  be  ready  to 
show  the  insured's  builder  the  short  way  to  do  his  work;  for  in- 
stance, on  a  recent  trip  to  one  of  our  Southern  Cities,  there  came  up 
a  question  on  plumbing;  the  soil  lines  throughout  building  were  of 
4-inch  galvanized  wrought  iron  pipe  with  screw  joints.  This  partic- 
ular building  was  very  tall  and  the  lines  were  damaged  and  warpe  1 

378 


Estimates  on  Building  Values  and  Losses 

on  the  first  floor.  The  plumber  insisted  that  he  would  have  to  begin 
at  the  top  and  unscrew,  taking  out  the  connections  as  he  came  down, 
and  as  there  were  sixteen  upright  lines  it  meant  quite  a  large  ex- 
penditure of  money.  In  this  particular  city,  and  also  the  principal 
cities  of  the  United  States,  the  Building  Department  would  not 
allow  a  union  connection  in  the  pipes,  but  when  I  proved  to  him  that 
I  could  procure  for  him  pipe  threaded  right  and  left  there  being 
space  enough  to  allow  spring  to  put  in  pipe,  or  by  using  a  Tucker 
connection,  the  work  could  be  done  without  removing  lines  above 
first  floor,  he  very  readily  agreed  with  me  but  stated  it  would  be  the 
first  time  to  his  knowledge  that  the  same  would  be  used  in  that  sec- 
tion of  country. 

In  conclusion,  I  believe  it  to  be  for  the  best  interests  of  both 
the  insured  and  the  Companies,  to  have  their  estimates  made  by  men 
who,  by  years  of  experience  in  the  replacing  of  building  losses,  have 
made  a  careful  study  of  the  effect  of  fire  and  water  upon  the  various 
materials. 


379 


XXI 

ASCERTAINMENT  OF  MACHINERY  VALUES  AND 

LOSSES 
John  Hankin",  Consulting  Engineer 

R^pi,ace:me:nt  Vai^u^s. 

In  this  world  of  men  and  minds  there  should  be  many  original 
ideas,  but  as  long  as  there  is  no  Thought  Exchange  or  Board  of  Idea 
Underwriters  for  indexing  and  separating  the  new  from  the  obso- 
lete, and  for  the  proper  classification  of  ideas,  estimates  and  ap- 
praisals will  be  necessary. 

No  transaction  between  seller  and  buyer  is  satisfactory  un.less 
there  is  a  mutual  advantage  from  it.  No  business  is  or  can  be  suc- 
cessful if  the  relation  between  it  and  its  customer  is  not  satisfactory. 
Essentials  to  success  are  respect  for  the  property  and  rights  of 
others.  This  applies  to  the  appraising  of  machinery  values  as  much 
as  it  does  to  the _ buying  and  selling  of  any  commodity. 

The  production  of  foundry  and  machine  shop  products  is  the 
greatest  industry  in  the  United  States  and  is  an  index  of  the  amount 
of  labor  employed.  The  machinery  building  industry  closely  indi- 
cates existing  or  approaching  conditions  in  all  other  industries,  ma- 
chinery being  the  basis  of  all  manufacture. 

In  approaching  machinery  values  we  are  confronted  with  so 
many  angles  from  which  the  unit  must  be  considered  that  the  subject 
becomes  most  perplexing  and  difficult. 

Firsts-Must  be  considered  the  character,  quantity,  quality,  and 
accur^'y'of  the  machine's  product. 

Second — The  market  value  of  the  materials  of  which  the  machine  is 
made. 

Third — The  material  from  a  workabje  standpoint  must  be  consid- 
ered, as  brass,  bronze,  composition,  or  cast  iron,  are  much  freer  and 
more  economical  working  metals  than  malleable  or  wrought  iron,  cast 
or  tool  steel. 

Fourth — The  proportion  of  machined  or  finished  parts  must  be 
considered  apart  from  the  unfinished. 

Fifth — The  design  of  the  machine  and  its  parts  must  be  carefully 
coiisidered.  Especially  does  this  apply  to  the  machined  parts,  as  all 
cylindrical  parts,  regardless  of  their  composition,  are  more  readily  ma- 
chined than  is  the  same  material  in  any  other  shape. 

Sixth — The  weight,  bulk  and  manner  of^as&erabling  and  transport- 
ing the  machine  must  also  be  considered. 

Seventh — The  quantity,  size,  weight  and  design  of  the  various  parts, 
and  the  time  required  to  assemble  the  complete  machine.  If  the  demand 
is  such  as  to  warrant  the  maker  preparing  drawings,  patterns,  dies,  jigs, 

380 


Machinery  Values  and  Losses 

etc.,  for  the  manufacture  of  the  machines  in  large  quantities,  the  cost  is 
materially  reduced.  This  is  best  illustrated  by  the  selling  price  of  an 
automobile  by  one  of  the  large  manufacturers. 

For  the  purpose  of  this  paper,  machinery  may  be  divided  into 
two^lasses : 

First — Foundry,  blacksmith,  boiler  and  sheet  metal  work  requiring 
little  or  no  machining. 

Second — Machine  shop  work  requiring  one  or  all  of  the  above 
classes  as  a  basis  on  which  expert  workmanship  will  be  necessary  to  pro- 
duce a  finished  machine.  *" 

The  replacement  value  of  the  first  class  can  be  reasonably  fixed 
at  a  pound  price  ranging  from  23^2  c  per  pound  and  up,  in  some  cases 
where  the.casting  is  very  thin  and  difficult  to  cast,  it  may  cost  25c 
per  pound,  but  the  average  foundry  charge  for  best  quality  gray 
iron  may  be  fixed  at  approximately  6c  per  pound,  the  greater  the 
bulk  the  lower  the  cost;  after  fixing  the  pound  price  and  the  total 
weight  of  the  unit,  the  replacement  value  can  be  reached.  To  esti- 
mate th«  replacement  value  of  the  second  class  requires  a  familiarity 
with  the  cost  of  machining  and  assembling,  and  with  the  several 
characters  of  material  and  workmanship  of  which  the  particular 
machine  is  composed.     (January,  1916.) 

As  an  illustration:  Cast  iron  foundry  work  requiring  no  ma- 
chining or  labor  outside  of  the  foundry  has  a  value  of  2j^c  and  up 
per  pound  while  if  machine  work  is  necessary  the  cost  may  easily 
exceed  this  many  times. 

It  must  also  be  considered  whether  the  machine  possesses  only 
patented  attachments  or  is  patented  as  a  whole,  and  whether  it  is  of 
domestic  or  foreign  make.  If  the  latter,  then  must  be  considered 
the  lower  material  and  labor  cost,  plus  transportation  and  duty,  as 
against  a  higher  domestic  cost.  As  an  instance  of  how  a  limited 
demand  affects  the  selling  price  of  machines,  I  want  to  cite  an  actual 
case  of  two  patented  machines,  each  weighing  12,000  pounds.  Call 
them  A  and  B. 

Machine  A  with  a  shop  cost  of  $600  sells  at  $2,300. 

Machine  B  with  a  shop  cost  of  $1,400  also  sells  at  the  same 
price. 

Machine  A  is  a  heavy  compact  machine,  occupying  but  thirty 
square  feet  of  floor  space,  80  per  cent,  of  its  value  being  in  cast  iron 
bulk,  the  balance  or  20  per  cent,  being  labor.  The  cost  is  divided  as 
follows : 

Material    $480 

Labor 120 

$600 
381        ^ 


The  Fire  Insurance  Contract 

Although  this  machine  stands  alone  and  is  in  a  field  by  itself, 
the  average  demand  for  it  in  the  past  ten  years  has  been  less  than 
one  machine  per  year,  while  the  preparatory  cost,  such  as  drawing, 
patterns,  special  flasks,  etc.,  is  just  as  great  as  though  the  demand 
were  one  per  week.  In  cases  similar  to  the  above,  returns  that  will 
warrant  the  original  investment  are  discouragingly  slow,  and  the 
maker,  as  a  matter  of  self-protection,  must  secure  what  to  the  unin- 
itiated are  apparently  large  and*unreasonable  profits. 

Machine  B,  while  not  patented  as  a  whole,  possesses  several 
patented  attachments  that  give  to  the  maker  desired  talking  points. 
As  against  Machine  A,  the  field  for  B  is  large,  but  the  competition 
is  also  large  and  very  keen.  Each  maker  believes  that  the  patented 
features  of  his  machine  more  than  counterbalance  those  of  his  com- 
petitors. This  machine  contains  many  parts,  moving  at  high  speed, 
and  occupies  100  square  feet  of  floor  space.  As  against  Machine  A 
the  material  represents  but  40  per  cent,  of  its  shop  cost,  the  balance 
or  60  per  cent,  labor.    The  cost  of  B  is  made  up  as  follows : 

Material $560 

Labor   : 840 


$1,400 
Again,  the  shop  cost  of  the  ordinary  return  tubular  boiler  is 
approximately  as  follows: 

Material  Labor 

2/3  1/3 

while  for  steam  engines,  particularly  the  high  speed  class,  it  is  the 
reverse : 

Material  Labor 

1/3  2/3 

A  most  important  item  and  one  which  sometimes  proves  to  be 
the  greatest  proportion  of  a  machine's  replacement  value  to  the 
user  is  the  cost  of  marketing.  This  in  itself  on  some  machines  rep- 
resents many  times  its  shop  cost. 

Depreciated  value  is  influenced  by  so  many  causes,  and  in  so 
many  ways,  that  it  is  difficult  to  describe,  even  on  a  basis  of  ordinary 
wear  and  tear;  it  is  rare  to  find  two  manufacturers  of  the  same 
class  of  machinery  who  agree,  differing  on  this  item  alone  as  much 
as  50  per  cent,  for  five  years'  use.  Very  often  two  minds  consider- 
ering  depreciation  will  reach  widely  different  results,  for  the  reason 
that  one  may  view  it  only  as  a  resale  proposition.     He  sees  it  at 

382 


Machinery  Values  and  Losses 

the  price  it  would  bring  in  the  second-hand  market,  where,  so  to 
speak,  it  has  the  information  painted  on  it  that  it  has  been  through 
a  fire. 

As  a  further  instance  of  the  different  views  as  to  values,  I  cite 
the  action  of  the  owner  of  a  successful  jobbing  machine  shop  in 
northern  New  York.  He  refused  to  recognize  such  a  thing  as  de- 
preciation, and  wishing  to  purchase  additional  machinery,  journeyed 
to  a  nearby  town  and  purchased  a  few  machine  tools,  the  age  of 
which  was  more  of  an  unknown  quantity  than  that  of  Ann.  The 
employees  of  the  railroad  over  which  it  was  shipped,  not  having  the 
same  insight  as  to  values  as  the  new  owner,  mistook  it  for  junk, 
and  when  it  arrived  at  its  destination  it  was  junk,  and  required  the 
assistance  of  the  Court  to  clear  the  situation. 

One  manufacturer  (having  a  reputation  for  excellent  care  and 
up-keep  of  his  machinery),  making  among  other  things  a  line  of 
paper  bag  machines,  makes  it  a  practice  to  renew  a  certain  class  of 
his  machine  tools  every  five  years,  believing  that  increase  in  quality 
and  quantity  of  output,  with  greater  economy  of  operation,  plus  the 
salvage  secured  for  machines  well  maintained  during  five  years  of 
careful  use,  fully  compensates  him  for  doing  so. 

Another  manufacturer  has  fixed  the  useful  life  of  his  machine 
at  twenty  years,  and  still  another  at  forty,  each  believing  that  his 
particular  class  of  machinery  would  warrant  operation  for  that 
length  of  time. 

This,  however,  can  only  be  based  on  ordinary  wear  and  tear, 
it  being  possible  (examples  of  which  will  be  mentioned  later)  for 
machines  to  become  practically  obsolete  in  less  than  five  years. 

On  the  other  hand,  as  examples  of  longevity  of  some  pieces  of 
machinery  there  are  in  use  today  in  the  engine-room  of  a  New  Haven 
(Conn.)  factory  two  horizontal  steam  engines  of  45  and  28  horse- 
power, respectively,  both  of  which  were  built  about  1855,  and  with 
the  exception  stated  below,  have  been  in  constant  use  since  their  in- 
stallation; the  larger  of  the  two,  a  Corliss  engine  built  under  the 
original  Corliss  patents,  was  installed  in  a  lumber  mill,  where  it 
passed  through  a  fire  undamaged.  The  present  owner  purchased  it 
from  the  original  buyer  in  1865  for  $50;  in  1902  it  passed  through 
a  second  fire,  and  was  then  stored  in  a  vacant  lot  for  about  one  year, 
where  it  was  visited  by  vandals,  who  carted  away  its  brasses  and 
removable  parts.  It  was  then  repaired,  missing  and  worn  parts  re- 
placed and  renewed  at  an  expense  of  $300. 

383 


The  Fire  Insurance  Contract 

I  also  cite  a  Cornish  pumping  engine  of  unknown  make  in  the 
Shipley  Colliery  Company's  coal  mine  near  Derby,  England,  which 
in  1912  had  been  in  satisfactory  operation  over  100  years. 

The  manner  of  reaching  the  percentage  of  depreciation  and  the 
extent  properly  chargeable  to  any  unit  or  class  of  machinery  is  as 
variable  as  the  machines  themselves.  This  variation  is  further  aug- 
mented by  the  many  angles  from  which  it  is  approached  by  men  of 
different  minds.  Broadly,  it  may  be  stated  that  depreciation  em- 
bodies the  following:    Use.    Abuse. 

Improvement  in  material,  in  design,  in  output,  and  in  economy 
of  operation  of  later  and  more  modern  types. 

We  are  told  "man  that  is  born  of  woman  is  of  few  days  and 
full  of  trouble.". 

'     Paraphrasing:    "Machines  that  are  made  by  man  are  of  few 
days  and  full  of  depreciation." 

It  has  been  said  that  man  is  no  sooner  born  than  he  starts  hot- 
foot for  the  grave.  The  moment  a  machine  is  completed  it  starts  on 
the.  rQad-Ql.  obsolescence. to  obsoleteness,  to  its  grave,  "the  scrap 
heap."  Today  we  live,  tomorrow  we  are  scrap.  "Morituri  salu- 
tamus.*' 

Speaking  a  good  word  for  the  lowly,  and  that  the  very  often 
despised  scrap  may  be  elevated  to  its  proper  social  position,  it  is  in- 
teresting to  note  that  our  federal  government  in  1912  created  in  the 
Department  of  the  Navy  the  office  of  scrap  expert,  who  estimates  the 
salvage  of  metal  from  the  scrap  in  the  United  States  at  nearly  $60,- 
000,000  yearly.  The  value  of  the  scrap  accumulated  and  sold  by 
three  railroads  in  covering  a  period  of  two  years  is  as  follows : 

N.  Y.  N.  H.  Penn.     N.  Y.  C.  & 

&  H.  R.  R.  R.  R.       H.  R.  R. 

1914          1915  1914            1915 

Old  metals  ]  $780,000" 


lyocomotives   and   wood   passen- 
ger cars  sold  "as  is' 

Oil  barrels  

Waste  rubber  

Waste  paper  


$784,912  $931,861  114,326 
22,439 
15,222 
19.211 


$2,000,000 


Total  value   $784,912     $931,861     $951,198    $2,000,000 

There  are  no  hard  and  fast  rules  to  guide  us  in  the  matter  of 
depreciation  regardless  of  how  caused.  The  argument  so  often  met, 
that  a  "sum  equal  to  the  amount  usually  charged  off  for  deprecia- 
tion, has  been  expended  for  maintenance  and  consequently_pffsets 
depreciation,"  is  not  applicable  in  all  cases. 

^384 


Machinery  Values  and  Losses 

It  is  true  that  money  expended  to  maintain  a  machine  at  highest 
efficiency  tends  to  minimize  depreciation,  but  an  expenditure  for 
repairs^vvhidi  when  completed  leaves  the  unit  in  an  efficient,  but 
patched  condition,  offsets  but  a  small  percentage  of  depreciation. 
Expenditure  that  increases  the  machine's  output  or  economy  of 
operation  adds  to  the  original  investment,  but  does  not  offset  de- 
preciation, there  being  certain  depreciation  on  practically  all  classes 
of  machinery  that  cannot  be  compensated  for,  by  any  amount  ex- 
pended, that  falls  short  of  replacement. 

Depreciation  by  reason  of  obsolescence,  or  by  fatigue  of  metal, 
cannot  be  compensated  for  by  maintenance.  As  proof  that  fatigue 
failure  of  metal  is  a  factor  in  the  life  of  machinery,  will  say  that 
duplicate  machines  working  for  twenty  years  under  like  conditions 
have  collapsed  at  similar  points  within  a  few  weeks  of  each  other, 
due  to  no  other  reason  than  metal  fatigue.  Power  plants  particularly 
depreciate  from  this  cause.  Many  engine  breakdowns  and  boiler 
explosions  are  undoubtedly  due  to  it. 

As  an  illustration  that  improvement  in  product  is  the  cause 
of  greater  depreciation  than  ordinary  wear  and  tear,  consider  your- 
self the  owner  of  an  unusued  automobile  of  any  make. 

Concede  that  it  has  not  been  exposed  to  outdoor  atmosphere 
conditions  since  its  purchase,  but  is  of  the  1910  vintage.  What  is 
its  value  today?  All  due  to  being  superseded  by  machines  having 
improved  features  that  relegate  the  unused  machine  to  a  back  seat. 
Electric  generators  might  also  be  quoted  as  a  radical  illustration. 

Again,  there  is  the  distinction  between  used  and  abused  ma- 
chinery, it  being  possible  for  abuse  to  cause  greater  depreciation 
than  ordinary  wear  and  tear  or  that  due  to  obsolescence. 

One  manufacturer,  having  in  view  cheaper  help  and  increased 
output,  will  tolerate  abuse  of  machines  that  would  merit  dismissal 
from  another.  Depreciation  does  not  affect  all  machines  equally, 
many  high-speed  machines  having  a  replacement  value  no  greater 
than  a  slow-speed  machine,  will  depreciate  more  rapidly  than  a 
slower  machine.  As  an  illustration,  compare  a  high-speed  printing 
press,  knitting  or  automatic  screw  machine  with  a  slow  but  powerful 
stamping  press  or  rolling  mill.  In  the  former  the  greater  value  lies 
in  the  rapidly  moving  parts  created  by  skilled  labor;  in  the  second 
the  value  lies  in  the  weight  or  bulk,  the  labor  of  cost  per  pound  being 
very  small  when  compared  to  the  whole  value.    And  since  the  slow 

385 


The  Fire  Insurance  Contract 

moving  or  wearing  parts  are  but  a  small  portion  of  the  whole  in  the 
latter  or  slower  moving  machine,  the  depreciation  will  be  less  than 
in  that  of  the  higher  speed  machine. 

In  many  instances  the  depreciation  is  greater  when  the  machine 
is  at  rest  than  when  it  is  in  motion.  This  may  particularly  apply  to 
deep  well  pumps,  where  corrosion  is  greater,  due  to  the  settlement 
in  the  water  of  some  active  corrosive  agent,  which,  because  both 
water  and  pump  are  at  rest,  possesses  greater  corrosive  energy  on  a 
smaller  area  than  when  the  pump  is  in  motion.  Instances  are  known 
of  new  pump  rods  corroding  while  at  rest  to  such  an  extent  as  to 
cause  breakage  of  rod  and  suction  pipe  shortly  after  starting. 

The  writer  recalls  a  claim  for  a  new  metal  lining  for  a  dry  room 
based  chiefly  on  corrosion  damage.  It  was  conceded  that  there  was 
a  large  loss  by  corrosion,  due  to  atmospheric  conditions  or  the  dif- 
ference between  *'the  high  temperature  inside  and  the  lower  tem- 
perature outside,"  causing  the  atmosphere  to  condense  on  the  metal 
and  thus  start  corrosion,  which  had  been  quietly  going  on  for  years, 
or  from  the  moment  of  its  installation. 

Steam  power  plants,  especially,  unless  unusual  care  is  taken 
when  laying  them  up  to  prevent  corrosion,  will  depreciate  more  rap- 
idly at  rest  than  in  use.  External  corrosion  in  a  boiler  that  is  kept 
constantly  in  use  and  consequently  hot  is  almost  impossible,  as  any 
moisture  brought  in  contact  with  same  is  immediately  evaporated, 
while  if  shut  down  and  permitted  to  cool  corrosion  immediately 
starts  at  the  point  where  the  shell  leaves  the  brick  work  and  at 
every  point  where  soot,  dust  or  any  moisture  holding  substance  has 
gathered.  Again,  corrosion  does  not  affect  all  metals  equally.  This 
includes  iron  and  steel,  regardless  of  form  and  shape.  This  is  par- 
ticularly applicable  to  boilers,  ammonia  and  water  condensing  coils. 
While  it  is  an  unsettled  question  as  to  the  advantage  that  iron 
possesses  over  steel  in  this  respect,  both  having  their  advocates,  it  is 
generally  conceded  that  depreciation  of  steel  is  greater  than  that  of 
iron  under  similar  exposed  conditions,  depending  on  the  purity  of 
the  metal  and  impurities  in  the  water  which  vary  with  each  locality. 

Another  factor  in  depreciating  power  plants  is  that  of  permit- 
ting greasy  or  oily  returns  to  re-enter  the  boilers  with  the  feed  water. 
These  added  to  the  sediment  or  scale  which  very  often  gathers  over 
the  fire  surface,  prevent  the  water  from  absorbing  the  heat  units, 
causing  the  metal  to  become  overheated,  blister  and  sag,  thus  creating 
a  weak  spot  in  the  boiler,  which,  if  not  remedied,  may  result  in 

386 


Machinery  Values  and  Losses 

explosion  and  serious  loss.  These  conditions,  while  not  so  serious  in 
other  portions  of  the  power  plant,  have  an  appreciable  effect  in  has- 
tening the  depreciation  and  in  decreasing  the  life  of  the  plant  as  a 
whole. 

Instances  are  known  of  oil  or  grease  baking  to  the  depth  of 
about  one-eighth  of  an  inch,  due  to  its  entrance  with  the  feed 
water.  Blisters  nine  inches  deep  covering  fifteen  square  feet  of  the 
shell  have  resulted  from  this  cause,  necessitating  the  replacement  of 
the  sheet  at  a  considerable  expense  and  inconvenience  to  the  opera- 
tion of  the  plant.  Air  receivers  have  been  known  to  explode  as  a 
result  of  admission  of  oil  or  grease  sufficient  to  coat  the  interior, 
which,  having  been  brought  to  a  temperature  approximately  500°  F., 
have  ignited  and  exploded.  Explosions  of  this  character  are  as- 
sisted by  the  great  air  pressure  in  the  tank.  In  one  case  the  pressure 
was  eight  times  the  atmospheric  pressure  of  I4f  pounds,  or  117.6 
pounds  gauge  pressure. 

Instances  of  oil  igniting  at  270°  F.  under  a  pressure  of  65  at- 
mospheres or  955.05  pounds  gauge  pressure  would  indicate  the 
higher  the  pressure  the  lower  the  temperature  of  ignition. 

Valves  used  under  high  pressure  often  depreciate  rapidly  from 
the  erosive  action  of  the  steam,  causing  what  the  operating  engineer 
terms  wire  drawing,  or  steam  cut,  and  often  making  necessary  the 
removal  of  the  parts  or  the  valve  itself  (depending  on  the  type  in- 
stalled). If  the  latter  course  is  necessary  the  expense  of  such  re- 
moval might  readily  represent  a  considerable  percentage  of  the  re- 
placement value  of  that  portion  of  the  equipment. 

Unexpected  depreciation  due  to  obsolescence  may  reduce  the 
replacement  value  of  a  machine  much  more  rapidly  than  would  re- 
sult from  ordinary  wear  and  tear.  One  of  the  best  examples  of  this 
is  a  group  of  steam  engines  in  a  power  plant  of  one  of  the  Edison 
companies.  The  engines  are  large  and  well  designed  and  are  highly 
efficient.  They  are  today  as  good  as  new,  yet  they  are  not  used  for 
the  reason  that  the  operating  expenses  of  a  turbine  plant  under 
their  conditions  are  enough  less  to  warrant  abandoning  the  older 
engines  rather  than  to  operate  them.  At  the  time  these  engines  were 
installed  this  condition  was  not  foreseen. 

A  steam  plant  may  in  a  similar  manner  become  useless  on  ac- 
count of  the  introduction  of  water  power  by  long  distance  electric 
transmission.  The  failure  of  the  natural  gas  fields  in  the  Pittsburgh 
district  rendered  useless  glass  factories  costing  millions  of  dollars.- 

387 


The  Fire  Insurance  Contract 

*The  process  of  steel  making  following  the  Bessemer  invention 
made  necessary  the  abandonment  of  expensive  furnaces  and  ma- 
chinery equipment,  the  changes  in  the  making  and  handling  the 
product  necessitating  not  only  the  creating  of  machinery  of  new  and 
heavier  design,  but  its  rearrangement  on  new  and  modern  lines  to  fit 
the  changed  conditions  and  to  take  advantage  of  the  more  economical 
methods  of  operation  which  were  absolutely  necessary  if  the  manu- 
facturer wished  to  remain  in  business. 

By  the  introduction  of  high-speed  steel,  millions  of  dollars' 
worth  of  machine  tools  were  made  practically  useless.  Cheap  steel 
changed  the  manufacture  of  rails,  sheets  and  shapes  making  possible 
today  that  which  had  seemed  impossible  yesterday  and  making  nec- 
essary radical  alterations  in  some  plants  and  the  abandonment  of 
others ;  all  of  which  not  only  affected  the  machinery  equipment,  in- 
cluding foundations,  pattern  drawings,  etc.,  but  the  very  buildings 
in  which  they  were  contained.  Many  of  these  buildings  were,  for 
various  reasons,  incapable  of  alteration  to  suit  the  changed  con- 
ditions. 

An  example  that  will  be  brought  home  to  many  is  that  of  the 
famous  "Fall  River  Line"  side  wheel  steamers,  ^'Pilgrim"  and  "Puri- 
tan," known  25  years  ago  as  the  "Queens  of  Long  Island  Sound." 

The  "Pilgrim"  was  laid  up  after  twenty  and  the  "Puritan" 
after  fifteen  years'  use,  the  owners  considering  that  in  view  of  the 
greater  economy  in  coal  consumption  of  propeller  type  of  boats  over 
the  side  wheelers  it  would  be  inexpedient  to  spend  the  $250,000 
necessary  to  overhaul  the  machinery  equipment  regardless  of  the  fact 
that  their  total  replacement  cost  at  this  time  is  in  excess  of  $2,500,- 
000;  in  other  words,  the  obsoleteness  of  lO^er  cent  of  their  value 
makes  it  necessary  to  scrap  the  remaining  90  per  cent. 

Hundreds  of  examples  could  be  cited  of  capital,  the  value  of 
which  has  been  destroyed  by  changes  in  the  art  in  which  it  was  in- 
vested, by  the  shifting  of  population,  by  the  unexpected  extinction 
of  natural  resources,  or  by  other  changes  in  conditions  which  were 
not  foreseen. 

Corrosion  OF  Ste:e:i,  and  Its  Corre:ction. 

The  following  extracts  are  taken  from  a  paper  read  at  the  Col- 
lege of  Applied  Science,  Syracuse  University,  Syracuse,  N.  Y.,  De- 
cember 17,  1913,  by  J.  T.  Hay,  chief  metallurgist  and  chemist  of  the 
Stark  Rolling  Mill  Company,  Canton,  Ohio: 

*Matheson,  Ewing,  M.  Inst.  C.  E.,  The  Depreciation  of  Factories,  pp.  46-47,  Lou 
don,  1910. 

388 


Machinery  Values  and  Losses 

'Corrosion  or  the  rapid  rusting  of  iron  and  steel  may  be  con- 
sidered as  an  effect  of  the  combined  action  of  water  and  oxygen,  or 
in  a  broad  sense,  of  moisture  and  air. 

Both  air  and  water  may  contain  elements  which  will  stimulate 
or  accelerate  the  corrosion.  The  purity  of  iron  has  a  marked  in- 
fluence on  the  rapidity  of  corrosion.  The  quantity  of  impurities 
must  not  only  be  very  minute,  but  those  few  elements  which  it  is  im- 
possible to  remove  entirely  must  be  absolutely  homogeneously  dis- 
tributed." 

As  an  illustration  of  the  effects  of  corrosion  on  metals  varying 
in  composition  the  following  is  quoted  from  the  Metal  Workers  of 
January  16,  1914: 

Se:rvick  Tkst  of  Copper  Be:aring  She:e:ts. 

Results  are  published  of  a  service  test  of  sheets  made  by  the  G. 
Drouve  Company,  Bridgeport,  Conn.  The  company  states  that  in  the 
autumn  of  1912  it  conducted  an  acid  test  of  various  rust-resisting  sheets, 
and  later  made  a  comparative  service  test  which  was  concluded  in  Octo- 
ber, 1913,  and  which  made  a  similar  showing.  Three  trays  or  pans  of 
uncoated  black  sheets  were  placed  on  the  roof  of  a  building  on  Novem- 
ber 5,  1912,  and  were  taken  off  the  roof  October  9,  1913.  The  losses 
by  corrosion  are  indicated  in  the  figures  below: 

Material  A 

November    5,    1912 54  1/2  oz. 

October  9,  1913 36         oz. 


Loss     18  1/2  oz. 

Percentage  of  loss  ■■ , 34% 

Material  B 

November  5,   1912 63  oz. 

October  9,  1913 - 36  1/3  oz. 


Loss     26  2/3  oz. 

Percentage  of  li»ss  '- 42  3/10% 

Material  C 

l^ovember  5,  1912 61  oz. 

October  9,  1913 22  oz. 


Loss     29  oz. 

Percentage   of   loss 27  1/2% 

Pan  A  was  made  of  copper-bearing  sheet  steel,  while  Pans  B  and  C 
were  of  steel  rnade  in  open-hearth  furnace  by  process  aiming  at  a  min- 
ute content  of  impurities. 

The  analysis  of  the  three  steels  are  given  in  the  following  table: 

A 
per- 
cent 

Carbon    0.13 

Manganese    0.40 

Sulphur    0.027 

Phosphorus     — ^^~ — .     O.OC. 

Silicon     — r Trace 

Copper   0.29 

389 


B 

C 

per- 

per- 

cent 

cent 

0.025 

0.025 

0.038 

Trace 

0.030 

0.029 

0.005 

0.004 

Trace 

Trace 

0.17 

0.04 

The  Fire  Insurance  Contract 

Iron  is  more  sensitive  and  has  the  power  of  varying  its  crystalli- 
zation or  form  of  structure  in  a  greater  degree  than  any  other  metal , 
The  manufacturers  have  learned  that  the  whole  art  of  producing 
corrosion-resistant  metal  consists  of  freeing  it  of  its  impurities  and 
producing  the  type  of  crystallization  desired.  Because  of  the  ex- 
treme sensitivity  of  iron  great  care  must  be  used  in  its  physical  treat- 
ment. The  strains  produced  in  rolling,  unless  removed  by  careful 
annealing,  will  generate  active  corrosion.  These  strains  are  caused 
by  excessive  speed  in  rolling  or  by  extreme  pressure  in  breaking 
down  the  metal. 

German  silver  is  a  composition  or  alloy  metal  of  copper,  nickel 
and  zinc.  Owing  to  the  danger  of  undesirable  crystallization  in 
extreme  heating  it  is  cold  rolled,  an  allowance  being  made  of  one- 
tenth  of  an  inch  reduction  in  thickness  for  each  pass  through  the 
rolls.  The  pressure  of  the  rolls  so  hardens  the  metal  as  to  make  it 
necessary  to  anneal  between  each  pass  and  to  pickle  in  order  to 
remove  the  scale  resulting  from  the  annealing. 

Ascertainment  of  Loss. 

Cast  iron  is  more  susceptible  to  damage  by  unequal  expansion 
and  cont:««;ction  than  any  other  metal,  fractures  often  occurring  from 
the  moment  of  manufacture  by  reason  of  being  exposed  to  the  at- 
mosphere too  quickly  after  the  metal  has  been  poured  into  the  flask, 
or  by  exposing  the  piece  unevenly ;  that  is,  leaving  a  portion  of  the 
casting  protected  by  a  layer  of  sand,  permitting  another  part  which 
is  exposed  to  atmosphere  to  contract  more  rapidly  than  the  protected 
part,  thus  causing  a  fracture,  which  is  either  ignored,  filled  with  a 
plastic  material  called  filler,  welded,  or  as  frequently  occurs,  is  con- 
demned to  the  scrap  to  be  remelted. 

We  are  told  that  there  is  no  such  a  thing  as  cold,  everything 
starting  with  heat,  the  difiference  being  in  the  varying  degree  of  heat. 
As  an  example,  liquid  air  when  placed  on  ice  will  immediately  start 
to  boil.  Along  this  line  all  metals  are  hard,  the  difiference  being  in 
their  varying  degree  of  hardness. 

"It  has  lost  its  temper"  is  a  statement  often  made  regardless  of 
whether  the  material  is  babbit,  cast  brass,  copper,  composition,  alloy 
or  gray  iron  castings,  wrought  iron,  machine  or  tool  steel,  when  as  a 
matter  of  fact  only  the  last  named  metal  is  capable  of  being  tem- 
pered, while  a  certain  degree  of  hardness  may  be  applied  by  heat 
treatment,  to  all  the  other  metals  mentioned,  except  babbit,  cast 

390 


Machinery  Values  and  Losses 

brass,  copper  or  alloy,  it  is  but  a  surface  hardness,  its  trade  name 
being  "case  hardened,"  and  is  in  no  sense  construed  by  the  trade  as 
being  tempered. 

The  usual  way  of  tempering  steel  is  to  heat  the  article  to  proper 
temperature  and  then  to  plunge  that  part  to  be  tempered  into  cold 
water,  removing  it  while  a  portion  of  the  article  retains  sufficient 
heat  to  draw  the  temper  to  the  point  desired.  This  is  indicated  by  the 
color  it  assumes,  and  when  reached  the  article  is  submerged  in  cold 
water  and  allowed  to  remain  until  cold.  The  greater  the  length  of 
time  elapsing  between  its  being  heated  and  finally  cooled  in  the  water 
the  lower  its  degree  of  hardness. 

In  order  to  effect  this  temper  a  high  temperature  will  be  neces- 
sary ;  any  temperature  that  does  not  evaporate  the  lubricant  or  car- 
bonize the  paint  or  woodwork  surrounding  the  tempered  material 
will  not  affect  the  temper,  except  it  be  in  very  delicate  springs  or 
small  keen  edge  tools,  and  then  it  is  only  a  possibility  rather  than  a 
probability. 

The  fixing  of  damage  varies  with  each  machine  and  its  use.  If 
the  loss  is  by  water  and  consequent  corrosion  only,  then  must  be 
considered  the  quality  of  the  metals  composing  the  machine,  their 
susceptibility  to  corrosion,  and  the  process  and  labor  necessary  to 
rernove  same;  if  the  machine  has  been  in  direct  contact  with  flame 
or  has  been  subjected  to  a  high  degree  of  heat,  then  must  be  ascer- 
tained to  what  extent.  Of  great  assistance  to  reach  a  conclusion  is 
to  note  the  conditions  of  surrounding  materials  which  are  more  sus- 
ceptible to  heat  than  the  machine  itself. 

If  the  loss  be  heavy  bulky  machines,  the  susceptible  parts  should 
be  carefully  examined,  which,  as  a  rule,  are  the  brass  oil  cups,  the 
caps  of  which  should  be  removed  to  ascertain  if  any  lubricant  re- 
mains, and  if  so,  its  condition,  if  any  serious  heat  has  affected  that 
particular  part  of  the  machine  the  lubricant  will  have  thinned  and 
passed  on  to  the  bearing  and  evaporated.  If  the  bearings  are  of 
babbit  metal  and  have  been  subjected  to  a  high  temperature  the  metal 
will  melt  and  flow  out  of  the  box ;  if  there  are  any  delicate  springs, 
examine  same  to  ascertain  if  temper  still  remains.  While  these 
parts  are  excellent  guide  posts  as  to  the  extent  of  the  damage  a 
total  loss  of  any  one  or  all  would  not  necessarily  mean  a  very  ma- 
terial loss  to  the  body  of  the  machine  or  to  the  replacement  cost.  The 
claim  is  often  made  that  a  machine,  by  reason  of  having  been  heated 

391 


The  Fire  Insurance  Contract 

and  then  suddenly  cooled,  has  deflected  from  the  original  lines;  in 
such  cases  a  careful  examination  of  the  painted  and  lubricated  parts 
should  be  made. 

If  the  machine  or  any  large  part  of  same  be  of  cast  iron  and 
has  been  subjected  to  a  high  degree  of  heat  and  then  suddenly  cooled 
by  water,  causing  sudden  contraction,  fractures  are  liable  to  result, 
and  should  be  searched  for.  Cast  iron  frames  of  light  design,  cast 
iron  pulleys,  and  engine  fly  wheels  are  especially  liable  to  fracture, 
which  usually  takes  place  in  the  arms  of  the  pulley  or  wheel. 

As  straws  indicate  the  direction  of  the  wind,  so  does  the  condi- 
tion of  materials  in  close  proximity  to  each  unit  have  a  bearing  on 
the  measure  of  damage.  For  example,  if  the  machine's  finish  is  such 
as  varnish,  paint,  etc.,  give ;  if  grease  or  any  other  substance  used  in 
manufacturing  the  machine's  product  or  the  lubricant  used  on  the 
moving  parts  of  the  machine,  such  as  bearings,  gears,  etc.  (this  gen- 
erally exudes  at  some  point  of  the  bearing)  or  if  present,  can  be 
found  in  the  interior  of  the  bearing  or  on  the  gear  teeth  of  the 
machine  (all  of  which  would  be  consumed  at  a  temperature  very 
much  lower  than  that  which  will  seriously  damage  the  machine) 
remain,  it  is  evidence  that  the  metal  has  not  deflected  from  its  orig- 
inal lines  and  consequently  has  not  suffered  a  very  serious  loss.  To 
assist  in  reaching  a  conclusion  under  these  conditions  the  lowest 
approximate  melting,  boiling,  evaporating,  flashing,  ignition,  and  car- 
bonizing points  in  degrees  of  Fahrenheit  of  several  materials  com- 
mon in  the  manufacturing  world  are  given ;  the  blank  spaces  will 
give  individual  opportunity  to  add  data  that  future  information  and 
personal  experience  may  give. 

O11.S,  Etc.,  as  Indicators  of  Damage. 
FI.ASH  te:st. 

The  flash  point  of  an  oil  is  the  lowest  temperature  at  which  the 
vapors  arising  therefrom  ignite  without  setting  fire  to  the  oil  itself 
when  a  small  test  flame  is  quickly  approached  near  its  surface  in  a 
test  cup  and  quickly  removed.  The  flash  point  of  lubricating  oil  is 
higher  than  the  boiling  point,  while  that  of  alcohol,  benzine,  kero- 
sene, etc.,  is  lower. 

fire:  te:st. 

The  fire  point  of  an  oil  is  the  lowest  temperature  aljwhich  the 
oil  itself  ignites  from  its  vapors  when  a  small  test  flame  is  quickly 


392 


Machinery  Values  and  Losses 

approached  near  its  surface  and  quickly  removed.  Since  the  fire 
point  IS  always  above  the  flash  point,  the  fire  point  value  becomes  of 
minoFTrnportance  for  this  paper. 

EVAPORATION. 

Starts  at  a  comparatively  low  temperature  and  increases  propor- 
tionately, its  maximum  under  normal  conditions  being  greatest  at 
the  boiling  point.  Fire  damage  would  remove  all  traces  of  lubricant 
long  before  actual  damage  to  the  metal  takes  place. 

Approximate  Boiling  and  Flashing  Points  in  Degrees  of  Fahrenheit 

Boils  Flashes 

Alcohol    173 

Benzine   176  

Camphor   oil   131 

Cotton  seed  oil  338 

Gasoline    158 

Lard    m 464 

Kerosene  oil  302  110 

Linseed  oil  -; 597  601 

Lubricating  oil,   (light  machine) 300 

Lubricating  oil,  (heavy  machine) 500 

Olive  oil  419 

Oil  of  turpentine 315  95 

Parafine    317 

Petroleum     70 

Sulphur   800 

Tar    : 119 

Whale  oil  630 

Wood  spirits   (methyl  alcohol) 150  32 

Approximate  Melting  Points  in  Degrees  of  Fahrenheit  of  the  Following 

Substances 

Melts 

Antimony   1150 

Aluminum     1157 

Alloy  (lead  1  part,  tin   V/2) 334 

Babbit  metal  750 

Beeswax    151 

Bismuth     504 

Brass,  bronze,  etc.  ■ 1692 

Copper V 1929 

Fusible  plugs  used  in  steam  boilers 383 

Glass    1832 

Gold   - 1913 

Iron,  cast  1922 

Iron,  wrought  2732 

Lard  , 94 

Lead     618 

Nickel    2600 

Platinum     3110 

Steel  , 2372 

Silver   1733 

Solder,  half  tin,  half  lead 370 

Sprinkler   head    solder.—— 165 

Sulphur    239 

Tallow    - 92 

393 


The  Fire  Insurance  Contract 

Tin    446 

Type  metal  700 

Wax    142 

Zinc  779 

Approximate  Carbonizing  and  Ignition  Points  in  Degrees  of  Fahrenheit 
of  the  Following  Substances: 

Carbonizes  Ignition 

Coal  mixed,  small  and  lump: 

Anthracite  572 

Bituminous   - 

Coke   : 482 

Charcoal    392 

Lignite  302 

Ink,    Printers'    

Japan  on  metal  

Japan  on  wood  

Leather  belt  275 

Leather    rawhide    300  

Paint  on  metal  

Paint  on  wood  

Rubber   live    

Rubber  belt  

Rollers,  composition  or  printers' 

Varnish  on  metal  

Varnish  on  wood  

Wood    ..... 

Paint  or  varnish"  on  metal  or  wood  will  blister  even  in  summer 
temperature  if  the  wood  has  not  been  properly  dried  and  moisture 
removed,  or  if  the  first  coat  has  not  been  properly  dried  or  applied. 
The  blister  when  opened  by  a  knife  point  generally  frees  the  cause  of 
the  blister,  which  usually  proves  to  be  sap  from  the  wood  or  imper- 
fectly dried  first  coat. 

Blisters  under  these  conditions  do  not  indicate  excessive  tem- 
perature. 

Elkctric  Motors  and  Generators. 

Klectric  motors  and  generators  are  easily  damaged  by  water  or 
high  temperature,  regardless  of  whether  in  direct  contact  with  flames 
or  not,  the  evidence  being  a  disintegration  of  the  insulation.  This 
cannot  always  be  assumed  to  have  occurred  to  the  fields  and  arma- 
ture even  though  the  insulation  to  the  exterior  wires  is  consumed, 
this  condition  ve»y  often  existing  when  both  fields  and  armature 
have  escaped  serious  damage.  Motors  and  generators  of  old  make 
are  more  susceptible  to  water  damage  than  are  those  of  modern  type, 
the  superiority  of  which  is  due  to  improvements  in  the  system  of 
water-proofing  or  what  is  termed  impregnating  as  a  protection 
against  moisture  in  any  form.  As  a  matter  of  fact,  the  modern 
motor  or  generator  will  stand  contact  with  water  even  to  the  extent 

394 


Machinery  Values  and  Losses 

of  being  submerged  for  several  hours,  and  yield  to  a  reconditioning 
treatment,  embodying  baking  and  revarnishing  of  the  fields  and 
armatures.  As  an  instance,  a  street  car  electric  equipment  which 
through  accident  in  handling  fell  from  a  Jersey  City  dock  and  was 
submerged  for  several  days  in  the  salt  water  of  New  York  Bay,  after 
being  recovered  was  reconditioned  by  baking,  cleaning  and  varnish- 
ing to  a  condition  equal  to  that  of  new  at  an  approximate  cost  of  25 
per  cent,  of  its  replacement  value.  Many  instances  of  electric 
motors  located  in  the  bottom  of  elevator  wells  or  shafts  that  owing 
to  their  location  have  been  quickly  submerged  by  water  used  to  ex- 
tinguish the  fire,  although  covered  by  water  for  days,  have  been  re- 
covered and  reconditioned  by  above  process  and  at  approximately 
the  same  rate  of  cost  to  its  replacement  value. 

Ascertainment  of  loss  may  be  reached  by  apportioning  to  the 
parts  affected,  according  to  the  following  approximate  percentage  of 
replacement  cost: 

Frame,  base  and  bearings 18% 

Armature,  consisting  of  shaft,  computator,  etc. 34% 

Fields   48% 

Owing  to  the  greater  economic  condition  under  which  motors 
and  generators  are  manufactured  as  compared  with  cost  of  handling 
in  the  general  run  of  electrical  repair  shops,  it  is  possible  for  con- 
ditions to  be  such  (especially  in  the  case  of  small  motors,  even  where 
the  frame  is  intact),  as  to  make  inadvisable  rewinding. 

Rewinding,  baking,  varnishing,  etc.,  of  armature  and  fields  may 
be  approximately  fixed  at  two-thirds  of  their  replacement  cost  ap- 
portioned as  above. 

Printing  Press. 

The  writer  recently  assisted  in  the  appraisal  of  an  offset  litho- 
graph printing  press  valued  at  $5,000.  It  was  claimed  that  there  had 
been  sufficient  heat  to  warp  the  frame  and  cylinders,  together  with 
many  delicate  and  expensive  working  parts  to  the  extent  of  $2,400, 
which  claim  when  submitted  to  the  umpire  was  increased  to  $3,000. 
It  was  pointed  out  to  the  assured's  appraiser  and  the  umpire  that  a 
temperature  necessary  to  warp  or  deflect  either  the  cylinders  or  the 
frame  would  be  far  in  excess  of  that  required  to  injure  the  more 
sensitive  parts.  These  were  many,  and  not  one  showed  the  slightest 
evidence  of  fire  damage. 

Insured's  attention  was  called  to  the  condition  of  the  varnish  on 
the  receiving  and  delivering  boards,  there  being  no  evidence  of  ex- 
posure to  any  but  normal  conditions.    This  was  further  strengthened 

395 


The  Fire  Insurance  Contract 

by  the  perfect  condition  (so  far  as  fire  damage  was  concerned)  of 
the  bristles  on  a  revolving  dusting  brush ;  the  oil  in  and  around  the 
bearings;  the  heavy  grease  on  metal  driving  chain;  the  printer's 
ink  in  the  fountain ;  the  cheese  cloth  dampening  rolls ;  the  live  rubber 
carrying  belts;  the  live  rubber  rolls;  the  rubber  blanket,  and  the 
engraved  zinc  plate. 

It  was  called  to  their  attention  that  at  240°  F.  rubber  loses  its 
elasticity,  which  it  will  not  recover  unless  of  better  quality  than  the 
ordinary  commercial  rubber.  At  300"  F.  it  becomes  viscous,  and  at 
400°  F.  it  becomes  pasty  and  will  not  again  resume  its  original  con- 
dition, all  of  which  was  ample  evidence  that  not  only  had  the  press 
escaped  any  direct  contact  with  flame,  but  had  not  been  exposed  to  a 
degree  of  heat  sufficient  to  injure  the  parts  most  susceptible  to 
damage,  any  one  of  which  would  have  shown  unmistakable  evidence 
of  serious  damage  at  one-fourth  the  temperature  required  to  damage 
the  frame  or  cylinders  on  which  the  large  claim  was  based.  Dem- 
onstrations and  argument,  however,  proved  of  no  avail,  the  umpire 
awarding  a  damage  of  $2,875,  or  $475  more  than  the  assured's  or- 
iginal claim. 

This  was  so  directly  contrary  to  facts  and  conditions  and  on  its 
face  was  such  an  unjust  award  that  I  requested  the  opportunity  of 
making  the  repairs  at  the  value  fixed  on  same  by  myself,  plus  the 
additional  cost  of  removing  to  our  shop  the  press  after  recondition- 
ing to  be  again  taken  down  and  reassembled  in  the  premises  to  which 
the  insured  had  by  force  of  circumstances  been  compelled  to  move. 

The  cost  was  added  to  by  our  being  compelled  to  buy  new  parts, 
which  the  assured  claimed  were  lost  or  taken  by  employees  and  held 
as  hostage  by  them  for  moneys  claimed  to  be  due  for  services  ren- 
dered. In  view  of  all  the  circumstances,  it  was  deemed  advisable  to 
comply  with  their  demands  and  pay  the  amounts  claimed  for  the 
parts  in  their  custody,  which  after  all  did  not  secure  all  the  parts 
needed,  it  being  necessary  in  order  to  complete  the  press  to  purchase 
additional  parts  from  the  manufacturer  before  the  press  could  be 
completely  reassembled  and  made  ready  for  the  final  test,  which 
was  made  by  accepting  and  filling  an  actual  commercial  lithographic 
order,  the  work  being  done  in  the  presence  of  two  expert  printing- 
press  machinists,  two  expert  lithographers  and  their  regular  helpers, 
one  expert  press-room  foreman,  one  representative  of  the  manufac- 
turers of  the  press,  our  own  employees,  the  writer  and  the  assured, 
the  latter  finally  O.  K.'ing  the  press  and  its  product. 

396 


Machinery  Values  and  Losses 

The  cost  of  reconditioning  plus  the  two  removals  and  one-half 
the  cost  of  expert  witnesses,  but  exclusive  of  cost  of  lost  parts, 
amounted  to  $492.06.  The  total  cost,  including  the  replacing  of 
parts  for  which  the  fire  was  in  no  way  responsible,  and  the  cost  of 
expert  witnesses,  was  $941.09. 

An  interesting  sequel  to  this  case  is  that  the  assured's  appraiser, 
acting  for  his  employers  and  with  the  full  knowledge  as  to  the  lim- 
itation of  parts  replaced,  purchased  the  press,  and  so  far  as  we  know 
is  operating  it  today. 

SOWING  Machines. 

In  the  case  of  a  sewing  machine,  ascertain  whether  the  thread 
is  still  intact  or  consumed ;  if  the  needle,  which  is  a  good  barometer 
of  the  damage  suffered,  has  lost  its  temper,  which  can  be  readily 
ascertained  by  forcing  it  out  of  the  straight  line  by  either  pencil  or 
thumb-nail,  then  suddenly  letting  go — if  it  returns  to  its  original 
position  its  temper  is  unaffected;  ascertain  if  the  tension  or  any 
other  delicate  spring  connected  with  the  machine  has  been  affected. 
The  leather  belts  and  wood  tops  of  power  tables  are  good  indica- 
tors of  the  heat  through  which  they  have  passed;  failure  to  blister 
the  varnish*'or  carbonize  the  wood  indicating  insufficient  heat  to 
injure  the  metal.  The  fact  that  the  table-tops  are  a  total  loss  does 
not  indicate  that  the  heads  are  in  a  similar  condition.  In  cases 
where  the  heads  are  a  total  loss,  there  usually  remains  a  salvage 
in  parts  to  be  reclaimed  from  the  heads  and  in  the  cast  iron  table- 
legs  and  transmitters  that  is  far  in  excess  of  the  scrap  value. 

The  writer  was  recently  interested  in  ascertaining  the  loss  to  a 
quantity  of  copper  dies,  the  contention  being  that  the  heat  to  which 
they  had  been  subjected  had  softened  or  drawn  their  temper.  The 
process  of  making  these  dies  was  to  cold-punch  the  design  through 
copper  discs  about  one  and  one-quarter  inches  thick.  It  is  well 
known  that  repeated  operations,  embodying  heavy  compression 
stress  or  hammering,  compresses  and  hardens  the  softer  composition 
of  alloy  metals.  Therefore,  the  constant  hammering  or  driving  of 
the  punch,  which  formed  the  design,  into  the  soft  copper,  forced 
the  metal  into  a  more  compact  mass,  creating  a  hardness  greater  than 
the  larger  body  of  the  metal.  If  continued  in,  it  would  finally  have 
caused  the  thin  walls  of  the  designs  to  crack.  To  avoid  this  the 
die  under  process  was  occasionally  heated  to  a  cherry  red  and  then 
cooled  or  softened,  thus  restoring  it  to  its  original  degree  of 
hardness. 

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The  Fire  Insurance  Contract 

The  fact  that  the  manufacturer  of  these  dies  found  it  necessary 
to  heat  and  anneal  them  in  order  to  secure  a  satisfactory  and  perfect 
die,  and  did  so  with  the  full  knowledge  that  the  consequence  of 
such  heating  caused  no  damage,  offset  the  contention  of  damage  by 
any  heat  that  does  not  fuse  or  distort  the  metal.  This  was  demon- 
strated by  reconditioning  a  quantity  of  dies  and  subjecting  them  to  a 
test,  and  comparing  them  with  an  unusued  die  and  with  a  copper 
blank  not  yet  subjected  to  the  process  of  manufacture. 

Engraved  Copper  Printing  Rolls. 

The  writer  also  assisted  in  the  adjustment  of  a  loss  on  copper 
rolls,  the  contention  being  similar  to  that  of  the  above  case,  that  the 
copper,  having  been  brought  to  a  high  temperature  and  then  suddenly 
chilled  by  water,  had  softened  the  metal  so  that  it  was  reduced  in 
value  to  scrap. 

To  meet  this  contention  two  of  the  rolls,  which  had  apparently 
suffered  the  most  damage,  were  subjected  to  a  surface-hardness  test 
which  exceeded  the  normal  in  both  cases.  The  difference  in  the 
degree  of  hardness  between  the  two  was  so  great  as  to  raise  the  con- 
tention that  one  had  suffered  a  damage.  To  further  meet  this,  a 
new  roll  was  ordered  from  the  manufacturer  of  the  ones  in  question 
and  this  subjected  to  the  same  test. 

It  was  found  that  the  new  roll  was  many  points  softer  than 
either  of  the  two  reconditioned  rolls,  thus  thoroughly  disposing  of 
the  question  that  the  copper  dies  or  rolls  in  either  of  these  cases  suf- 
fered loss  by  fire  or  water  in  any  way,  and  demonstrating  that  brass 
or  composition  castings  not  deflected  from  their  original  lines  will 
readily  yield  to  reconditioning.  Also  that  there  is  a  difference  in 
hardness  between  the  outputs  of  daily  mixtures  regardless  of  their 
being  made  by  the  same  formula,  in  the  same  foundry,  by  the  same 
men  and  so  far  as  they  could  control  it,  under  the  same  conditions. 

It  is  conceded  that  copper  brought  to  cherry  red  and  permitted 
to  cool  gradually  in  the  air  will  be  several  points  harder  than  if 
plunged  into  cold  water;  but  if  the  article  still  retains  its  original 
shape  and  has  not  been  fused  at  any  point,  it  has  not  changed  from 
its  normal  condition  and  is  subject  to  restoration. 

Brass  and  Composition  or  Alloy  Castings. 

The  design  of  many  brass  castings  is  such  as  to  require  a  core 
that  is  difficult  to  extract  by  tumbling  or  by  the  ordinary  means  of 
file  and  brush.    In  cases  of  this  kind  many  brass  foundries  remove 

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Machinery  Values  and  Losses 

the  casting  from  the  flask  while  it  still  retains  its  high  temperature 
and  throw  it  into  a  barrel  of  water,  the  temperature  of  the  casting 
being  sufficiently  high  to  generate  a  steam  pressure  in  the  damp  core, 
causing  an  interior  explosion  of  a  minor  order,  eflFectively  blowing 
out  all  of  the  core  sand  and  cleaning  the  interior  at  the  same  time. 
This  further  disposes  of  the  contention  that  brass,  on  being  sub- 
jected to  a  high  temperature  and  suddenly  chilled  with  water, 
changes  its  texture  as  to  affect  its  usefulness. 

All  metals,  and  especially  alloy  or  composition  metals,  are  af- 
fected not  only  by  deviation  in  the  mixture  itself,  but  by  the  lack  of 
any  fixed  time  schedule  for  feeding  the  various  fuels  and  metals  into 
the  furnace.  Any  variation  in  the  temperature  might  readily  be  af- 
fected by  the  addition  or  omission  in  quantity  of  any  of  the  com- 
bustible materials  from  which  the  heat  is  derived ;  the  length  of  time 
permitted  to  remain  in  the  flask  after  being  poured  influences  the 
texture  of  the  metal ;  again,  the  texture  will  be  affected  by  difference 
in  temperature  of  the  furnace  at  the  time  the  volatile  metals  are 
thrown  into  the  crucible  or  cupola. 

The  point  was  lately  raised  that  a  large  quantity  of  composi- 
tion valves  had  been  subjected  to  a  sufficient  heat  to  cause  the  com- 
position in  the  valves  themselves  to  change  its  texture.  A  tempera- 
ture sufficiently  high  to  give  such  results  would  distort  the  shape  of 
the  article  and  fuse  the  metal  itself. 

Brass,  bronze  or  composition  castings,  under  certain  conditions, 
pass  through  what  is  termed  a  "sweating  process."  In  other  words, 
if  the  casting  is  taken  from  the  flask  when  only  the  surface  has 
assumed  a  degree  of  hardness  sufficient  to  retain  its  shape,  the  in- 
terior of  the  casting  itself  may  be  at  the  time  practically  in  liquid 
or  pasty  form. 

The  sudden  chilling  of  the  exterior  will  result  in  the  so-called 
sweating,  which  is  caused  by  the  exudation  of  the  coarser  and  softer 
alloys  (such  as  lead  and  tin),  at  the  surface  of  the  metal.  Such  is 
the  meaning  of  the  so-called  "sweating."  This  in  no  way  harms 
the  casting,  however,  and  can  only  occur  when  the  interior  of  the 
metal  itself  still  retains  a  pasty  form,  of  a  very  high  temperature.  I 
repeat  that  any  composition  casting,  where  the  outside  surface  of  the 
metal  was  attacked  first  with  heat  sufficient  to  cause  this  result, 
would  warp  and  deflect  the  material  in  such  a  manner  as  readily  to 
convince  even  the  layman  that  its  only  value  was  scrap. 

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The  Fire  Insurance  Contract 

A  further  contention  was  made  that  the  discoloration  of  the 
exterior  of  the  valves  was  in  itself  so  great  as  to  render  them  not 
only  unsalable,  but  practically  useless  and  consequently  of  scrap 
value.  Further,  it  was  contended  that  the  method  proposed  to  re- 
move the  discoloration  was  injurious  to  the  metal  of  which  the  valves 
were  composed,  and  therefore  impracticable  and  out  of  the  question. 
It  was  pointed  out  to  them  that  competitors  in  a  similar  line  of 
business,  using  to  all  intents  and  purposes  practically  the  same 
metal,  subjected  their  product  to  the  same  operation  which  it  was 
proposed  to  apply,  the  purpose  of  which  was  to  remove  foundry  and 
factory  discoloration  and  to  give  the  casting  a  clean  and,  in  the 
opinion  of  the  manufacturer,  an  improved  appearance.  That  this 
argument  might  be  carried  home,  a  quantity  of  valves  subjected  to 
the  greatest  heat  were  placed  under  hydraulic  test  before  being  dis- 
sembled and  treated  to  the  reconditioning  process,  the  test  being 
duly  witnessed  and  noted.  After  being  reconditioned  and  reassem- 
bled they  were  again  subjected  to  the  same  test,  which  showed  no 
change  in  the  structure  or  the  pressure  the  material  was  capable 
of  withstanding.  The  solution  and  process  of  reconditioning  fol- 
lowed in  this  case  is  practically  the  same  as  that  used  in  all  brass, 
copper,  nickel,  silver  and  gold  plating  establishments  throughout  the 
world. 

The  ingredients  and  proportions  are  shown  on  page  406. 

Rough  Castings  or  Bar  Stock. 

Rough  grey  iron  castings  or  rough  bar  iron  stock,  on  which  no 
labor  has  been  performed,  will  suffer  little  or  no  loss  by  smoke  and 
water.  Any  loss  by  fire  to  the  former,  whether  by  fusing  or  crack- 
ing is  usually  discernible,  while  extreme  fire  damage  to  the  latter 
(that  does  not  fuse  the  metal),  may  deflect  the  bar  from  its  straight 
lines.  This  is  readily  restored  by  restraightening  at  a  small  portion 
of  its  replacement  value. 

PREVENTION  OF  FURTHER  LOSS. 

Mental  Stock. 

Brass,  copper,  composition,  alloy,  gold,  silver  grey  iron  cast- 
ings or  wrought  and  steel  bar  stock  in  the  rough,  on  which  no  work 
beyond  cleaning  has  been  expended,  suffer  little  or  no  loss  by  smoke 
and  water.  So  secure  are  they  against  further  loss  as  to  make  in- 
expedient any  expense  to  preserve  same. 

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Machinery  Values  and  Losses 

This  may  also  be  said  of  brass,  copper,  composition,  alloy,  gold 
or  silver  castings  in  process  where  the  polishing  or  plating  finish  is 
yet  to  be  applied.  The  measure  of  damage  is  that  represented  by 
the  small  amount  of  additional  labor  to  remove  any  discoloration 
that  may  have  attached  itself  to  the  metal,  which  additional  labor 
will  be  but  a  small  portion  of  replacement.  Any  expense  involved 
with  a  view  of  prevention  of  further  loss  on  this  character  of  stock 
will  exceed  the  amount  of  any  additional  loss  that  can  occur  from 
smoke  or  water. 

If  the  articles  are  completed  and  the  finish  is  the  base  metal, 
machine-turned  or  highly  polished,  the  extent  of  the  damage  will 
depend  largely  on  its  construction  and  the  function  of  the  part  af- 
fected. Where  various  parts  have  been  assembled  the  loss  is  greater 
than  when  the  parts  are  finished  but  not  assembled,  for  the  reason 
that  in  addition  to  reconditioning  of  material,  the  labor  of  taking 
down  and  reassembling  must  be  considered.  Expense  of  applying 
preventive  measures  against  further  loss  is  warranted,  unless  recon- 
ditioning can  be  started  within  a  short  period  after  exposure  to  loss 
by  fire. 

Please  note  that  above  remarks  are  confined  to  stock  articles 
of  brass,  copper,  bronze,  composition  or  alloys,-  and  do  not  include 
finished  wrought  iron  or  steel  stock. 

It  is  customary  in  the  metal  trades  which  make  cheap  brass 
goods  to  dip  such  products  in  a  denatured  alcohol  and  flake  shellac 
to  prevent  tarnish.  The  proportions  of  the  bath  are  1  gallon  to  1 
ounce,  respectively.  By  dissolving  a  greater  or  less  amount  of  shel- 
lac in  the  alcohol  a  stronger  or  weaker  solution  is  obtained,  but  it 
should  be  used  weak  in  order  to  dry  rapidly  and  give  an  invisible 
film  on  the  surface  of  the  brass. 

Iron  and  Steeiv  Bar  Stock. 

If  rough  and  is  to  be  either  forged  or  machined,  and  on  which 
no  labor  has  been  performed,  little  or  no  damage  from  smoke  or 
water  can  result  and  the  expense  of  preventive  measures  is  not 
warranted.  If  in  process  and  some  machine  work  expended,  yet 
still  lacking  the  finishing  process,  a  damage  by  way  of  increase  to 
cost  of  production  may  readily  occur.  It  is  difficult,  however,  to 
imagine  any  loss  under  above  conditions  that  could  exceed  25  per- 
cent of  reproduction  cost.  If  completed  and  finish  is  of  base  metal, 
with  a  high  polish,  the  loss  will  be  greater,  depending  on  the  design 

401 


The  Fire  Insurance  Contract 

and  function  of  the  part  affected  by  the  rust,  which,  while  greater 
than  that  on  composition  or  alloy  metals,  it  is  difficult,  as  stated 
above,  to  imagine  the  conditions  where  the  loss  would  be  total. 
The  expense  of  prevention  of  further  loss  to  stock  of  this  charac- 
ter is  warranted.  For  articles  that  can  be  readily  handled  the  fol- 
lowing copied  from  the  Iron  Age,  is  recommended  for  the  removal 
of  rust  and  will  prevent  loss  by  corrosion : 

Removing  Rust. — Articles  attacked  by  rust  can  be  conveni- 
.ently  cleaned  by  dipping  them  in  a  well-saturated  solution  of 
stannic  chloride,  12  to  24  hours  sufficing,  according  to  the  thick- 
ness of  the  rust.  An  excess  of  acid  in  the  solution  must  be  avoid- 
ed. After  the  objects  have  been  removed  from  the  bath  they 
must  be  rinsed  with  water,  then  with  ammonia,  and  quickly  dried. 
They  are  said  then  to  resemble  dead  silver. 

Iron  and  Stkel  Stock. 

Cold- rolled  or  polished  bar  or  sheet  stock  should  be  dried  as 
soon  as  possible  and  coated  with  heavy  oil,  grease  or  compound,  ag 
best  suited  to  condition,  as  described  on  page  403. 

Stove  or  similar  hardware,  bright  or  black,  may  be  saved  from 
further  loss  by  first  drying  the  article  and  then  applying  a  coating 
of  beeswax  and  benzine.  This  can  be  applied  thinly.  The  benzine, 
quickly  evaporating,  leaves  a  thin  film  of  transparent  protecting 
coating  on  the  metal.  Another  mixture  is  vaseline,  or  any  good 
grease,  thinned  with  gasoline  to  make  a  thin  liquid,  applied  with  a 
brush.  If  the  articles  are  small  they  can  be  placed  in  a  perforated 
can  or  wire  basket  and  dipped  in  either  of  above  mixtures,  which 
should  be  thin  enough  to  run  freely,  so  that  all  slots  and  threads  in 
tapped  holes  will  be  coated. 

Protection  against  corrosion  is  most  difficult  in  the  case  of 
quantities  of  small-size  articles.  A  method  which  has  been  giving 
first-rate  results  in  the  case  of  buckles,  rings  and  harness  fittings 
generally  may  help  to  solve  this  vexed  question,  is  cheap  varnish 
diluted  to  two  or  three  times  its  volume  with  methylated  spirits.  On 
account  of  evaporation,  the  mixture  is  made  up  as  required.  The 
apparatus  consists  of  two  oil  drums,  each  minus  one  end.  An  or- 
dinary five-gallon  drum,  11  inches  in  diameter,  has  J^-inch  holes 
punched  in  the  bottom  and  sides.  The  other  drum  may  be  of  7 
gallon  capacity,  of  12-inch  diameter,  or  a  10-gallon  drum,  which  is 
larger  still.     The  larger  vessel  is  filled  about  one-quarter  full,  and 

402 


Machinery  Values  and  Losses 

the  articles  to  be  treated  put  in  the  smaller  vessel.  The  perforated 
drum  is  lowered  into  the  liquid,  immersing  the  articles  to  be  coated. 
Withdrawing  the  smaller  vessel  immediately,  the  major  portion  of 
the  fluid  drains  back  again  in  a  minute  or  so.  To  finish  draining 
and  to  harden  the  coating,  the  contents  are  then  shot  out  on  a  wire 
draining  surface,  and  in  fifteen  minutes  are  ready  to  shelve.  The 
process  is  really  a  cheap  and  effective  form  of  cold  lacquering  in 
bulk.  The  articles  retain  their  condition  for  a  long  period  of  time, 
while  the  coating  is  not  in  the  least  obvious. 

Machinery 

The  first  and  most  important  thing  to  do  is  to  remove  all  ac- 
cessible moisture  from  the  machine  by  wiping  with  cotton  waste  or 
cloth.  If  protected  against  the  elements  or  seepage  from  upper 
floors,  a  heavy  cylinder  oil  should  be  liberally  applied  by  slushing, 
giving  especial  attention  to  all  finished  or  bright  surfaces.  If  ex- 
posed to  the  elements  or  seepage  from  upper  floors,  a  heavy  lubri- 
cating grease  or  compound  should  be  liberally  applied.  These  may 
be  purchased  from  any  dealer  in  machines,  factory  or  engineers' 
supplies. 

A  compound  in  use  for  many  years,  and  one  that  will  resist 
atmosphere  dampness,  salt  or  fresh  water,  regardless  of  location 
or  quantities,  is  made  up  as  follows : 
4  Parts  Tallow, 
1  Part  White  Lead, 
the  latter  being  stirred  in  the  melted  tallow.    To  remove,  use  either 
kerosene  or  turpentine,  applied  on  cotton  waste  or  wiping  rag. 
Electric  Motors,  Generators,  Etc. 

If  protected  against  the  elements  and  seepage  from  upper 
floors,  possible  further  damage  is  of  such  minor  factor  as  not  to 
warrant  any  further  expense  to  prevent  same.  If,  however,  exposed 
to  the  elements  or  dripping  from  upper  floors,  the  units  should  be 
protected  by  being  covered  with  tarpaulins  or  tar  paper  securefy 
weighted  down  or  tied  to  the  units  themselves. 
Small  Machine  Tools. 

To  keep  tools  clean  and  bright,  rub  a  little  mercurial  ointment 
over  them,  which  will  form  a  moisture-resisting  coating.    Mercurial 
ointment  is  also  known  as  blue  butter.     It  is  somewhat  poisonous 
Another  good  mixture  to  keep  from  rusting  is  made  by  taking : 
1  Part  Rosin, 
6  Parts  Lard, 

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The  Fire  Insurance  Contract 

Heat  these  together  slowly,  till  the  rosin  is  all  melted.  Benzine  is 
added  in  about  the  proportion  of  one  pint  of  benzine  to  half  a  pint 
of  lard-rosin  mixture. 

RESTORATION. 

Restoration  of  cast  iron,  whether  rough,  in  process  or  finished, 
is  feasible  in  practically  all  cases,  except  when  the  metal  has  been 
distorted  or  cracked  by  heat,  or  by  sudden  and  unequal  cooling,  the 
method  of  doing  so  varying  according  to  size,  intended  use  and 
finish.  If  the  material  is  rough,  on  which  no  work  has  been  ex- 
pended, little  or  no  damage  can  result,  although  it  is  possible,  for 
small  articles  to  acquire  a  state  of  rust  sufficient  to  add  to  the  cost 
of  the  material  at  the  time  of  damage.  If  the  finish  is  to  be  plated, 
and  even  though  a  portion  of  the  machine  work  has  been  performed, 
the  damage  may  readily  be  less  than  if  a  machine  or  polished  finish 
is  intended,  for  the  reason  that  the  plating  or  finishing  process 
would  of  itself  remove  evidence  of  rust.  In  other  words,  the  same 
process  and  practically  the  same  amount  of  labor  would  be  required 
to  finish,  if  not  exposed  to  fire  or  water.  Therefore,  the  additional 
labor  caused  by  rust  or  discoloration  adds  but  little  if  any  to  the 
manufacturing  cost.  Brass,  bronze,  copper  or  alloy  composition, 
either  rolled  or  cast,  when  not  warped  by  heat  or  its  design  afifected 
by  being  crushed,  will  readily  yield  to  reconditioning,  regardless  of 
whether  the  article  is  in  process  or  in  a  completed  state. 

If  the  articti?Ss  stamped  .sheet  metal  and  has  not  progressed 
too  far  toward  completion,  deflections  from  original  lines  may  some 
times  be  removed  by  again  passing  the  articles  through  the  stamping 
press,  other  damage,  such  as  abrasion  and  scratches,  being  removed 
by  the  process  of  grinding,  polishing,  plating  and  buffing,  which 
would  be  necessary  to  bring  the  article  to  a  finished  state  if  not  ex- 
posed to  loss  by  fire. 

Restoration  of  manufacturing  tools  is  usually  a  question  of 
reconditioning  and  replacement  of  parts,  and  necessary  skilled  labor 
to  fit  same  and  recondition  parts  not  so  damaged  as  to  necessitate 
replacement. 

Wood  spinning  chucks,  solid  or  in  parts,  when  not  charred, 
even  though  warped  and  when  placed  on  the  lathe-head  or  spindle 
revolve  out  of  true,  regardless  of  any  splitting  that  may  take  place, 
are  in  many  cases  capable  of  restoration,  which  is  accomplished  by 
turning  the  design  further  down  on  the  same  block.    It  is  the  aim 

404 


Machinery  Values  and  Losses 

of  the  practical  chuck  maker  to  allow  ample  stock  to  permit  of  this 
being  done,  if  for  any  reason  it  is  desired,  as  by  so  doing  there  is  a 
saving  of  75  percent  to  the  owner  over  the  original  cost 

It  is  possible  that  many  chucks  may  have  already  been  subject 
to  this  operation  a  sufficient  number  of  times  as  to  have  reached  the 
limit  that  a  particular  chuck  will  stand.  It  is  safe  to  assume,  how- 
ever, that  75  percent  of  all  wood  chucks  were  originally  made  with 
this  re-turning  in  view. 

Even  though  the  chucks  show  evidence  of  splitting  or  have 
actually  parted,  total  loss  does  not  necessarily  follow,  as  in  many 
cases  restoration  is  possible  at  considerably  less  than  the  original 
cost.. 

Cleansing. 

Copper,  brass,  zinc  and  the  noble  metals  are  cleaned  by  the  suit- 
able acids  which  act  on  them.  Such  cleaning  solutions  may  be  pre- 
pared for  different  metals  as  follows: 

Hydro- 
Water        Nitric      Sulphuric     chloric 
For  copper  and  brass...   100  50  100  2 

Iron  100  3  8  2 

Iron  (cast)    100  3  12  3 

Zinc  100  ..  10  — 

Silver 100  10 

It  is  best  to  make  two  such  solutions,  one  being  reserved  for  a 
final  dip,  during  which  a  strong  action  occurs  upon  the  surface.  As 
this  becomes  weaker  it  can  be  used  for  the  first  cleansing,  accom- 
panied by  occasional  rubbing  with  sand,  etc.,  according  to  the 
nature  of  the  object. 

Lead,  tin  and  pewter  must  not  be  placed  in  acid,  but  are  cleaned 
by  aid  of  caustic  soda. 

In  cleansing,  different  metals  usually  require  a  somewhat  dif- 
ferent treatment.  The  surface  of  most  metals,  when  clean,  soon  be- 
comes coated  with  a  film  of  oxide  when  exposed  to  the  air,  especially 
when  the  surface  exposed  is  wet,  and  to  avoid  this  it  is  necessary 
to  see  that  they  are  thoroughly  dried. 

Before  proceeding  to  cleanse  the  articles  they  are  usually 
"trussed"  (fastened)  with  copper  wire,  to  avoid  the  necessity  of 
handling  them  during  the  operation. 

405 
14 


The  Fire  Insurance  Contract 

The  process  of  using  above  is  the  same  as  the  dipping  acid  re- 
ferred to  below,  the  only  difference  being  in  the  substitution  of 
the  solution  desired  in  place  of  that  described  under  the  third  opera- 
tion, dipping  acid. 

Copper  and  Copper  Alloy  Cleansing  Solution, 
Caustic  Potash  I  Pound, 
Soft  Water  1  Gallon, 
Heat  nearly  to  boiling  in  a  cast-iron  pot  provided  with  a  cover. 
Brush  to  remove  any  loosely  adhering  foreign  matter,  truss,  and  sus- 
pend for  a  time  in  the  hot  lye;  usually  a  few  minutes  will  suffice,  if 
the  article  is  not  heavily  lacquered.     If  any  of  its  parts  are  joined 
with  solder  it  should  not  be  allowed  to  remain  too  long  immersed, 
as  the  caustic  liquid  attacks  solder  and  their  solution  blackens  cop- 
per.   On  removing  rinse  thoroughly  in  running  water.  If  the  articles 
are  much  oxidized,  pickle  in  a  bath  composed  of: 
1  Gallon  of  Water, 
1  Pint  of  Sulphuric  Acid, 
until  the  darker  portion  is  removed.     Rinse  in  running  water  and 
dip  in  the  following  solution : 

Soft  Water  1  Gallon, 
Cyanide  of  Potassium  8  Ounces, 
Remove  from  the  bath  and  quickly  go  over  every  part  with  a 
brush  and  fine  pumice  stone  powder  moistened  with  the  cyanide 
solution. 

''Dipping  Acid"  for  Brass,  Bronze  or  Composition. 
The  following  process  (that  referred  to  on  page  400,  will  re- 
move all  discoloration  and  will  brighten  brass,  bronze  or  composi- 
tion, and  is  commonly  referred  to  in  electro-plating  establishments 
as  "Dipping  Acid."  The  container  must  be  a  stoneware  vessel 
(avoid  jars  with  lead  glazing)  and  located  in  a  well-ventilated  room, 
and  when  not  in  use  protect  it  with  a  cover  of  stoneware  or  glass : 
First — Boil  in  hot  potash  water  of  one  pound  of  soda 

to  each  gallon  of  soft  water. 
Second — Dip  and  wash  in  cold  running  water. 
Third — Dip  for  an  instant  in  a  solution  of  one  part 
nitric  acid  and  two  parts  oil  of  vitrol  (sulphuric 
acid). 
Fourth — Immediately  dip  and  wash  in  cold  runnire 

water. 
Fifth — Dip  in  hot  water. 
Sixth — Dry  in  sawdust  box. 

406 


Machinery  Values  and  Losses 

Pickling  Bath. 

Cast  iron  requires  to  be  placed  in  a  cold  acid  solution  for 
''pickle,"  to  dissolve  or  loosen  the  oxide  from  its  surface.  The  pickle 
may  be  prepared  in  a  wooden  tub  or  tank  from  either  of  the  follow- 
ing formulae: 

Sulphuric  acid  (oil  of  vitrol),  J^  lb.     Water,   1  gal. 

Cast-iron  work  immersed  in  this  bath,  from  twenty  minutes  to 
one-half  hour,  ^vill  generally  have  its  coating  of  oxide  sufficiently 
loosened  to  be  easily  removed  by  means  of  a  stiff  brush,  sand  and 
water.  When  it  is  desired  that  the  article  should  come  out  of  the 
bath  bright,  instead  of  dull-black  color  which  they  present  when 
pickled  in  the  plain  sulphuric  acid  bath,  the  following  formula  may 
be  adopted: 

Sulphuric  acid,  1  lb.    Water,  1  gal. 

Dissolve  in  the  above  2  oz.  of  zinc,  which  may  conveniently  be 
applied  in  its  granulated  form.  When  dissolved,  add  ^  lb.  nitric 
acid  and  mix  well. 

Removing  Grease  from  Machinery  Parts. 

The  following  method  has  been  substituted  for  the  use  of  gaso- 
lene and  other  light  oils,  because  of  the  scarcity  of  the  latter :  Boil 
the  parts  in  caustic  soda-lye  (1  lb.  per  gal.  of  water),  then  brush 
while  the  article  is  still  hot.  Caustic  soda  is  recommended  as  better 
than  ordinary  soda,  since  it  causes  the  fat  or  grease  to  dissolve  more 
quickly. 

Leather  Belting. 

Steer  hides,  from  which  leather  belts  are  made,  after  being  re- 
moved from  the  animal  and  thoroughly  washed,  are  placed  in  vats 
and  treated  to  a  solution  of  lime  and  water.  This  is  for  the  purpose 
of  loosening  the  hair  so  that  it  may  be  readily  removed.  Care  must 
be  taken  not  to  expose  the  hide  too  long  in  this  solution,  there  being 
danger  of  burning*  and  depreciating  its  value  for  belt  purposes. 

After  the  removal  of  the  hair  the  hides  are  placed  in  vats  and 
submerged  in  water,  where  they  are  permitted  to  remain  for  a  period 
of  time,  varying  with  their  thickness,  and  later  washed.  This  is  for 
the  purpose  of  removing  all  traces  of  the  lime.  After  this  has  been 
done,  the  hides  are  placed  in  one  to  four  solutions  of  a  tanning 
liquor,  progressing  in  strength,  where  they  remain  for  four  to  five 

407 


The  Fire  Insurance  Contract 

months.  This  is  for  the  purpose  of  sweUing  the  fiber  and  increas- 
ing its  elasticity  and  strength.  It  is  then  dri^d,  and  becomes  rough 
leather. 

The  hides  are  then  trimmed,  separating  the  shoulder,  belly  and 
tail  parts  from  the  back.  The  nearer  tlie  center  of  the  back  of  t|je 
hide,  the  better  the  quality  of  the  leather.  These  centers  are  soaked 
in  water  until  soft.  The  flesh  side  is  then  shaved,  after  which  they 
are  laid  on  long  tables,  where  they  are  scoured,  with  the  grain  or 
hair  side  up.  They  are  then  suspended  and  semi-dried,  and  later 
treated  to  a  process  termed  ''dubbing,"  which  consists  of  an  appli- 
cation of  a  composition  of  codfish  oil  and  mutton  tallow,  the  vis- 
cosity and  consistency  of  which  is  approximately  that  of  vaseline. 
This  is  applied  thoroughly  to  both  sides.  The  stock  is  then  hung 
up  in  a  warm  room  to  allow  the  grease  to  soak  into  the  fibre. 

While  this  explanation  of  the  tanning  process  is  brief,  it  is  suffi- 
cient for  the  purpose  of  this  paper,  and  is  intended  to  show  the 
liberal  use  of  water  in  the  process  of  tanning  leather  for  belt  and 
other  purposes. 

The  leather  is  then  placed  under  a  severe  strain  in  stretching 
frames,  where  it  remains  for  about  24  hours,  just  under  the  break- 
ing point.  This  part  of  the  process  requires  great  care,  as  too  great 
a  strain  removes  the  elasticity  of  the  fibre  and  makes  the  leather  un- 
suitable for  belt  purposes.  It  is  essential  that  leather  belts  have  a 
certain  amount  of  elasticity,  in  the  absence  of  which  the  belt  will 
break  and  tear.  The  fact  that  leather  belts  possess  this  elasticity, 
and  give  and  take  according  to  the  atmosphere,  is  an  advantage 
claimed  by  leather-belt  manufacturers  over  that  of  rubber  and  fabric 
belts.  Its  ability  to  give  and  take  gives  to  leather  belts  in  use  a 
greater  life  than  used  belts  that  are  permitted  to  be  idle  for  an  in- 
definite length  of  time. 

To  be  serviceable,  leather  belts  must  possess  a  certain  amount 
of  oil  or  lubricant,  in  order  to  be  pliable.  This  grease,  when  the 
belts  are  subject  to  a  wetting,  is  washed  out,  moisture  taking  its 
place,  which  later  evaporates,  causing  the  leather  to  resume  its  orig- 
inal hardness. 

The  life  of  leather  belts,  that  possessed  any  virtue  previous  to 
being  wet  and  then  dried,  can  be  restored  by  the  use  of  the  above- 
described  preparation  of  codfish  oil  and  mutton  tallow^  If  the  belts 
have  siufl:ered  repeated  wettings  and  dryings,  and  have  become  ex- 

408 


Machinery  Values  and  Losses 

ceedingly  hard,  an  excellent  treatment  is  to  run  the  belt,  at  the  rate 
of  about  ten  feet  per  minute,  through  a  tank  filled  w-kh  tanner's  oil, 
which  is  thinner  than  cod  oil  and  mutton  tallow,  and  is  heated  to  a 
temperature  between  140  and  150  degrees.  Care  must  be  taken  not 
to  exceed  the  maximum  temperature  of  150  degrees  F. 

As  an  instance  of  leather-belt  restoration,  will  cite  the  case  of 
the  sinking  of  a  grain  elevator  possessing  a  large  value  in  leather 
belts,  which  was  submerged  in  the  Hudson  River  for  two  weeks. 
When  raised  the  belts  were  removed  to  the  factory  of  a  prominent 
belt  manufacturer  of  New  York  City,  where  restoration  took  place, 
and  later  the  same  belts  were  again  placed  in  service  in  the  same 
elevator,  in  a  condition  equal  to  that  of  the  day  previous  to  sinkmg. 
at  an  approximate  cost  of  25  percent  of  the  replacement  value,  plus  a 
further  cost  of  approximately  10  percent  for  replacing  wastage  due 
to  tearing  of  laps  while  being  separated,  preparatory  to  restoration 
and  reinstalling. 

At  this  time  it  is  worthy  of  note  that  salt  water  is  more  in- 
jurious to  leather  than  fresh  water. 

To  restore  leather  belts  suffering  from  a  wetting  that  has  not 
been  sufficient  to  separate  the  belt  layers  or  laps,  first  thoroughly 
clean,  removing  all  dirt,  then  apply  castor  or  neatsfoot  oil  to  both 
sides  of  the  belt,  using  a  rag  or  bristle  brush,  giving  a  light  coat  to 
the  face  and  a  heavier  one  to  the  back,  spreading  evenly.  In  the 
event  of  the  belt  getting  too  much  of  either  of  the  above,  the  belt 
will  become  too  soft  and  will  slip;  but  this  is  only  a  temporary 
annoyance  and  it  will  adjust  itself  after  being  in  use  a  short  time. 

Leather  belts  that  have  become  saturated  with  oil  may  be  re- 
stored by  a  surface  washing  of  ammonia,  naphtha  or  gasoline. 

A  belt  dressing  that  is  good  for  leather  belts  is  not  good  for 
rubber  or  fabric  belts. 

Machine  oils,  soap  or  rosin  are  injurious  to  belts  and  should  not 
be  used. 

The  grain  side  of  leather  belts  is  the  hair  side. 

Extreme  water  damage  only,  to  leather  belts,  may  be  fixed  at 
approximately  25  percent  of  the  replacement  value,  plus  freight  and 
cartage  to  any  competent  leather-belt  manufacturer,  and  the  added 
cost  of  approximately  10  percent  for  loss  in  length  of  belt,  due  to 
tearing  where  laps  have  to  be  forcibly  separated. 

409 


The  Fire  Insurance  Contract 

LEATHER  Be:i.ting  "Waterproofed" 

Leather  belts  that  have  been  cemented  with  waterproof  cement 
and  treated  to  a  waterproofing  process  are  not  often  damaged  by  ex- 
posure or  wetting,  regardless  of  how  received,  the  loss  from  water 
only  being  limited  to  the  cost  of  cleaning  and  applying  a  proper 
belt  dressing  and  reinstallation,  which,  except  under  abnormal  con- 
ditions, would  be  approximately  10  per  cent  of  its  replacement 
value.  Reference  to  bills  will  indicate  if  belts  are  waterproof.  All 
waterproof  belts  are  stamped  with  a  steel  die,  Waterproof. 

Rubber  Belts. 

Rubber  belts  are  especially  designed  to  withstand  water,  and 
consequently  are  essentially  impervious  to  damage  from  that  cause. 
The  gum  rubber  entering  into  their  construction  is  very  susceptible 
to  damage  by  heat,  and  is  difficult  of  restoration.  Loss,  if  any,  by 
heat  can  only  be  based  on  decreased  length  of  useful  life. 

Fabric  Belts. 

What  has  been  said  of  rubber  belts  largely  applies  to  fabric 
belts,  except  that  not  all  fabric  belts  are  waterproof.  Waterproof 
belts  are  guaranteed  against  exposure  to  all  weather  conditions, 
steam  and  acid  fumes  (except  nitric  acid),  water  in  any  quantities 
and  a  constant  temperature  of  100  to  150  degrees  F.,  and  intermit- 
tent temperature  considerably  in  excess  of  those  quoted. 

Electric  Motors  and  Generators. 

Where  carbonization  has  occurred,  re-winding  of  the  carbon- 
ized portions  will  be  necessary,  the  loss  varying  with  the  extent  of 
the  carbonization,  which,  however,  may  effect  each  field  separately, 
without  necessarily  damaging  adjoining  fields.  While  damage  to 
the  armature  does  not  necessarily  mean  a  corresponding  damage  to 
the  fields,  or  vice  versa,  the  construction  of  the  armature  is  such 
as  to  make  it  difficult  to  carbonize  one  portion  or  segment  without 
making  complete  re-winding  of  armature  a  necessity. 

When  the  damage  is  confined  to  smoke  and  water,  recondition- 
ing is  not  difficult,  and  is  accomplished  by  a  thorough  cleaning, 
baking  and,  in  extreme  cases,  re-shellacing  or  varnishing. 

In  cases  where  motors  and  generators  have  been  subjected  to 
immersion  in  salt  or  filthy  water,  an  excellent  method  is  to  give 

410 


Machinery  Values  and  Losses 

them  a  thorough  washing  by  the  use  of  fresh  water  through  a  hose 
and  under  high  pressure,  after  which  give  the  units  a  thorough 
cleaning,  baking  and  varnishing  (see  page  394). 

The  following  extract  from  a  letter  by  J.  H.  Bryan,  of  Dayton, 
Ohio,  published  by  The  American  Machinist,  in  their  issue  of  Sep- 
tember 4,  1913,  will  be  of  interest  at  this  time: 

Ci^DANiNG  Up  a  Factory  Aft^r  th^  Grkat  Dayton  Flood. 
"The  subject  of  this  article  is  a  large  Dayton  manufacturing 
concern,  located  along  the  banks  of  the  Mad  River,  a  tributary  of 
the  great  Miami  River. 

"The  high-water  marks  over  the  entire  plant  averaged  12  feet, 
submerging  the  power  plant  and  some  200  motors.  March  29  the 
waters  receded,  leaving  in  the  various  shops  a  deposit  of  5,000 
tons  of  slimy  mud,  that  had  the  bulldog  tenacity  for  clinging  to 
things,  in  addition  to  an  acid  property  that  was  very  destructive  of 
steel  and  iron  finished  work. 

"In  order  to  retain  and  give  the  shop  organization  employment, 
the  whole  force  of  700  men  were  employed,  without  reduction  in 
wages,  to  remove  the  muck  from  buildings  and  machinery  and  to 
make  repairs  incident  to  the  flood.  In  the  power  plant  a  boiler  and 
a  small  engine  were  soon  got  in  readiness  to  operate  the  only  dry 
motor  in  the  works,  as  a  generator  to  furnish  power  temporarily  for 
cranes  to  transfer  motors  to  a  central  point  for  drying. 

"The  program  for  drying  motors  and  generators  was  as  follows : 
Suitable  horizontal  steam- jacketed  tanks  were  provided,  with  a  table 
moved  on  rollers  inside  of  the  tank  for  loading  purposes,  and  the 
field  coils  and  armatures  were  placed  in  these  tanks  and  subjected 
to  a  temperature  of  170  degrees  F.  and  27  inches  of  vacuum  for 
48  consecutive  hours.  At  the  expiration  of  this  time  a  large  per- 
centage of  these  parts  were  found  O.  K.,  and  those  parts  that 
showed  a  ground  were  reheated.  The  large  generators,  with  arma- 
tures built  on  crank-shafts  of  engines,  were  liberally  supplied  with 
steam  coils,  especially  at  the  bottom  of  the  field  ring,  and  the  whole 
of  the  generator  and  steam  coils  boxed  in  with  dry  lumber,  as  it 
was  found  that  planking  was  far  more  satisfactory  than  metal, 
owing  to  the  fact  that  the  lumber  would  absorb  moisture,  while 
with  a  plate-steel  oven  the  interior  surfaces  would  continually  run 
water  on  account  of  the  low  temperature. 

411 


The  Fire  Insurance  Contract 

"The  generators  were  subject  to  a  temperature  of  140  degrees 
F.  for  36  consecutive  hours,  and  were  then  ready  to  be  tested  out. 
If  no  difficulties  were  experienced,  it  was  fair  to  presume  the  gen- 
erators were  in  good  condition.  However,  in  such  cases  it  is  well, 
before  the  generators  are  put  in  commission  to  carry  a  full  load,  to 
run  them  light  for  five  hours  or  more. 

"The  generators  and  motors  were  all  dried  out  as  noted  above, 
and  only  two  motors  in  the  whole  lot  gave  trouble  in  operation. 

"While  these  important  members  were  receiving  attention,  the 
machine  tools  and  all  the  manufactured  product  were  taken  apart 
and  scrupulously  cleaned,  as  the  mud,  when  dried  and  pulverized, 
was  a  good  substitute  for  flour  of  emery." 

CLASSIFICATION. 

Drawings,  Patterns,  Dies,  Etc. 

Drawings,  patterns  (both  master  and  working),  moulds,  forms, 
dies,  jigs  or  templets,  are  closely  allied  to  each  other,  and  any  depre- 
ciation in  value  by  reason  of  imperfection  in  design,  change  in 
style,  or  increase  in  output  of  machines  of  similar  character  of  later 
and  more  modern  type,  or  unsalability  of  product,  or  from  any 
cause  whatsoever,  affects  all  the  above  items  equally. 

In  my  judgment,  the  Pattern  clause  should  include: 

Ali,  Drawings 

Moulder's  Patterns 

of  wood,  iron,  rubber  or  plaster  paris. 

Sheet  MetaIv  Workers' 

patterns  and  templets,  wood,  metal  and  paper. 

LiOHTNiNG  Dome  Manufacturers' 
designs,  patterns  and  templets. 

Embroidery  Manufacturers'  i 

designs  and  patterns,   for  hand,  power  and  automatic 
machines. 

Clothing  Manufacturers' 

original  designs  and  patterns. 

Pottery  Manufacturers' 

wood  and  plaster  paris  patterns. 

Paper  Box  Manufacturers' 
box-makers'  wood  forms. 

.     412 


Machinery  Values  and  Losses 

Mii^uNfiRY  Ornament  Manufacturers' 
moulds  and  patterns. 

Hat  Manufacturers' 

wood  and  plaster  hat  blocks,  wood  flanges,  spelter  and 
aluminum  dies,  rubber  and  leather  saddles. 

Metal  Spinners' 

so-called  wood  chucks,  which,  in  my  opinion,  would  be 
better  named  if  called  metal  spinners'  patterns. 

Machine  Shop 

drawings,  patterns,  jigs  and  templets.  ^^ 

Dies— 

cutting,  blanking,  forming,  holding,  stamping  and  em- 
bossing, as  used  by  the  manufacturers  of  articles  of 
leather,  cloth,  paper,  buttons  of  all  kinds,  shoes,  etc. ;  ex- 
clusive, however,  of  threading  dies,  such  as  are  used 
for  threading  pipes,  bolts,  etc. 

NOTES  OF  INTEREST. 

To  the  average  man  it  is  inconceivable  for  iron  or  steel  chips  to 
actually  burn  as  so  much  inflammable  material,  but  nevertheless 
such  is  possible  and  such  incidents  are  of  positive  record.  The 
phenomenon  is  explained  by  the  fact  that  it  can  get  rid  of  its 
heat  and  consequently  gives  signs  of  complete  combustion.  A  large 
pile  of  chips  took  fire  in  the  yard  of  a  machine  shop  not  long  ago, 
and  the  fire  was  described  by  a  witness  as  follows:  "The  chips 
had  been  put  through  a  centrifugal  oil  separator,  and  therefore  the 
small  amount  of  oil  remaining  had  nothing  to  do  with  the  fire.  It 
was  a  plain  case  of  burning  iron.  The  metal  was  so  finely  divided, 
and  presented  so  much  surface  to  the  oxygen  in  proportion  to  the 
radiating  surface  of  the  pile  that,  once  started  by  the  heat  from  a 
nearby  rubbish  pile,  the  combustion  proceeded  exactly  as  in  a  pile  of 
coal,  only  apparently  at  a  more  rapid  rate.  The  chips  when  cooled 
were  a  dark  blue.  The  pile  sank  about  a  third  in  height,  and  a  lot 
of  metal  must  have  been  oxidized  to  create  so  much  heat." — Ameri- 
can Machinist. 

Tow  (residue  left  when  flax,  hemp  and  jute  fibres  are  put 
through  cleaning  process)  will  glimmer  at  518  degrees  F.,  and  at  a 
temperature  slightly  above  this  will  burn. 

413 


The  Fire  Insurance  Contract 

When  impregnated  with  oils,  their  temperature  rises  spontane- 
ously when  stored,  and  when  this  temperature  approximates  that 
given  above,  they  become  very  dangerous  substances. 


414 


XXII 
ADJUSTMENT  OF  STOCK  LOSSES 
D.  C.  Bkown 
Assistant  General  Manager,  General  Adjustment  Bureau 
The  subject  assigned  to  me  does  not  lack  in  comprehensiveness 
and  to  the  modern  adjuster  of  fire  losses  there  is  nothing  too  difficult 
to  tackle;  therefore  when  we  pause  to  consider  the  possibilities 
under  the  title  of  this  paper,  there  need  be  little  concern  as  to  what 
constitutes  the  particular  stock  damaged — for  after  all,  everything 
on  or  under  the  earth,  and  below  the  heavens,  and  all  that  is  con- 
tained in  the  air  and  seas,  will  sooner  or  later  comprise  in  the  raw 
state,  or  in  the  manufactured  product — stock,  subject  to  the  ravages 
of  the  fire  fiend. 

To  the  lay  mind  something  uncanny  suggests  itself  when  con- 
sidering the  qualifications  of  an  experienced  adjuster  and  there  is 
no  little  skepticism  as  to  his  ability  to  pass  intelligently  and  compe- 
tently on  every  class  of  merchandise  known  to  the  present  genera- 
tion, and  found  right  in  the  Metropolitan  (New  York)  district. 
Perhaps  in  no  other  portion  of  the  Globe  of  equal  dimension,  is  it 
possible  to  find  assembled  in  so  large  variety,  the  products  of  the 
earth,  air  and  sea  in  their  raw  and  manufactured  states. 

Stocks  may  be  divided  into  the  three  classes — animal,  vegetable 
and  mineral,  with  their  myriads  of  raw  specimens  and  untold  num- 
bers of  manufactured  or  converted  products,  and  may  be  found- in 
the  hands  of  the  original  producer,  the  breeder,  fisherman,  miner, 
forester,  gardener,  or  hunter,  or  the  manufacturer,  importer,  com- 
missariat, jobber,  or  wholesaler,  the  retailer  or  department  store- 
keeper, and  occasionally  the  consumer,  but  wh^£3(:£r  thc-^stocks, 
may  be,  or  in  whose  hands  they  may  be  found,  the  questions  for 
the  adjuster  are  always  the  same:  "What  was  the  value  at  the 
moment  of  the  fire  ?"  and  **What  is  the  damage  ?" 

There  is  no  system  of  adjustment  known  to  me  as  mathemat- 
ically or  scientifically  correct.  A  goodly  number  of  years  ago,  a 
friend  of  mine  sighed  for  a  composite  photograph  of  the  fifty-seven 
varieties  of  adjusters  who  were  then  responsible  for  adjustments  in 
the  Metropolitan  district;  there  were  then  not  fifty-seven  kinds  of 
adjustments,  but  there  w^re  so  many  systems  in  force- — and  they 
were  not  all  wrong,  neither  were  they  by  any  means  all  right — but 

415 


The  Fire  Insurance  Contract 

they  were  sufficiently  diverse  and  unfriendly  as  to  make  the  student 
of  ethics  despondent.  These  adjustments  resulted  in  lack  of  confi- 
dence amongst  the  Insurers  and  led  more  than  a  little  to  the  deple- 
tion of  the  companies'  funds  and  explanation  of  profitless  periods. 

It  will  be  assumed  that  the  young  adjuster  is  already  familiar 
with  the  preliminaries  and  is  fully  aware  oFthe  importance  of  a 
prompt  examination  of  the  damaged  merchandise  and  the'  premises, 
and  the  notation  of  such  information,  data,  facts  and  circumstances 
as  may  be  available,  with  possibly  diagrams  in  certain  cases,  to  in- 
dicate the  location  and  condition  of  goods  and  shelving,  tables, 
racks,  etc.,  in  various  portions  of  the  premises,  and  last,  but  not 
least,  the  mental  photograph  which  he  is  to  carry  away  with  him. 
Also  that  the  other  preliminaries,  such  as  examination  of  the  policies 
and  forms  will  have  proper  attention,  including  warranties  and 
permits  contained  in  the  policies,  occupancy  of  the  premises,  and 
any  other  primary  essentials  of  the  insurance  contract. 

Having  by  this  time  diagnosed  the  case,  it  is  ready  for  treat- 
ment. There  are  two  methods  provided  in  the  policy  for  the  de- 
termination of  the  value  of  the  property,  viz.:  agreement  or  ap- 
praisal ;  and  three  for  arriving  at  the  amount  of  the  loss  and  damage, 
to  wit:  agreement,  appraisal  and  (at  the  option  of  the  Company) 
acquirement  and  disposal  of  the  damaged  stock  at  its  ascertained  or 
appraised  value.  It  should  always  be  remembered  that  the  happen- 
ing of  a  fire  does  not  effect  any  change  in  the  ownership.  The 
insured  is  still  the  owner  and  must  never  be  permitted  to  abandon 
the  property. 

Stocks  may  be  divided  into  two  classes,  perishable  and  non- 
perishable.  For  the  purposes  of  illustration,  perishable  stocks  com- 
prise all  foodstuffs,  fibres,  vegetable  and  animal  products ;  this  class 
requires  immediate  action  to  secure  the  proper  salvage,  and  as  a  rule 
should  be  removed  from  the  fire  premises  for  better  protection  or 
^-r  sale  for  account  of  the  loss.  This  is  generally  covered  by  an 
agreement  in  writing,  simple  in  its  terms,  signed  by  or  on  behalf  of 
the  insured  and  the  insurer,  and  always  made  subject  to  the  terms 
and  conditions  of  the  policy.  Non-perishable  stocks  may  embrace 
every  kind  of  merchandise  not  already  mentioned,  and  such  cases, 
unless  it  shall  appear  that  the  stock  is^  likely  to  take  on  further 
damage,  should  follow  the  usual  course,  and  the  goods  remain  on 
the  premises  until  the  sound  value  has  been  fixed  and  the  amount 
of  loss  and  damage  examined  into  and  possibly  an  adjustment 
reached. 

416 


Adjustment  of  Stock  Losses 

The  next  step,  in  fact,  we  should  say,  the  first  step  (all  of  the 
foregoing  being  in  the  nature  of  preliminaries),  is  the  determination 
of  the  value  of  the  insured  property.  This  involves  two  elements — 
quantity  and  price.  The  best  evidence  as  to  quantity  inFe'lrier- 
chandise  itself  and,  hence,  it  follows  in  every  case  where  the  stock, 
or  any  portion  of  it,  has  been  saved,  or  is  in  such  condition  as  will 
admit  of  identification  (even  though  it  may  represent  no  salvage 
value),  it  should  be  inventoried  by  the  insured  and  verified  by  the 
adjuster.  Should  all  of  the  stock  be  in  sight  or  identifiable,  a  de- 
tailed inventory,  properly  verified,  will  be,  the  best  evidence,  and  in. 
such  circumstances  the  most  reliable  method,  by  which  the  quantity- 
of  stock  on  hand  may  be  clearly  and  accurately  established.  In 
many  cases,  however,  the  entire  stock  is  not  in  sight,  but  some 
unknown  portion  has  been  totally  obliterated,  or  destroyed  beyond 
identification;  in  such  cases,  recourse  must  be  had  to  other  sources 
of  informatioli  (usually  the  assured's  records  and  books  of  ac- 
count), to  establish  the  amount  of  "total  loss  and  missing,"  and 
there  will  be  further  reference  to  this  feature  in  succeeding  para- 
graphs. 

TV>P  priV;ri^  nf  fht^  mvpntnry,  \n  the^Jlgual  case.  is  upon  the  ba<^is. 
of  cost  (less  all  available  cash  discounts  and  plus  freight  and  de- 
livery charges),  as  shown  by  bills  and  invoices  or  other  cost  records 
of  the  insured.  The  true  measure  of  value  under  the  policy  (New 
York  Standard)  is  the  actual  cash  value  at  the  time  of  the  loss,  not 
exceeding  what  it  would  then  co£t  the  insured  to  replace  the  sanT^ 
vv^ith  material  of  like  kind  and  quality,  and  this  may  not  alvvaySi(in 
fact  it  frequently  does  not)  coincide  with  the  cost  of  the  merchan- 
dise at  the  time  it  was  acquired.  Most  stock  losses  involve  an  item 
of  "total  loss  and  missing,"  and,  in  such  cases,  the  customary 
method  is  to  refer  to  the  books  and  records  of  the  insured,  to  as- 
certain the  value  of  the  entire  stock,  from  which  is  deducted  ''stock 
in  sight"  as  shown  by  the  inventory,  to  arrive  at  the  amount  of 
"total  loss  and  missing."  The  books,  if  kept  in  the  usual  way,  will 
show  the  stock  only  upon  the  basis  of  cost  when  the  goods  were 
purchased  or  received ;  hence,  it  is  obvious  the  inventory  of  stock  in 
sight  must  be  upon  the  same  basis  to  produce  a  correct  result. 

If  conditions  do  not  admit  of  the  entire  stock  being  shown  by 
inventory  taken  after  the  fire,  as  previously  described,  the  assured's 
books  of  account,  assuming  them  to  have  been  correctly  kept,  will 
be  the  next  best  evidence,  and  the  adjuster  with  a  fair  working 

417 


The  Fire  Insurance  Contract 

knowledge  of  bookkeeping  should  be  able,  in  the  average  case,  to 
obtain  satisfactory  verification  of  values  from  that  source. 

The  determination  of  values  and  loss  from  books  of  account  is 
a  very  broad,  interesting,  and  complex  subject,  and  no  doubt  will  be 
discussed  in  detail  in  other  chapters.  No  attempt  will  be  made  here 
to  discuss  it  in  anything  more  than  the  most  general  terms.  There 
are  certain  features,  however,  which  may  be  said  to  be  common  to 
all  cases  involving  book  statements  or  \vhere  the  values  are  to  be 
determined  from  books  of  account.    Here  are  some  of  them : 

1.  There  must__b£„a..starting  point: — it  is  generally  an  inventory. 
If  so,  it  should  be  carefully  scrutinized  (particularly  for  items  not  mer- 
chandise) with  such  verification  of  prices  and  computations  as  will 
satisfy  you  as  to  the  bona  fides  of  this — the  opening  entry.  It  is  the 
foundation  of  the  structure — Be  sure  you  are  right;  then  go  ahead. 

2.  In  the  usual  case  the  profit  ratio  is  the  key  to  a  proper  ascer- 
tainment of  the  stock  on  hand.  "The  ratio  is  usually  based  upon  the 
trading  of  the  previous  year  (or  period  between  inventories),  but  if 
conditions  have  changed  such  a  basis  may  not  be  reliable.  While  the 
adjuster  should  always,  when  dealing  with  a  book  statement,  inform 
himself  as  to  the  profit  in  previous  periods,  he  should  not  adopt  the 
same,  unless  he  is  satisfied  it  does  substantial  justice  to  every  interest. 

3.  The  ratio  of  profit  in  the  preceding  period  will  be  obtained  by 
closing  the  books  against  the  inventory,  i.  e.,  the  same  inventory  which* 
has  become  your  starting  point,  an  additional  reason  for  its  proper  veri- 
fication. A  comparatively  unimportant  error  in  the  inventory  might,  by 
its  eflFect  upon  the  profit  ratio,  produce  a  result  very  wide  of  the  mark. 

4.  Both  the  profit  statement  and  the  statement  for  the  period  end- 
ing with  the  fire,  must  contain  the  same  factors  of  cost  and  be  made  up 
in  exactly  the  same  way. 

The  usual  form  of  book  settlement,  being  well  established  and 
generally  understood,  scarcely  need  be  referred  to  here,  except  pos- 
sibly to  mention  that  among  the  items  to  be  looked  into  and  taken 
into  account  are  returns  and  allowances,  cash  discounts  available  to 
the  insured,  and  freights  and  delivery  charges.  In  the  case  of  a 
manufacturing  establishment,  there  will  be  added  labor,  overhead 
charges  and  various  items  of  factory  cost,  to  arrive  at  the  cost  of 
the  completed  article.  Questions  as  to  the  proper  division  of  such 
items,  as  between  factory  cost  and  administration  expense,  will  not 
be  referred  to  here,  as  these  questions  more  properly  pertain  to  the 
specific  subject  of  accountancy,  and  will  no  doubt  be  fully  covered 
in  other  papers  to  be  read  before  the  society. 

It  is  assumed  in  the  foregoing  that  the  books  have  been  cor- 
rectly kept  and  that  the  inventory,  upon  which  the  statement  is 
based,  was  properly  taken  and  truly  represents  the  stock  on  hand  at 
the  beginning  of  the  period.  Unfortunately,  such  is  not  always  the 
situation,  but  cases  will  be  encountered  where,  for  one  reason  or 

418 


Adjustment  of  Stock  Losses 

another,  the  inventory  is  excessive  as  to  quantity  or  pricing  (and 
sometimes  as  to  both),  and  accompanied  in  many  such  instances  by 
various  other  forms  of  erroneous  and  improper  entry,  or  suppres- 
sion of  entry,  in  the  books.  The  treatment  of  such  cases  often 
involves  a  tedious  and  methodical  examination  of  records  and  ac- 
counts. Frequently  it  is  work  for  the  specialist,  as  the  average  busy 
adjuster  (even  though  he  might  be  fully  qualified  on  the  score  of 
ability),  is  generally  unable  to  devote  the  time  necessary  to  do 
justice  to  such  a  situation.  The  most  competent  and  experienced 
adjuster  does  not  hesitate  to  call  the  expert  accountant  to  his  as- 
sistance in  such  a  case. 

How  are  we  to  know,  asks  the  young  adjuster,  when  the  book 
statement  has  been  inflated  or  the  inventory  padded  There  is  no 
method  or  rule  which  can  be  said  to  be  infallible,  but  there  are  cer- 
tain landmarks  and  indications,  the  value  of  which  will  grow  upon 
you  by  experience,  enabling  you  to  recognize  the  case  where  special 
scrutiny  is  necessary  or  desirable. 

Inflation  is  not  often  met  with  where  the  stock  is  all  in  sight, 
but,  when  it  is  encountered,  it  is  apt  to  be  a  case  where  part  of  the 
stock  has  been  totally  obliterated,  the  inflation  becoming  part  of  the 
"total  loss  and  missing."  If  your  preliminary  examination  has  been 
thorough,  you  have  already  informed  yourself  regarding  the  area  of 
the  burned  section,  size  of  shelving,  cases,  racks,  etc.,  and  the  char- 
acter of  stock  involved  in  the  burned  section,  and  you  will  probably 
be  able  to  satisfy  yourself  as  to  whether  the  amount  claimed  for 
"total  loss  and  missing"  is  reasonable.  If  strikingly  unreasonable 
or  apparently  impossible,  a  detailed  investigation  is  not  only  in  order 
but  imperative.  Inflation  in  the  inventory  always  aifects  the  profit 
ratio;  hence,  a  pronounced  increase  in  the  ratio  of  trading  profit 
between  inventories,  if  not  satisfactorily  accounted  for,  should  in- 
variably call  for  further  investigation.  It's  a  good  time  to  send  for 
your  expert  accountant. 

Methods  of  inflation,  as  well  as  the  means  of  detection,  are 
varied  and  cover  a  wide  field.  The  adjuster  should  cultivate  the 
faculty  of  recognizing  fraud  when  he  meets  it,  but  his  judgment 
should  be  tempered  by  a  conservatism  which  will  place*  evidence 
above  theory  and  facts  before  mere  appearances.  Intuition  is  a 
word  sometimes  mentioned  in  connection  with  the  work  of  the  sea- 
soned and  successful  adjuster,  and,  frequently  it  is  correctly  ap- 
plied, but  his  "intuition"  is  simply  the  fruit  of  a  consistent  and 

41f 


The  Fire  Insurance  Contract 

methodical  application  of  "horse-sense"  to  the  problems  of  each  and 
every  day.  The  adjuster  finds  no  finer  field  for  the  utilization  of  the 
ingredient  just  mentioned  than  in  the  adjustment  of  merchandise 
losses. 

Up  to  this  point  our  discussion  regarding  ascertainment  of 
values  has  been  confined  to  cases  where  books  of  account,  inven- 
tories or  other  records  are  available.  What  is  to  be  done  when,  as 
sometimes  happens,  there  are  no  records  and  the  entire  stocH  is 
destroyed?  Such  a  situation  usually  means  a  problem  for  the  ad- 
juster, which  he  endeavors  to  solve  in  various  ways.  In  such  a 
case,  he  must  carefully  consider  all  angles  of  the  situation  and  seek 
the  best  evidence  available.  He  should  always  endeavor  to  establish 
a  starting  point. '  Frequently  the  assured  can  supply  some  record, 
such  as  a  statement  to  his  bank  or  to  a  mercantile  agency,  showing 
the  amount  of  stock  on  hand  at  a  given  time.  Many  times,  how- 
ever, even  these  meagre  records  are  not  available  and  the  problem 
is  intensified.  Call  for  duplicate  bills  of  purchase,  covering  a  rea- 
sonable period  prior  to  the  fire  (preferably,  of  course,  going  back  to 
your  starting  point — if  you  have  one).  Bank  deposits,  plus  cash 
used  out  of  the  business  for  expenses  and  for  assured's  personal 
needs,  will  give  you  a  line  on  sales.  The  ratio  of  profit  to  be  de- 
ducted from  the  sales  must  of  course  be  estimated.  The  result, 
w^hile  not  accurate,  should  indicate  the  approximate  amount  of  stock 
on  hand  at  the  time  of  fire,  and  it  may  also  enable  the  adjuster  to 
determine  whether  the  stock  was  increasing  or  decreasing,  and  in 
other  ways  aid  him  in  arriving  at  a  conclusion.  Further  light  may 
be  had  in  such  a  case  by  a  comparison  of  income,  expense  and  in- 
debtedness. When  all  else  fails,  there  is  the  memorized  inventory, 
which,  however,  is  never  a  satisfactory  method,  and  all  the  adjuster 
can  do  in  that  case  is  to  secure  all  possible  information,  carefully 
weigh  all  the  facts  and  circumstances,  and  take  such  position  as  he 
feels  to  be  fair  and  reasonable.  These  conditions,  it  should  be  said, 
are  more  frequently  met  in  cases  of  lesser  importance,  although  it 
cannot  be  said  to  be  an  unusual  experience  with  respect  to  those 
involving  fairly  substantial  amounts. 

Having  arrived  at  the  quantity  of  merchandise  on  hand  at  the 
time  of  the  fire  and  its  value  on  the  basis  of  the  cost  at  the  time  it 
was  acquired,  the  adjuster  should  next  consider  whether  such  cost 
price  truiy  and  fairly  represents,  under  all  the  conditions  surround- 
ing the  claim,  a  proper  measure  of  value  under  the  contract,  and, 
if  it  does  not,  the  cost  basis  should  be  increased  or  reduced  ac- 
cordinely. 

420 


Adjustment  of  Stock  Losses 

In  considering  the  proper  measure  of  value,  it  will  be  well  to 
have  in  mind  two  features  of  the  insurance  contract,  viz. : 

1.  It  is  a  contract  of  indemnity  and  does  not  contemplate  that  the 
insured  shall  reap  a  profit  as  a  result  of  the  damage  or  destruction  of 
his  goods  by  fire. 

2.  It  is  a  personal  contract,  insuring  the  person  and  not  the  goods. 

As  already  stated,  the  policy  by  its  terms  (Hne  one)  does  not 
cover  beyond  the  actual  cash  value  "and  shall  in  no  event  exceed 
what  it  would  then  cost  the  insured  to  repair  or  replace  with  ma- 
terial of  like  kind  and  quality."  Obviously  the  cost  of  replacement 
will  vary  with  respect  to  the  status  of  the  insured.  Is  he  the  pro- 
ducer, manufacturer,  importer,  jobber,  wholesaler,  retailer  or  con- 
sumer?. In  the  event  of  loss  involving  exactly  the  same  kind  of 
goods  in  the  hands  of  each  of  the  foregoing,  a  different  price  might 
be  paid  in  each  case  and  all  be  correct. 

As  to  many  classes  of  merchandise,  particularly  fibres,  grain, 
foodstufifs,  in  fact,  we  may  say,  anything  which  is  produced  by  the 
processes  of  nature  rather  than  by  manufacture,  there  fs  usually  an 
esTablislitd  market  valuHT^nd  these  quotations,  as  to  the  commodi- 
ties  described,  are  accepted  in.  usual  practice  as  the  value  under  the 
insurance  contract.  The  market  value  basis,  it  should  be  said,  is  by 
no  means  confined  to  the  class  of  commodities  just  described,  but 
by  mandate  of  the  Courts  has  been  extended  to  include  other  classes 
of  merchandise,  the  enumeration  of  which  will  not  be  undertaken 
here.     The  questions  pertaining;  to  m^rVpt  v-alnp  rnngtitine  an  im- 


portant  subject  and  cannot  possibly  be  covered  within  the  limits  of 
this'Tiaper ;  sutTice  it  tcrsay  i:hat  if  the  property  irivoTveH'Toe'a  com- 
modity for  which  the  insured  is  entitled  to  claim  market  value,  that 
will  T)e  your  basis,  otherwise  It  should  be  valued  at  the  cost  when 
the  property  v;as  acquired,  plus  apprecianon  to  cover  any  increase 
ifTcbst  ot  replacement,  or^Tirpreciation  If  the  price  has  decreased. 
Depreciation  must  be"  considered,  not  only  in  respect  to  reduced  cost 
of  replacement,  but  from  other  angles  as  well.  The  policy  (New 
York  Standard)  provides  (line  two)  "with  proper  deduction  for 
depreciation,  however  caused."  This  includes  depreciation  from 
changing  styles,  broken  assortments,  irregular  sizes,  shop  wear  and 
deterioration  in  any  form,  all  of  which  should  have  the  careful  at- 
tention and  review  of  the  adjuster  in  arriving  at  "the  actual  cash 
value  of  the  property  at  the  time  any  loss  or  damage  occurs." 

The  proper  and  actual  value  of  goods  which  have  been  subject 
to  fluctuation  in  price,  as  well  as  the  matter  of  depreciation,  are 
frequently  questions  for  experts,  and  the  careful  adjuster  will  feel 

421 


The  Fire  Insurance  Contract 

it   advisable  in  many   such   cases  to   fortify  himself   with   expert 
opinion  and  advice. 

The  Commission  Clause,  now  included  in  practically  all  policies 
covering  merchandise,  is  likely  to  give  the  adjuster  (and  the  in- 
sured) something  to  think  about  from  time  to  time.  This  is  also  a 
subject  to  be  covered  by  a  separate  paper  and  it  will  not  be  referred 
to  here,  except  to  say  that  the  original  purpose  of  the  Commission 
Clause  was  probably  nothing  more  than  to  extend  the  policy  to  pro- 
tect the  insured  against  any  loss  which  he  might  sustain  by  the 
damage  or  destruction  of  goods  of  others  in  his  custody.  In  every 
such  case  the  primary  and  controlling  question  was  considered  to 
be,  whether  at  the  time  of  the  fire,  the  insured  wa^  actually  liable  to 
the  owner  of  the  goods.  In  recent  years,  however,  as  the  result  of 
various  decisions  by  the  Courts,  the  effect  of  the  Commission  Clause 
has  been  greatly  extended,  and  at  the  present  time,  it  may  be  said 
that  the  owner  of  the  goods  in  the  possession  of  another  (in  the 
absence^  of  a  special  agreement  to  the  contrary)  has  only  to  elect 
to  avail  himself  of  the  insurance  held  by  the  custodian  (if  written 
with  the  Commission  Clause),  to  be  entitled  to  the  benefit  of  any 
such  insurance  remaining  unexhausted  after  the  custodian  has  col- 
lected his  own  loss.  The  Courts  have  quite  generally  held  that  the 
owner  may  so  elect  after  the  fire,  and  one  State  (New  York)  has 
also  held  the  owner  may  proceed  in  his  own  name  directly  against 
such  insurance  in  case  of  the  refusal  or  neglect  of  the  insured  to 
present  such  owner's  claim. 

We  come  now  to  the  last  stage  of  the  adjustment,  to  wit. :  the 
determination  of  the  amount  of  the  loss. 

All  losses  fall  into  three  classes,  viz. : 

1.  Cases  where  all  the  property  has  been  destroyed. 

2.  Where  part  only  has  been  destroyed  and  the  balance  saved 
(generally  in  a  more  or  less  damaged  condition). 

3.  Where  nothing  has  been  destroyed,  but  everything  is  in  plain 
sight  and  subject  to  inventory. 

As  to  Class  One,  the  value  and  loss  are  the  same.  It  is  only 
as  to  Classes  Two  and  Three  that  further  steps  are  to  be  taken. 

As  has  already  been  stated,  the  policy  provides  three  methods 
for  ascertainment  of  the  amount  of  loss  and  damage.  The  first  of 
these  is  by  agreement  between  the  insured  and  the  company.  The 
policy  is  very  clear  as  to  this.  It  first  limits  the  liability  of  the 
company  to  not  exceeding  the  actual  cash  value  of  the  property  at 
the  time  of  the  fire,  and  then  provides  (line  one)  :  "And  the  loss  and 

422 


Adjustment  of  Stock  Losses 

damage  shall  be  ascertained  or  estimated  according  to  such  actual 
cash  value,"  followed  (in  line  two)  by  these  words:  ''Said  ascer- 
tainment or  estimate  shall  be  made  by  the  insured  and  this  Com- 
pany, or  it  if  they  differ,  then  by  appraisers  as  hereinafter  pro- 
vided." It  is  the  duty  of  both  the  insured  and  the  Company  to  make 
every  reasonable  effort  to  reacE  an  agreement  as  to  the  amount  of 
the  loss  and  damage. 

The  adjuster  cannot  hope  to  reach  an  agreement  with  the  in- 
sured on  any  proper  or  satisfactory  basis,  unless  and  until  he  has 
himself  arrived  at  a  definite  opinion.  The  first  person,  therefore, 
for  the  adjuster  to  convince  is  not  the  insured,,  but  the  adjuster 
hirnself.  The  greatest  aid  to  the  experienced  adjuster  in  fixing 
damages  on  a  stock  of  goods  is  a  well  balanced  sense  of  proportion 
by  which  he  is  able,  after  arriving  at  the  sound  value,  to  estimate 
very  accurately,  by  percentage,  the  amount  of  the  damage.  Study 
each  case,  taking  into  consideration  the  character  and  condition  of 
the  goods  and  tl«eir  location  with  respect  to  fire,  heat,  smoke  and 
water.  Should  the  case  involve  unusual  features,  or  the  adjuster 
feel  he  is  unable  to  arrive  at  a  satisfactory  oonclusion  as  to  the 
extent  of  the  damage,  he  will  do  well  to  seek  the  advice  and  assist- 
ance of  experts.  Strive  for  consistency  in  your  allowance  of 
damages  and  endeavor  to  arrive  at  a  fair,  reasonable  and  well  bal- 
anced statement  of  the  loss,  and  in  the  average  case,  the  greater  part 
of  your  work  is  done.  The  adjuster,  however,  should  not  rely 
wholly  and  entirely  upon  the  opinion  of  the  expert.  Experts,  like 
doctors,  are  apt  to  disagree.  Their  advice  while  good  and  useful 
in  matters  of  value,  may  not  be  so  good  as  to  the  extent  of  the 
damage;  in  fact,  in  dealing  with  damage  upon  stocks  of  merchan- 
dise, the  practical  and  experienced  adjuster  does  not  rely  upon  the 
judgment  of  third  parties  to  the  exclusion  of  his  own  opinion.  The 
adjuster  with  a  wide  experience  in  determining  the  amount  of 
damage  upon  merchandise  is  entitled  to  claim  that  he  is  an  expert 
upon  fire  damage  on  all  kinds  of  goods,  and  his  opinion,  therefore, 
is  as  good  and  probably  better  than  that  of  the  average  expert. 

The  policy  provides  (lines  eighty-six  to  ninety-one)  for  an 
appraisal  "in  the  event  of  disagreement  as  to  the  amount  of  the 
loss."  The  adjuster  will  fiii4  it  impracticable,  if  not  impossible,  to 
arrive  at  the  amount  of  the  loss  and  damage  before  fixing  the  sound 
value.  The  experienced  adjuster  does  not  attempt  it.  Get  your 
value  first,  then  take  up  the  loss  and  damage.  Either  party,  in  the 
event  of  such  disagreement,  may  demand  the  appraisal,  and,  when 

423 


The  Fire  Insurance  Contract 

so  demanded  by  the  Company,  it  is  a  condition  precedent  to  the 
right  of  recovery,  unless  waived.  The  poHcy  does  not  re^quire  that 
the  agreement  for  appraisal  shall  be  reduced  to  writing,  but  it  is 
usually  so  done.  The  conduct  of  the  appraisal  has  been  dealt  with 
extensively  elsewhere  in  the  present  course  of  lectures,  and  we  shall 
content  ourselves  by  stating  here  that  the  adjuster  is  entitled  to  be 
consulted  and  to  consult  with  the  appraisers,  as  well  as  with  the 
umpire,  if  necessary,  but  only  as  to  the  conduct  of  the  appraisal. 
They  must  be  left  to  their  own  resources  in  the  determination  of 
sound  value  and  loss  and  may  approach  the  insured  or  the  adjuster 
for  information,  but  not  for  opinions. 

And,  as  has  been  stated,  the  Company  may  exercise  its  option 
(line  five  of  the  New  York  Standard  policy)  and  take  all  or  any 
part  of  the  damaged  property  at  the  ascertained  or  appraised  value 
"on  giving  notice  within  thirty  days  after  the  receipt  of  the  proof 
herein  required  of  its  intention  so  to  do."  Recourse  to  this  method 
is  usually  for  one  or  more  of  the  following  reasons,  viz. : 

1st — To  prevent  further  loss,  as  in  the  case  of  perishable  goods. 
2nd — Inability  to  agree  with  the  insured  as  to  the  amount  of  the 
loss,  or  to  protect  the  Company  from  an  excessive  claim. 

The  customary  course  in  cases  falling  under  Paragraph  One  is 
to  proceed  by  mutual  agreement  (and  not  by  the  formal  exercise  of 
the  Company's  option)  to  remove  the  goods  from  the  fire  premises 
for  better  protection,  or  to  be  conditioned,  to  be  returned  to  the 
custody  of  the  insured,  or  to  be  held  to  await  the  further  order  of 
the  parties  in  interest,  as  may  be  arranged.  The  ownership  of  the 
goods  remains  in  the  insured  and  the  rights  of  neither  party  have 
been  changed  or  affected  in  any  way.  The  purpose  of  the  arrange- 
ment is  simply  to  prevent  further  damage.  The  Company  still 
retains  the  option  to  take  the  goods,,  or  any  part  of  them,  at  the 
ascertained  or  appraised  value.  If  on  account  of  market  conditions, 
or  to  avoid  further  deterioration,  or  for  other  reasons,  it  is  consid- 
ered desirable  that  the  goods  be  sold,  the  usual  course  is  to  proceed 
in  the  same  way,  i.  e.,  by  mutual  agreement  (not  by  the  exercise  of 
the  Company's  option),  under  an  agreement  that  the  goods  are  to 
be  conditioned  and  sold  "for  account  of  the  loss"  or  "for  account 
of  whom  it  may  concern,"  the  net  proceeds  to  be  turned  over  to 
the  insured  or  held  by  the  salvage  operator,  subject  to  the  order 
of  the  parties  in  interest,  as  the  conditions  of  each  case  may  suggest 
or  require.  The  experienced  adjuster,  however,  does  not  consent  to 
the  sale  of  any  salvage  until  the  sound  value  of  the  same  has  been 

424 


Adjustment  of  Stock  Losses 

determined,  and  all  agreements  which  he  enters  into,  for  the  removal 
of  gxx>ds  from  the  fire  premises  for  any  purpose,  are  in  writing,  and 
invariably  contain  the  words  "subject  to  policy  conditions,"  or 
equivalent  phraseology.  Good  practice  also  suggests  that,  pending 
determination  of  the  sound  value  and  a  full  understanding  of  the 
facts  bearing  upon  the  claim,  all  arrangements  looking  to  the  han- 
dling or  conditioning  of  the  goods,  or  the  sale  of  any  salvage,  should 
be  by  mutual  agreement  and  subject  to  policy  conditions. 

Coming  now  to  the  class  of  cases  referred  to  in  Paragraph 
Two;  the  facilities  and  advice  of  the  salvage  operator  is  very  often 
of  the  greatest  assistance  to  the  adjuster.  The  insured  many  times 
is  unable  to  see  the  real  value  in  salvage  merchandise,  but  more  often 
desires  to  be  relieved  of  the  trouble  and  annoyance  of  handling  the 
damaged  goods.  In  either  case,  his  idea  of  the  damage  will  probably 
be  higher  than  the  adjuster  can  concede.  The  Company  has  the 
right  to  an  appraisal,  but,  if  the  damage  is  likely  to  increase,  the 
usual  course,  in  the  average  case,  is  to  exercise  the  Company's 
option  and  take  such  of  the  stock  as  may  be  necessary  or  desirable, 
assuming,  of  course,  that  the  sound  value  has  been  determined.  It 
is^hardly  necessary,  we  take  it,  to  remind  the  adjuster  that  an__elec- 
tion  to  take  any  part  of  the  stock  will  be  an  admission  of  liability, 
at  leasLto  the  extent  of  the  souna  vaiue  ot  the  goods  so  to  be  taken. 

And  now,  a  word  for  the  adjuster  himself.  Someone  has  said 
he  is  born,  not  made.  Nevertheless,  I  have  a  great  admiration  for 
the  "home-made"  article.  He  who  in  a  large  measure  has  in  his 
make-up  patience,  tact  and  determination,  is  likely  to  succeed;  other 
qualifications  there  are,  valuable  and  useful,  but,  without  these 
things,  look  for  failure.  Then  there  must  be  diligence,  application 
and  concentration,  and  he  should  be  a  man  of  peace,  but  ready  to 
fight  -when  the  occasion  demands.  He  must  be  honest  and  faithful 
in  small  things  as  in  large,  and  he  must  never  be  careless.'  He  must 
be  fair  to  the  insured  and  true  to  the  interests  of  the  insurers,  and 
last,  but  not  least,  he  should  appreciate  at  all  times  that  it  is  his 
duty  to  the  insured,  the  Company  and  himself  not  only  to  know 
what  the  loss  is,  but  to  know  why,  and,  knowing  the  right,  to  do  it. 


42S 


The  Fire  Insurance  Contract 

becomes  more  difficult  to  find  a  profit  ratio  to  reduce  the  sales 
amount  to  a  cost  basis  in  order  that  a  proper  deduction  may  be  made 
from  the  value  of  the  stock  represented  by  purchases  or  manufac- 
ture. Under  such  circumstances,  in  the  case  of  a  manufacturer  the 
stock  value  may  be  ascertained  by  finding  the  individual  cost  for 
material,  labor  and  overhead  charges  of  the  articles  manufactured; 
then,  from  the  books,  should  be  ascertained  the  sums  realized  from 
the  sales  of  such  articles,  or  if  not  all,  a  sufficient  number  of  such 
articles  in  order  that  a  fair  and  equitable  percentage  of  profit  may 
be  arrived  at  to  reduce  the  aggregate  output  to  a  cost  basis. 

In  the  case  of  a  merchant  or  jobber  where  the  goods  retain 
their  identity  in  whole  or  in  part  an  examination  of  the  sales  will 
show  at  once  the  price  realized  for  the  articles  dealt  in,  and  a 
.percentage  of  profit  can  be  easily  obtained  to  apply  to  the  sum 
realized  in  order  to  reduce  the  sum  to  a  cost  basis;  or,  if  the  business 
is  of  such  a  nature  as  to  call  for  a  more  extended  ascertainment  of 
profit,  the  amount  of  profit  or  advance  on  each  class  of  goods  and 
on  each  style  of  goods  can  be  ascertained,  and  by  that  method  may 
be  reached  the  value  of  the  goods  which  have  been  shipped  or  re- 
moved from  the  premises  where  the  fire  occurred  and  upon  which 
claim  is  predicated.  To  particularize  any  kind  of  business  would 
be  to  extend  the  scope  of  this  lecture  beyond  any  possibility  of  in- 
telligently and  adequately  covering  it  in  the  time  which  has  been 
set  apart  for  me  to  present  to  you  my  opinions  on  this  subject. 

Everything  that  I  have  called  to  your  attention  so  far  has  been 
fundamental  and  by  way  of  introduction.  From  actual  practice 
most  of  you  are  entirely  familiar  with  the  matters  of  which  I  have 
spoken ;  indeed,  where  books  of  account  are  properly  kept  and  a  full 
and  true  record  made  of  the  items  of  original  cost  and  all  additions 
thereto,  and  of  the  amount  realized  from  sales,  it  is  a  very  simple 
proposition  to  deduce  from  the  books  of  account  both  the  profit 
and  the  value  as  shown  by  such  books  of  account. 

A  word  now  as  to  Value.  The  economic  side  of  value,  the 
appreciation  or  depreciation  which  attaches  to  this  value,  the  varying 
influences  which  might  tend  to  increase  or  decrease  the  sum  as  as- 
certained from  books  of  account,  it  is  not  my  purpose  to  dwell  upon 
nor  to  enter  into  here.  Therefore,  in  considering  the  subject  under 
discussion  we  will  treat  of  the  value  as  entered  upon  the  hooks, 
and  the  profits  as  ascertained  from  that  value,  presuming,  of  course, 
that  a  correct  and  true  record  of  all  transactions  is  made  in  the 
books. 

428 


Value  and  Profit  From  Books  of  Account 

The  value  and  the  profit  deducible  from  books  of  account  de- 
pend upon  the  verity  of  the  entries  made  therein  and  it  is  to  the 
ehmination  of  any  excessive  or  increased  expression  of  value  either 
through  a  misconception  and  misunderstanding  of  what  constitutes 
value  or  a  deliberate  effort  to  increase  such  value  that  the  account- 
ant who  is  entrusted  with  the  responsibility  of  the  ascertainment  of 
these  two  subjects  has  in  actual  practice  frequently  to  address  his 
attention.  " 

Profit,  in  and  of  itself,  is  but  the  reflex  of  the  other  entries 
placed  in  the  books,  or  the  omission  to  enter  in  the  books  the  trans- 
actions which  should  be  of  record.  So  that  before  any  use  may  be 
made  of  a  profit  ratio  deducible  from  entries  in  the  books,  where 
possible,  the  soundness  of  such  entries  should  be  tested;  and  where 
there  is  absence  of  the  books,  documents  or  records  necessary  for 
such  verification,  recourse  should  be  had  to  other  avenues  of  infor- 
mation which  ought  to  lead  into  and  form  part  of  the  bookkeeping 
system  of  the  concern. 

The  field  covered  by  bookkeeping  is  so  large  and  comprehen- 
sive in  its  scope  that  to  attempt  to  state  what  in  his  judgment  and 
experience  should  represent  value  one  would  have  to  traverse  such 
a  variety  of  businesses  and  cite  so  many  examples  that  it  would 
not  be  within  the  range  of  possibility  to  cover  them  even  in  outline 
in  the  time  allotted;  and,  to  attempt  to  say  what  particular  items 
go  to  constitute  value  and  distinguish  them  by  name  would  neces- 
sitate qualifying  explanations  because  of  the  differences  between 
the  methods  of  running  the  accounting  departments  of  mercantile, 
manufacturing  and  other  establishments.  As  to  the  original  cost 
of  materials,  labor,  freight  and  other  incoming  charges  we  find 
substantial  agreement,  but  there  consistency  ends.  One  concern  in 
perfect  honesty  will  contend  for  one  class  of  expenditure  as  over- 
head charge,  while  another  concern  equally  honest  and  experienced 
in  the  conduct  of  its  business  will  disregard  such  an  expenditure  in 
the  overhead  charge. 

To  take  up  seriatim  and  discuss  the  relative  methods  of  each 
of  these  contending  parties  would  lead  us  into  a  maze  of  the  nice- 
ties of  bookkeeping  and  accounting.  Furthermore,  it  is  assumed 
that  it  is  within  the  knowledge  and  experience  of  most  of  you — 
I  might  say  the  daily  experience  of  many  of  you  in  the  discharge 
of  your  official  duties — to  be  called  upon  to  ascertain  from  books 
of  account  a  statement  of  value  and  profits.    In  such  cases  it  is  the 

429 


The  Fire  Insurance  Contract 

face  value  of  the  figures  therein  entered  with  which  you  deal  and 
this  daily  experience  has  practically  reduced  such  ascertainment  to 
a  sum  in  arithmetic,  neither  complex  nor  difficult. 

Although  avoiding  dry  theories,  I  shall  not  leave  this  part  of 
my  subject  without  giving  you  two  actual  instances  of  obtaining 
value  from  books,  first,  by  reducing  the  elements  in  the  books  to 
cost  and,  second,  by  ascertaining  the  value  on  the  books  by  the  em- 
ployment of  a  profit  ratio. 

The  first  instance  is  the  ascertainment  of  the  value  of  a  stock 

of  goods  from  the  books  which  were  kept  on  a  cost  basis,  as  follows : 

Inventory  on  hand $143,813.36 

Add  manufactured  since,  at  lot  book  cost 266,642.21 

Making  total   stock  of $410,455.57 

From  which  deduct  sales  at  lot  book  cost  of 167,894.14 

Leaving  on  hand  manufactured  stock  at  lot  book  cost  of -  $242,561.43 

There  was  salvaged  at  lot  book  cost - 101,511.69 

Leaving  totally  destroyed  at  lot  book  cost $141,049.74 

Which,  reduced  by  deducting  manufacturer's  profit  of 10,448.13 

(a  ratio  of  108:100) 

Shows  the  manufacturer's  cost  of  stock  to  be $130,601.61 

which  includes  certain  excessive  overhead  charges. 

Possibly  no  better  illustration  of  the  divergence  of  opinion  as 
to  what  constitutes  overhead  or  fixed  charges  can  be  cited  than  this 
particular  case.  The  assured  was  of  unquestioned  integrity,  of 
the  highest  moral  and  business  reputation  and  one  of  the  most 
efficient  manufacturers  in  the  country,  yet  carried  on  the  books  and 
charged  as  part  of  the  manufacturing  cost  certain  fixed  charges 
which  it  was  contended  most  strenuously  were  proper  elements  of 
cost  and  value.  After  many  conferences  and  protracted  discus- 
sions and  presentation  of  arguments  and  figures  pro  and  con  in 
which  I  was  privileged  to  join  as  accountant  representing  some 
seven  or  eight  adjusters  who  appeared  for  the  insurance  companies, 
carrying  a  line  of  over  $200,000  upon  the  stock,  it  was  agreed  that 
the  overhead  charges  were  excessive  by  four  per  cent.,  and  a  sum 
of  $5,023.14  was  deducted  therefrom,  leaving  a  book  value  of 
cost  of  $125,578.47.  It  was  determined  by  calculation  that  71% 
of  this  amount  represented  raw  material  which  was  charged  upon 
the  books  at  its  invoice  cost  value  which  was  used  as  a  basis  of 
cost  in  all  the  calculations  heretofore  referred  to  and  employed  in 
this  statement.  Nevertheless,  this  71%  was  subject  to  a  cash  dis- 
count of  9%;  therefore,  it  became  necessary  in  order  to  arrive  at 

430 


Value  and  Profit  From  Books  of  Account 

what  we  will  here  call  the  cash  value  at  the  time  of  the  fire,  to 
reduce  the  71%  (or  $89,160.71)  by  9%  (equalling  a  sum  of 
$8,024.46).  By  applying  this  deduction  of  cash  discount  of 
$8,024.46  from  the  book  value  of  $125,578.47  we  have  a  remaining 
value  of  $117,554.01,  which  it  was  agreed  and  determined  repre- 
sented the  cash  value  of  the  stock  destroyed  by  the  fire. 

It  is  rarely  that  we  find  a  case  in  actual  practice  which  in- 
cludes so  many  of  the  elements  which  are  necessary  to  reduce  a 
stock  of  merchandise  to  value.  In  this  case  we  had  to  deal  with  the 
manufacturer's  profit,  with  an  excess  of  fixed  or  overhead  charges 
and  with  a  cash  discount ;  all  of  which  had  to  be  determined  upon 
a  percentage  basis  as  shown  by  transactions  on  the  books  for 
periods  of  actual  operation  at  a  time  preceding  the  claim.  That 
they  were  ascertained  correctly  is  evidenced  by  the  fact  that  they 
were  accepted  by  both  the  assured  and  the  representatives  of  the 
insurance  companies  who,  after  exhaustive  analysis  of  the  books 
and  detailed  calculations,  reached  the  same  conclusion. 

The  first  value  which  we  reached  in  this  case  was  what  was 
called  the  lot  book  cost  and  it  amounted  to  $141,049.74.  When  a 
net  cash  value  of  $117,554.01  had  been  fixed  upon  as  the  measure 
of  the  worth  of  the  goods  destroyed  in  the  fire  we  had  reduced  the 
lot  book  value  or  cost  by  $23,495.73.  In  this  case  the  books  aflForded 
ample  information  to  work  out  to  a  demonstration  the  very  satis- 
factory results  here  shown  and  the  assured  met  us  with  a  disposi- 
tion of  willingness  to  be  convinced  by  the  arguments  that  we  were 
able  to  present.  I  may  add  that  this  happy  condition  of  aflFairs 
is  not  always  present  in  examinations  of  books  of  account  and  ad- 
justments and  settlements  of  losses. 

My. second  example  is  an  escertainment  of  value  by  the  em- 
ployment of  the  profit  ratio  and  has  to  do,  like  the  preceding  case, 
with  a  loss  which  was  actually  settled  and  determined  happily  and, 
like  its  forerunner,  satisfactorily  to  all  concerned. 

The  stock  on  hand  at  the  time  of  inventory  taking  amounted 

to    --■ $707,715.46 

To  which  we  add  the  purchases  less  errors  and  omissions 

and  duplications   of - J^BijS57A2 

From  which  a  deduction  should  be  made  for  rebates  and 
bonuses  (which  was  peculiar  to  this  particular  busi- 
ness)  of  - 14,630.97 

Adding  the  inventory  and  the  purchases  together  and  de- 
ducting bonuses  and  rebates,  we  have  a  total  stock  of—.    2,177,741,91, 

There  had  been  sales  and  shipments  of  goods  which,  accord-  I 

ing  to  the  tooks,  represented  the  sales  value  of-- 994,192.1l' 

431 


The  Fire  Insurance  Contract 

face  value  of  the  figures  therein  entered  with  which  you  deal  and 
this  daily  experience  has  practically  reduced  such  ascertainment  to 
a  sum  in  arithmetic,  neither  complex  nor  difficult. 

Although  avoiding  dry  theories,  I  shall  not  leave  this  part  of 
my  subject  without  giving  you  tw^o  actual  instances  of  obtaining 
value  from  books,  first,  by  reducing  the  elements  in  the  books  to 
cost  and,  second,  by  ascertaining  the  value  on  the  books  by  the  em- 
ployment of  a  profit  ratio. 

The  first  instance  is  the  ascertainment  of  the  value  of  a  stock 

of  goods  from  the  books  which  were  kept  on  a  cost  basis,  as  follows : 

Inventory  on  hand $143,813.36 

Add  manufactured  since,  at  lot  book  cost 266,642.21 

Making  total  stock  of $410,455.57 

From  which  deduct  sales  at  lot  book  cost  of 167,894.14 

Leaving  on  hand  manufactured  stock  at  lot  book  cost  of -  $242,561.43 

There  was  salvaged  at  lot  book  cost 101,511.69 

Leaving  totally  destroyed  at  lot  book  cost $141,049.74 

Which,  reduced  by  deducting  manufacturer's  profit  of 10,448.13 

(a  ratio  of  108:100) 

Shows  the  manufacturer's  cost  of  stock  to  be- $130,601.61 

which  includes  certain  excessive  overhead  charges. 

Possibly  no  better  illustration  of  the  divergence  of  opinion  as 
to  what  constitutes  overhead  or  fixed  charges  can  be  cited  than  this 
particular  case.  The  assured  was  of  unquestioned  integrity,  of 
the  highest  moral  and  business  reputation  and  one  of  the  most 
efficient  manufacturers  in  the  country,  yet  carried  on  the  books  and 
charged  as  part  of  the  manufacturing  cost  certain  fixed  charges 
which  it  was  contended  most  strenuously  were  proper  elements  of 
cost  and  value.  After  many  conferences  and  protracted  discus- 
sions and  presentation  of  arguments  and  figures  pro  and  con  in 
which  I  was  privileged  to  join  as  accountant  representing  some 
seven  or  eight  adjusters  who  appeared  for  the  insurance  companies, 
carrying  a  line  of  over  $200,000  upon  the  stock,  it  was  agreed  that 
the  overhead  charges  were  excessive  by  four  per  cent.,  and  a  sum 
of  $5,023.14  was  deducted  therefrom,  leaving  a  book  value  of 
cost  of  $125,578.47.  It  was  determined  by  calculation  that  71% 
of  this  amount  represented  raw  material  which  was  charged  upon 
the  books  at  its  invoice  cost  value  which  was  used  as  a  basis  of 
cost  in  all  the  calculations  heretofore  referred  to  and  employed  in 
this  statement.  Nevertheless,  this  71%  was  subject  to  a  cash  dis- 
count of  9%;  therefore,  it  became  necessary  in  order  to  arrive  at 

430 


Value  and  Profit  From  Books  of  Account 

what  we  will  here  call  the  cash  value  at  the  time  of  the  fire,  to 
reduce  the  71%  (or  $89,160.71)  by  9%  (equalling  a  sum  of 
$8,024.46).  By  applying  this  deduction  of  cash  discount  of 
$8,024.46  from  the  book  value  of  $125,578.47  we  have  a  remaining 
value  of  $117,554.01,  which  it  was  agreed  and  determined  repre- 
sented the  cash  value  of  the  stock  destroyed  by  the  fire. 

It  is  rarely  that  we  find  a  case  in  actual  practice  which  in- 
cludes so  many  of  the  elements  which  are  necessary  to  reduce  a 
stock  of  merchandise  to  value.  In  this  case  we  had  to  deal  with  the 
manufacturer's  profit,  with  an  excess  of  fixed  or  overhead  charges 
and  with  a  cash  discount;  all  of  which  had  to  be  determined  upon 
a  percentage  basis  as  shown  by  transactions  on  the  books  for 
periods  of  actual  operation  at  a  time  preceding  the  claim.  That 
they  were  ascertained  correctly  is  evidenced  by  the  fact  that  they 
were  accepted  by  both  the  assured  and  the  representatives  of  the 
insurance  companies  who,  after  exhaustive  analysis  of  the  books 
and  detailed  calculations,  reached  the  same  conclusion. 

The  first  value  which  we  reached  in  this  case  was  what  was 
called  the  lot  book  cost  and  it  amounted  to  $141,049.74.  When  a 
net  cash  value  of  $117,554.01  had  been  fixed  upon  as  the  measure 
of  the  worth  of  the  goods  destroyed  in  the  fire  we  had  reduced  the 
lot  book  value  or  cost  by  $23,495.73.  In  this  case  the  books  aflforded 
ample  information  to  work  out  to  a  demonstration  the  very  satis- 
factory results  here  shown  and  the  assured  met  us  with  a  disposi- 
tion of  willingness  to  be  convinced  by  the  arguments  that  we  were 
able  to  present.  I  may  add  that  this  happy  condition  of  aflPairs 
is  not  always  present  in  examinations  of  books  of  account  and  ad- 
justments and  settlements  of  losses. 

My  second  example  is  an  escertainment  of  value  by  the  em- 
ployment of  the  profit  ratio  and  has  to  do,  like  the  preceding  case, 
with  a  loss  which  was  actually  settled  and  determined  happily  and, 
like  its  forerunner,  satisfactorily  to  all  concerned. 

The  stock  on  hand  at  the  time  of  inventory  taking  amounted 

to    •:...:... :- - $707,715.46 

To  which  we  add  the  purchases  less  errors  and  omissions 

and  duplications   of ."■ ,M84,6S7.42 

From  which  a  deduction  should  be  made  for  rebates  and 
bonuses  (which  was  peculiar  to  this  particular  busi- 
ness)  of 14,630.97 

Adding  the  inventory  and  the  purchases  together  and  de- 
ducting bonuses  and  rebates,  we  have  a  total  stock  of—    2,177,741.91, 

There  had  been  sales  and  shipments  of  goods  which,  accord-  I 

ing  to  the  l^ooks,  represented  the  sales  value  of 994,192.1l' 

431 


The  Fire  Insurance  Contract 

From  the  books  of  account,  in  this  instance  from  the  operations 
of  the  preceding  years,  it  was  found  that  the  profit  ratio  varied  very 
little  in  the  various  years;  therefore,  accepting  the  showing  from 
the  books  of  account  it  was  determined  and  agreed  that  the  per- 
centage of  14.21%  flat  on  sales  was  included  in  the  sales  values  of 
$994,192.11.  Thus  it  was  necessary  to  reduce  the  sales  value  to  a 
cost  or  book  value  by  a  deduction  of  14.21%,  which  amounted  to 
$141,274.70,  from  the  amount  of  the  sales.  This  deduction  placed 
the  sales  at  a  value  of  $852,917.41  and  upon  an  equal  basis  with  the 
cost  as  charged  upon  the  books.  The  next  step  in  the  ascertain- 
ment of  value  was  to  deduct  this  $852,917.41  Irom  $2,177,741.91, 
the  total  of  Inventory  and  Purchases,  leaving  $1,324,824.50  as  the 
book  value  of  the  stock  at  date  of  fire;  but  at  the  time  claim  was 
made  for  loss  by  fire  there  were  at  sundry  other  places  beyond  the 
cover  of  the  policies  concerned  goods  of  the  book  value  of  $230,- 
101.17  which  also  were  to  be  deducted,  leaving  in  the  premises 
where  the  fire  occurred  goods  with  a  book  value  of  $1,094,723.33. 
The  purchases  made  by  this  concern  and  charged  upon  the  books 
at  invoice  cost  were  subject  to  varying  rates  of  discount,  some  as 
low  as  2%,  others  ranging,  with  allowance  for  dating,  considerably 
over  9%.  The  operations  of  the  business  for  the  preceding  years 
showed  an  average  available  cash  discount  of  something  under  7% 
while  much  of  the  stock  that  was  purchased  and  consumed  in  the 
fire  was  entitled  to  an  average  discount  of  something  over  7%.  It 
was  finally  agreed  that  a  deduction  of  7%  from  the  book  value  was 
fair  to  all  concerned  in  order  to  reduce  the  stock  consumed  to  a 
cash  basis.  Therefore,  the  sum  of  $76,630.63  was  deducted  from 
the  book  value  aforestated,  leaving  as  a  cash  value  of  the  stock  on 
hand  at  the  time  of  the  fire  $1,018,092.70. 

The  citation  of  these  two  instances  is  quite  sufficient  to  illus- 
trate the  practicability  of  preparing  a  statement  from  the  books  of 
account.  It  is  very  evident  that  the  ascertainment  of  the  factors 
employed  called  for  an  extensive  examination,  particularly  in  de- 
termining the  profit  ratio,  but  in  every  branch  of  the  work  we  could 
depend  absolutely  upon  the  honesty  of  the  figures  of  inventory, 
sales,  purchases  and  other  elements  entering  into  the  problem. 
Barring  clerical  mistakes  we  could  accept  without  question  the  en- 
tries upon  the  books. 

Had  we  encountered  in  these  two  instances  elements  of  fraud 
as  to  inventory,  excessive  charge  for  purchases  or  omission  of  sales, 
we  would  have  had  a  more  serious  if  not  a  practically  impossible 

432 


Value  and  Profit  From  Books  of  Account 

problem.  We  could  have  deduced  certain  figures  from  the  books, 
however,  which  might  have  fallen  under  and  comprehended  one 
definition  of  value  and  profits  as  ascertained  from  books  of  account 
but  which  would  not  have  represented  the  correct  value  of  the  prop- 
erty intended"  to  be  represented  and  purporting  to  be  so  represented. 

It  has  happened,  not  infrequently — and  one  has  not  to  be  a 
prophet  to  say  it  may  happen  in  the  future — that  the  inventory  by 
which  the  merchandise  or  trading  or  manufacturing  account  on 
books  of  account  is  closed  is  swollen  as  to  values  af^the  articles 
therein  mentioned  and,  also  that  the  numbers  of  articles  therein 
mentioned  are  set  down  at  more  than  were  actually  on  hand  at 
the  time  the  inventory  purports  to  have  been  taken.  In  other  words, 
the  inventory  may  be  loaded  as  to  quantity,  as  to  price,  or  both. 
When  this  is  the  case  we  have  not  only  a  surcharge  in  the  inven- 
tory of  whatever  the  amount  of  loading  may  be  determined  to  be 
but  we  have  an  increase  in  the  profits  which  is  reflected  in  an  in- 
creased profit  ratio.  Now,  when  we  apply  this  increased  profit  ratio 
to  the  transactions  for  the  period  from  the  taking  of  the  inventory 
to  the  date  of  the  fire  we  take  from  the  sales  more  than  the  actual 
profit  realized,  and  by  such  method  reduce  them  below  cost  which, 
as  is  readily  seen,  tends  to  inflate  the  value  of  the  stock  in  the 
premises  at  the  time  of  the  fire. 

The  many  and  varied  methods  employed  to  load  an  inventory 
make  it  extremely  difficult  to  prove  that  a  certain  class  of  goods  or 
certain  items  set  out  in  detail  in  an  inventory  are  in  excess  of  what 
they  ought  to  be.  And  while  experience  in  the  examination  of  books 
equips  a  man  very  often  to  go  to  the  place  where  such  falsification 
exists,  still  from  such  experience  one  becomes  thoroughly  conscious 
that  the  more  we  know  about  such  transactions  the  more  we  know 
that  we  do  not  know.  I  have  often  heard  it  claimed  that  locating 
the  loading  in  an  inventory  is  a  science  known  to  few — and  I  have 
heard  science  defined  as  "first  experience,  then  inference." 

That  entries  in  books  are  not  always  to  be  taken  at  their  face 
value  experience  has  again  and  again  proved;  and  in  fact,  we  are 
not  without  absolute  proof  that  a  fraudulent  amount  claiming  to 
represent  inventory  of  stock  has  been  deliberately  and  purposely 
carried  upon  books  as  true  and  correct  and  statements  drawn  there- 
from based  upon  that  fraudulent  amount  for  a  period  exceeding 
FIVE  YEARS.  As  bearing  directly  upon  this  kind  of  fraudulent 
expression  of  value  permit  me  to  cite  two  instances  which  have 
come  under  my  observation  and  which  fell  to  my  lot  to  develop  in 

433 


The  Fire  Insurance  Contract 

the  course  of  investigations  I  was  conducting  in  behalf  of  the  insur- 
ance companies  where  claims  had  been  made  for  loss  suffered  by 
fire. 

After  the  happening  of  a  fire  where  considerable  damage  was 
claimed  to  have  been  done  to  a  stock  of  goods  and  a  claim  presented 
in  excess  of  the  proper  amount  by  over  $100,000,  effort  was  made 
to  sustain  such  claim  by  the  entry  of  a  swollen  inventory,  the  mer- 
chandise account  on  the  ledger  being  increased  by  the  aforesaid 
sum  of  $100,000,  and  a  corresponding  increase  being  made  in  the 
capital  account..  Six  years  prior  to  the  inventory  preceding  the 
fire  the  inventory,  profit  and  capital  accounts  were  increased  $100,- 
000  and  this  increase  in  the  inventory  and  capital  account  was  car- 
ried down  through  all  the  years  to  the  time  of  the  fire.  Examining 
the  merchandise  account  and  running  back  for  a  period  of  two, 
three  or  four  years  would  have  found  the  inventories  in  perfect 
consistency  and  no  disturbance  made  in  the  percentage  of  profit. 
The  capital  account  had  likewise  preserved  its  consistency,  no  dis- 
turbance being  found  there.  But  the  amount  of  the  claim  seemed 
exorbitant  and  put  the  Committee  of  Adjusters  in  charge  upon  in- 
quiry as  to  why  such  an  extraordinary  amount  of  stock  should 
have  been  carried  for  the  amount  of  business  that  was  being  done 
and  an  exhaustive  examination  of  the  assured's  books  was  author- 
ized. Running  back  of  the  three  year  limit  in  such  investigation  it 
developed  that  it  had  been  the  custom  of  the  concern  to  allow 
interest  upon  the  net  capital  employed  in  the  business,  and  it  was 
then  discovered  that  the  interest  allowance  had  been  made  upon 
$100,000  less  than  the  amount  carried  upon  the  ledger-  With  this 
lead  the  examination  ran  back  to  the  six  year  period  where  the  alter- 
ation was  discovered  to  have  been  started  and  in  the  particular  year 
at  the  close  of  which  the  $100,000  increase  was  made  in  the  in- 
ventory, the  profit  shown  by  the  books  was  $100,000  in  excess  of  the 
division  represented  by  a  journal  entry  as  having  been  made 
to  certain  junior  partners.  The  alterations  of  footings  of  the 
merchandise  and  capital  accounts  were  very  skillfully  executed,  the 
ink  used  having  been  exposed  to  the  air  to  age  it  and  where  it  was 
necessary  to  remove  a  figure  such  removal  was  made  by  acids  and 
was  so  skillfully  done  that  the  ruling  in  the  book  was  hardly  affected. 
In  very  many  cases  it  was  not  necessary  to  remove  any  figures  at 
all,  it  sufficing  simply  to  prefix  the  figure  ''1".  Having  established 
the  fact  of  the  alteration  we  were  soon  able  to  secure  abundance  of 
confirmation. 

434 


Value  and  Profit  From  Books  of  Account 

In  another  instance  where  the  inventory  was  increased  by 
$100,000,  and  carried  on  the  books  at  such  fraudulent  figure,  state- 
ments were  regularly  made  to  mercantile  agencies  for  a  period  of 
over  five  years,  representing  inventory  of  stock  on  hand  as  being 
over  $100,000  in  excess  of  the  true  amount ;  a  total  destruction  of 
the  property  took  place  and  there  was  presented  to  the  insurance 
companies  a  detailed  inventory  fraudulently  increased  by  over  $100,- 
000.  The  inventory  (in  crude,  though  regular  form)  was  properly 
entered  on  the  books.  For  five  years  immediately  preceding  the 
time  of  the  fire  the  inventory  entries  created  no  unusual  disturbance 
in  the  merchandise,  profit  or  capital  accounts,  but  at  the  same  time 
carried  fraudulent  loading  of  something  over  $100,000.  In  this  in- 
stance it  so  happened  that  the  ledger  presented  for  examination 
covered  a  period  of  two  years  prior  to  the  fraudulent  increase  and 
while  the  normal  profit  ratio  of  the  business  showed  about  25%,  the 
period  wherein  the  fraudulent  inventory  was  entered  showed  a  profit 
ratio  of  over  170%.  Had  the  assured  oflfered  in  support  of  his  claim 
a  ledger  covering  but  four  years'  transactions  we  would  have  been 
confronted  with  an  inventory  amount  entirely  consistent  upon- the 
books  for  a  period  of  four  years  and  supported  by  a  detailed  inven- 
tory purporting  to  represent  the  actual  count  and  record  of  the  stock 
on  hand  at  the  date  of  inventory  taken  next  preceding  the  date  of 
the  fire,  but  actually  containing  a  loading  of  over  $100,000.  i 

I 

From  these  two  instances  it  is  evident  that  figures  on  books  of 

account  do  not  always  represent  the  value  of  the  goods  and  stock 
on  hand  at  any  given  period.  And,  indeed,  one  cannot  help  but  won- 
der who  it  is  that  "cooks  up"  the  extraordinary  travesties  which  one 
comes  across  from  time  to  time  in  the  examination  of  books  relating 
to  claims  for  loss  by  fire. 

Quite  another  source  of  improper  statement  of  values  from 
books  of  account  occurs  where  there  is  incorporated  into  the  charge 
for  material  or  labor  improper  amounts — in  the  case  of  material, 
through  false  invoices,  and  in  the  case  of  labor,  either  through 
padded  payroll  or  a  faulty  conception  of  what  constitutes  cost. 
Very  often  we  find  elements  under  the  heading  of  overhead  charges 
which  are  clearly  and  distinctly  items  of  expense,  to  be  borne  and 
paid  out  of  the  profits  of  the  business  and  in  no  way  chargeable  to 
the  cost. 

As  to  the  first  of  these  classes  of  improper  charges  (that  of  in- 
voices) we  find  great  difficulty  at  times  in  rerog^nizino^  and  distin- 

435 


The  Fire  Insurance  Contract 

gulshing  that  which  is  false  from  that  which  is  true.  Here  it  is 
that  the  experienced  man,  either  adjuster  or  accountant,  must  be 
relied  upon  to  detect  the  fraud. 

/  The  elements  of  the  padded  payroll  also  require  experience 
and  analytical  ability  to  discern  the  lack  of  proportion  by  which 
such  improper  charges  are  exposed.  The  inclusion  of  exces- 
sive amounts  for  overhead  charges  is  a  matter  open  to  dispute 
and  discussion  and  they  can  hardly  be  classed  as  positively  fraudu- 
lent items  although  their  effect  in  increasing  the  amount  of  a  claim 
is  as  potent.  To  determine  just  what  are  proper  overhead  charges 
is  to  treat  of  a  variable  factor,  according  to  the  particlar  business 
under  investigation. 
/  Another  class  of  errror  or  fraud  which  we  find  (though  not  fre- 

j  quently)  is  the  suppression  of  sales.  The  ascertainment  of  the 
amount  of  sales  sup'pressed'  presents  real  difficulties.  Some- 
times they  are  suppressed  by  actual  sales  directly  recorded  on  the 
books  and  an  entry  made  falsely  purporting  to  show  returns  of  the 
goods  to  the  seller.  I  have  come  across  this  class  of  fraud  several 
limes  in  the  past  few  years.  The  shipments  of  large  quantities  of 
goods  with  no  record  or  only  a  partial  record  being  made  upon  the 
books,  is  certainly  difficult  to  trace  and  is  too  varied  a  subject  for 
any  but  the  experienced  specialist. 

I  know  of  an  instance  where  the  following  method  was  pur- 
sued: a  sale  amounting  to  $1,000  was  made  to  A  and  recorded  on 
the  salesbook  as  $100,  A's  account  in  the  sales  ledger  being  debited 
$100.  When  A  paid  this  bill,  sending  a  check  for  $1,000,  it  was  not 
entered  in  the  regular  cash  book  of  the  concern  nor  was  deposit 
made  in  the  seller's  bank;  instead,  the  check  was  deposited  to  the 
credit  of  the  bank  account  of  a  member  of  the  firm  and  he  drew  his 
personal  check  for  $100,  which  sum  was  entered  upon  the  books 
of  the  firm  as  the  amount  received  from  A.  This  method  effectually 
shut  out  any  reference  in  the  books  to  the  sum  of  $1,000.  There 
were  a  number  of  such  transactions.  In  carrying  out  this  scheme 
of  suppression  of  sales  and  false  entries  upon  the  books  there  had 
to  be  collusion  between  the  bookkeeper  and  entry  clerk  (in  this 
case  one  and  the  same  person)  and  a  member  of  the  firm.  Dis- 
covery of  the  fraud  was  made  by  the  fact  that  a  certain  style  of 
goods  which  was  shipped  to  A  was  shown  by  the  manufacturing 
book  to  have  been  in  stock,  but  some  time  prior  to  the  fire  an 
order  sent  in  by  X  for  a  quantity  of  this  style  number  zvas  declined 
with  regret  because  the  entire  quantity  had  been  sold  to  A  \\h(\ 

■  436 


V^ALUE  AND  Profit  From  Books  of  Account 

no  doubt,  would  be  pleased  to  fill  X's  order.  Acting  on  this  clue 
an  investigation  was  started  which  developed  the  fact  of  the  sup- 
pression of  the  $900  sale  to  A  and  of  sales  to  other  persons  approxi- 
mating in  all  over  $10,000,  all  of  which  had  been  paid  for  and 
cleared,  as  stated,  through  the  private  bank  account  of  a  member 
of  the  firm. 

Thus  far  we  have  been  speaking  of  cases  where  we  have  had 
complete  or  nearly  complete  sets  of  books.    It  not  infrequently  hap- 
pens in  cases  where  reasonable  suspicion  is  aroused  by  the  amount 
of  the  claim  compared  with  the  extent  of  the  fire  that  certain  books 
and  records  are  missing.     Indeed,  this  condition  has  grown  so  no- 
torious that  it  has  become  the  custom  to  look  for  and  expect  that 
in  a  certain  character  of  claims  the  books  most  needed  will  not  be 
produced.    We  then  have  a  different,  problem  to  face  and  often  are 
forced  to  go  outside  of  the  record  as  presented.    Oftener,  however, 
we  can  by  laborious  and  painstaking  analysis  gather  from  the  rem- 
nants of  imperfect  records  which  are  available  sufficient  evidence 
logically  and  completely  to  refute  and  disprove  the  amount  of  value 
claimed.    In  the  employment  of  this  kind  of  investigation  the  profit 
ratio  enters  very  largely  into  the  work  and  ofttimes  becomes  a  de- 
termining factor.     Sometimes,  however,  the  work  of  manipulation 
'has  been  so  adroitly  and  successfully  carried  out  as  to  deprive  even 
these  analytical  methods  of  their  potency  and  force.     In  cases  of 
such  nature  the  ascertainment  of  value  becomes  more  difficult  and 
the  calculations  more  complex.    There  are,  however,  in  every  busi- 
ness certain  rules  and  averages  governing  and  controlling  the  rela- 
tion of  one  account  to  the  other,  any  disturbance  of  which  neces- 
sarily is  reflected  in  one  or  the  other.     In  such  cases  it  becomes  the 
duty  of  the  accountant  to  analyze  the  material  obtainable  by  him  and 
to  marshal  his  facts,  however  meagre,  to  develop  the  fraud,  so  as  to 
show  negatively,  if  not  affirmatively,  that  the  amount  and  value  of 
the  loss  could, not  have  been  as  represented,  even  though  it  may 
not  be  within  his  province  to  state  correctly  what  it  OUGHT  to  be. 
In  testing  the  accuracy  or  reliability  of  the  entries  on  books, 
as  regards  the  inventory,  the  items  of  purchases,  sales  and  other 
factors  of  value  and  profit,  the  use  of  the  accepted  canons  of  the 
art  of  accounting  very  frequently  discloses  that  there  is  a  lack  of 
harmony  in  these  factors  which  increaseis  the  value,  such  increase 
being  included  by  the  assured  in  the  statement  of  the  claim  presented 
for  payment.    This  disturbance  is  based  upon  the  fundamental  truth 
and  logic  of  accounting  which  often  points  the  way  for  the  correc- 
tion of  the  pvH 

15 


The  Fire  Insurance  Contract 

While  books  of  account  speak  authoritatively  and  are  relied  on 
almost  wholly  for  the  evidence  of  the  claims  of  value  and  profits 
presented,  nevertheless  the  personal  element  of  both  the  investi- 
gated and  the  investigator,,  or  the  claimant  and  the  adjuster  and  ac- 
countant, have  largely  to  do  with  the  successful  outcome  of  all  ex- 
aminations. An  attitude  of  know-all  and  self  assertiveness  while 
always  impeding,  more  often  than  not  will  absolutely  thwart 
the  investigator  in  his  purpose  of  ascertaining  all  the  facts 
surrounding  and  concerning  the  claim  and  in  seeking  the  truth 
beyond  the  figures.  Bearing  in  mind  that  the  claimant  having  met 
with  a  misfortune  by  fire  is  entitled  to  and  should  receive  courteous 
consideration  and  expeditious  treatment  in  the  examination  of  his 
claim,  it  holds  true  that  a  proper  consideration  of  the  claims  of  the 
assured  and  those  of  the  insurer  will  best  subserve  the  interests  of 
both. 

In  cases  where  we  have  reason  to  believe  that  an  impropeK, 
claim  is  being  made  and  we  are  searching  for  the  facts  groping  about 
without  definite  guide,  it  is  well  to  bear  in  mind  the  old  adage  that 
the  blustering  North  wind  was  defeated  in  its  efforts  to  tear  away 
the  traveler's  coat  but  the  cheerful  whisper  of  the  South  wind  out 
of  a  smiling  sky  won  the  victory. 

Concerning  the  actual  work  of  investigation  of  books  for  the 
purpose  of  eliminating  fraud  which  has  been  planted  therein,  it 
may  be  said  that  while  to  the  uninitiated  the  labor  may  appear  to  be 
trying  and  unpromising  still,  to  those  who  pursue  the  work  with 
the  creative  imagination  necessary  to  draw  from  the  entries  and 
read  beneath  the  figures  the  suggestion  and  clue  leading  to  the  un- 
raveling of  the  skein  of  fraud  showing  wherein  they  are  contrary 
to  the  truth  and  misrepresent  the  facts  that  should  have  appeared, 
it  is  a  real  pleasure  and  a  test  of  the  gold  of  experience  that  is  on 
deposit  in  the  mental  treasury  of  the  investigator. 

To  lay  bare  the  artificial  means  employed  to  create  value  and 
swell  profits,  and  to  take  av^ay  all  such  inflation  with  its  attendant 
malpractice,  thereby  restoring  the  proper  condition  is  a  labor  which, 
far  from  tiring,  holds  till  the  end  the  concentrated  energy  of  the 
investigator  whose  reward  is  ample  and  satisfying  when  he  has  sep- 
arated the  false  from  the  true. 


438 


XXiV 

ADJUSTMENT  QF  AUTOMOBILE  LOSSES 

E.  B.  HopwooD 

:  The  adjustment  of  an  automobile  claim  begins  with  a  proper 
identification  of  the  car  on  which  loss  is  claimed,  by  motor  number 
and  serial  number,  the  motor  number  being  found  on  the  motor,  the 
serial  number  generally  on  a  plate  attached  to  the  dash  board.  You 
will  find  policies  reading  "car  or  motor  number," — both  can  be  used 
to  advantage,  the  reason  being  that  frequently  the  motor  number  is 
the  car  number  of  a  year  earlier  or  later.  There  is  often  a  casting 
or  body  number  used,  neither  having  any  relation  to  the  car  number. 
The  year  and  model  are  next  determined,  and  we  ask  to  examine 
the  bill  of  sale. 

Two  forms  of  policy  are  in  general  use  by  the  Fire  Companies 
— the  valued  policy  and  the  non-valued  policy,  the  valued  form  of 
policy  reads:  "The  said  automobile  hereby  insured  (body,  ma- 
chinery and  equipment)  is  by  agreement  of  this  Company  and  the 
assured,  valued  at  the  sum  hereby  insured."  The  valued  policy 
covers  full  indemnity  for  fire  jointly  with  theft,  the  theft  clause  dif- 
fering (a)  the  Company  paying  only  in  excess  of  $25  ;  (b)  the  Com- 
pany paying  when  loss  is  over  and  including  the  $25;  (c)  full  cov- 
erage; (d)  in  consideration  of  additional  premium  paid  for  addi- 
tional indemnity  to  cover  equipment  in,  and  on  the  car  when  orig- 
inally purchased.  At  the  present  time,  there  is  a  question  arising  as 
to  whether  the  valued  policy  means  that  the  value  of  the  car  is  the 
same  when  injured  as  when  insured,  or  that  the  valued  clause  is  de- 
stroyed by  the  appraisal  clause.  The  non-valued  policy  excludes 
theft,  and  is  the  same  as  the  valued  form,  leaving  the  value  and 
damage  to  be  determined  at  the  time  of  the  claim. 

The  collision  clause  is  attached,  to  indemnify  the  owner  for 
damage  by  collision  to  his  car.  There  are  two  forms  of  this  clause 
in  general  use — the  full  coverage,  and  the  deductible,  the  latter  re- 
quiring the  assured  to  stand  the  first  $25  of  the  loss ;  but  not  to  in- 
clude loss  of  time. 

The  property  damage  clause  is  a  similar  rider  or  endorsement 
to  cover  damage  done  to  property  of  others,  with  a  limit  of  liability 
and  excluding  human  lives. 

439 


The  Fire  Insurance  Contract 

Fire  Loss:  All  cars  arc  constructed  of  wood,  metal,  leather 
and  paint,  or  substitutes.  Estimates  for  repairs  are  easily  secured. 
The  most  satisfactory  is  a  joint  survey  of  the  damage  with  the  man- 
ufacturer of  the  car  or  his  accredited  representative.  The  better 
grade  of  such  men  are  willing  to  build  up  an  honest  estimate  and 
little,  if  any,  unnecessary  repairs  or  overhauling  is  included.  It  is 
not  unusual  for  an  owner  or  his  chauffeur  to  see  that  the  entire  car 
is  "shot  to  pieces."  The  most  unjust  and  unfair  estimates  come 
from  the  always  competent  and  disinterested  repair  shop  proprietor, 
who  has  been  asked  to  give  what  he  thinks  is  a  low  estimate  to  prop- 
erly do  the  work.  This  kind  of  shop  is  made  possible  only  by  graft. 
Go  to  the  repair  shop  with  a  door  in  front.  No  better  treatment  can 
be  asked  for,  than  is  given  by  the  several  service  stations  of  the 
leading  automobile  companies  of  this  city,  and  all  repair  jobs  for 
Insurance  Companies  are  rendered  to  the  owner  with  two  bills,  one 
marked  "accident,"  the  other  "upkeep." 

The  causes  of  fire  are  not  numerous :  crossed  wires,  overheated 
motor,  leak  in  gas  line,  smoking — and,  when  no  other  cause  can  be 
assigned,  what  is  generally  termed  "back-fire." 

In  collision,  the  amount  of  damage  sustained  is  arrived  at  in  the 
same  manner  as  in  fire  losses,  but  is  more  satisfactory.  The  work  of 
preparing  the  claim  is  entirely  different.  For  simplicity  imagine  that 
you  have  an  accident  to  investigate,  occurring  at  72nd  Street  and 
Columbus  Avenue,  New  York;  the  car  insured  going  south  on  Co- 
lumbus Avenue,  the  offending  car  going  west  on  72nd  Street;  we 
make  a  diagram  very  carefully  by  scale  of  the  streets,  car  tracks, 
elevated  railroad  posts,  lamp  posts  on  the  corner,  the  fire  hydrant 
nearby.  We  find  the  exact  point  of  contact,  located  by  a  store  win- 
dow, the  stoop  of  a  dwelling,  or  some  object  easily  remembered  as 
to  location ;  do  away  with  "about  so  many  feet"  and  take  exactly  by 
inches  the  distance  from  the  curb  to  the  point  of  collision,  where  it 
was  struck,  where  it  was  stopped,  whether  right  or  left  hand  drive 
cars ;  whether  one  or  two  were  on  front  seat,  whether  side  curtains 
were  up  or  down,  and  whether  the  other  car  could  be  seen  from  a 
position  on  the  side  street,  if  so,  how  far;  which  car  blew  the  horn 
first,  when  and  where  and  how  many  times.  Put  everything  clearly 
on  paper,  then  arrive  at  the  damage.  A  good  adjuster  settles  his 
claims  out  of  court.  Be  reasonable,  just  and  fair.  You  ought  to  be 
able  to  close  all  claims  in  an  amicable  manner. 

If  you  intend  recovering,  notify  the  owner  of  the  offending  car 
that  he  may  examine  your  car;  be  explicit  as  to  where  and  when; 

440 


Adjustment  of  Automobile  Losses 

interview  and  be  careful  of  witnesses ;  better  one  witness  who  can 
answer  well,  than  too  many  who  know  little.  Be  sure  that  the  car 
you  insure  was  driven  by  a  licensed  chauffeur,  and  his  trip  was  au- 
thorized; ascertain  whether  the  offending  car  was  driven  by  owner 
or  his  licensed  representative,  where  going,  and  whether  properly  at 
the  point  where  the  accident  occurred. 

Counsel  for  the  defendant  will  claim  your  repairs  were  extrav- 
agantly made,  or  unnecessary  work  done.  In  fact,  that  you  were 
"over  generous,"  or  have  "been  robbed,"  that  his  man  could  have 
repaired  for  less,  say  one-half.  Remember  that  he,  or  those  whom 
he  represents,  do  not  insure  the  car,  and  he  is  not  figuring  from  a 
point  of  indemnity.  His  point  of  view  is  to  defeat  you  entirely,  if 
possible;  if  not,  to  pay  as  little  as  possible.  He  might  be  generous 
enough  to  offer  you  one-third  or  one-half,  to  settle,  with  the  state- 
ment that  he  is  over-paying  you.  No  matter  what  you  do,  it  is 
wrong ;  no  matter  how  little  you  pay,  it  is  too  much. 

Your  own  lawyer,  of  course,  is  to  help  you,  but  he  is  apt  to  find 
that  you  have  neglected  this  or  that  and  that  he  would  have  done 
something  else.  Every  lawyer  has  his  own  way  of  preparing  a  case, 
and  if  you  intend  consulting  a  lawyer  in  the  end,  why  not  consult 
him  first?  Then,  if  he  wins,  it  will  not  be  altogether  by  his  magic, 
and  if  he  loses,  it  will  not  be  all  your  fault.  Adjusting  is  one  trade, 
but  an  adjuster  is  not  a  lawyer.  Infrequently,  you  are  allowed  to 
sue  in  the  assured's  name,  but  more  often  it  will  be  done  under  sub- 
rogation. At  all  times,  I  recommend  suit  under  subrogation.  The 
opposing  counsel  will  not  ask  for  quite  so  many  adjournments  and 
is  not  so  anxious  to  tire  you  out. 

Property  Damage  :  This  is  a  most  exasperating  class  of  work. 
The  claimant  always  knows  that  he  was  going  eight  miles  an  hour, 
he  is  equally  positive  that  your  assured's  car  was  going  fifty  miles ; 
he  will  dispute  everything  that  your  assured  says,  especially  imme- 
diately after  the  accident.  The  second  or  third  day  after,  he  will 
generally  cool  off,  and  some  reasonable  conclusion  can  be  reached  as 
to  how  the  accident  happened,  and  the  actual  damage.  It  is  neces- 
sary to  examine  the  two  automobiles  in  these  claims — the  one  in- 
sured to  ascertain  whether  it  is  properly  insured,  and  that  of  the 
claimant,  as  to  damage,  etc.  In  case  of  an  accident  with  a  horse, 
use  a  veterinary ;  with  a  carriage,  a  carriage  builder;  if  with  a  house, 
use  a  carpenter;  or,  if  with  a  fence,  an  iron  worker.  It  is  not  well 
to  judge  alone  as  to  the  amount  of  damage  sustained.  If  the  case  is 
taken  to  court,  it  is  absolutely  necessary  to  have  men  qualified  to 

441 


The  Fire  Insurance  Contract 

testify  in  the  line  of  business  which  the  damage  involves;  the  courts 
always  require  the  witness  to  first  qualify  as  competent  to  testify. 
It  is  extremely  easy  for  claimants  to  produce  inflated  estimates  and 
have  the  artisan  take  the  stand  to  back  them  up.  After  your  first 
case,  you  will  have  lost  much  faith  in  human  nature. 

As  TO  Thi:ft  Losse:s:  Replacing  accessories  is  simple.  The 
owner  can  generally  show  some  bill  or  some  evidence  of  the  property 
stolen,  but  in  no  event  will  one  ever  find  anything  stolei;!  that  has 
been  used ;  it  is  always  new. 

When  an  entire  automobile  has  been  stolen,  experience  has 
taught  me  that  it  pays  to  advertise  its  loss  in  newspapers  and  to  send 
out  descriptive  postal  cards  and  circulars.  When  theft  of  cars  com- 
menced years  ago  it  was  thought  expedient  to  offer  rewards  for  the 
return  of  the  car,  with  an  additional  amount  for  the  apprehension 
of  the  thief.  We  found  that  the  reward  system  had  outlived  its 
usefulness  and  was  encouraging  thefts ;  we  were  told  that  it  would 
be  unsafe  to  further  advertise  for  the  arrest  and  conviction  of  a 
thief,  because  a  man  might  be  arrested  and  convicted,  the  reward 
paid,  then  it  might  be  found  on  appeal  that  the  conviction  was  im- 
proper. The  thief  might  have  an  action  against  the  Insurance  Com- 
pany on  the  theory  that  the  reward  was  paid  for  persecution  and  not 
prosecution. 

The  form  of  advertisement  is  as  follows : 

AUTOMOBILE  STOLEN. 
National  racer,   1914,  motor,  New  Jersey  license  No.   501M;   stolen 
between  4:00  and  5:30  P.  M.,  May  26,  from  northwest  corner  56th  Street 
and  Broadway,  New  York,  Michelin   shoes  rear,   Goodrich   Safety  front, 

two  extra  on  back,  painted  Yale  blue,  striped  white;  property  of 

Perth  Amboy,   N.  J.     Communicate  with  ,  -     John    Street,    New 

York.     Tel.,  John. 

The  court  decisions  have  often  been  unfavorable  to  Insurance 
Companies.  In  one  case  it  was  proven  that  the  number  used  on  the 
car  insured  had  never  been  used  by  the  manufacturer  on  any  car,  the 
trial  and  appellate  courts  both  holding  that  as  we  did  not  prove  that 
that  number  was  not  on  the  car  and  that  the  car  insured  was  not 
stolen,  the  Company  should  pay.  In  another  case  the  numbers  were 
changed,  making  the  car  a  1909  instead  of  a  1908;  we  had  such  a 
good  case  that  it  was  tried  before  the  court,  without  a  jury,  but  the 
court  decided  that  that  was  the  only  car  the  man  owned  and  the  only 
car  insured,  and  therefore  it  must  be  the  car  stolen,  giving  judgment 
for  the  plaintiff.  The  following  case  was  decided  in  favor  of  the 
Company.   The  year  was  improperly  given,  and  the  court  held  that 

442 


Adjustment  of  Automobile  Losses 

the  Exchange  and  Warehouse  rules.  It  is  very  different  in  the 
the  poHcy,  which  was  the  valued  form,  was  based  on  representations 
of  the  owner  of  the  car,  and  if  the  automobile  was  a  year  older  than 
represented,  it  was  not  worth  the  amount  insured,  and  had  the  Com- 
pany known  the  correct  year,  they  would  not  have  issued  a  policy 
for  the  amount.  Held  by  the  Court,  to  be  a  material  misrepresenta- 
tion, and  the  Company  won. 

A  very  aggravating  case  was  disposed  of  by  the  Union  County, 
N.  J.,  court.  The  policy  reads:  "it  (the  automobile)  shall  not  be 
used  for  carrying  passengers  for  compensation  and  that  it  shall  not 
be  rented  or  leased."  A  dealer  insured  a  demonstrating  truck ;  when 
he  needed  money,  he  demonstrated  his  truck  by  carrying  merchan- 
dise from  one  point  to  another,  for  which  he  charged.  The  court 
held  that  the  car  was  always  under  his  control,  that  he  did  not  carry 
passenger  for  compensation,  that  the  word  ''leased"  applied  to  real 
estate  and  was  not  properly  used  in  the  contract,  that  the  car  was  not 
rented  because  it  did  not  pass  from  the  owner's  control,  that  he  gave 
instructions  to  his  chauffeur.  After  consulting  a  dictionary  and 
following  the  various  decisions  relative  to  leasing  or  renting  we 
must  agree  with  the  finding. 

I  am  concluding  with  this  statement :  I  do  not  believe  that  un- 
derwriters fully  appreciate  the  increasing  difficulty  of  recovering 
stolen  cars,  more  particularly  the  expensive  ones. 

The  District  Attorney  of  this  city  is  alive  to  the  situation.  A 
squad  of  detectives  is  detailed  to  do  nothing  but  work  connected 
with  stolen  cars  in  Manhattan  and  the  Bronx,  frequently  assisted  by 
other  precinct  detectives  where  a  theft  occurs.  But  the  police  or 
private  detective  agencies  cannot  keep  up  with  the  thieves. 

A  thief  is  not  smart,  bright  or  intelligent,  the  same  amount  of 
brains  used  in  any  line  of  business  would  be  a  failure.  Thieves  are 
creatures  of  chance,  and  carelessness  is  their  opportunity. 

The  answer  to  the  problem  is  forced  prevention,  the  simplest 
and  most  effective  means  being  a  law  preventing  registration  of  any 
car  by  a  number  other  than  that  given  by  the  manufacturer.  This 
would  cut  off  the  traffic  in  stolen  cars.  Of  material  assistance  would 
be  a  law,  made  and  enforced,  prohibiting  the  offering  of  rewards  for 
stolen  property  and  making  it  impossible  for  rewards  to  be  paid 
"on  the  quiet." 


443 


XXV. 

ADJUSTMENT  OF  COTTON  LOSSES  AND  COTTON 

SALVAGE  HANDLING 

Joseph  J.  Windle 

When  I  accepted  the  Committee's  invitation  to  deUver  this 
lecture,  I  was  informed  they  wished  me  to  cover  the  whole  field. 
This  requires  a  reference  to  all  the  different  policies  and  forms 
under  which  cotton  is  insured,  an  analysis  of  the  various  bills  of 
lading,  clearances,  freight  expense  bills,  and  other  railroad  docu- 
ments, under  which  cotton  is  moved,  and  the  rules  of  the  various 
weighing  and  inspection  bureaus  and  cotton  exchanges  covering  the 
"delivery"  of  cotton  from  seller  to  carrier  or  buyer.  As  I  will  ex- 
plain later,  with  the  exception  of  Long  Staple  and  Sea  Island  cot- 
ton, ascertaining  the  value  and  loss  is  an  easy  task  for  the  ex- 
perienced adjuster.  The  complications  and  difficulties  arise  in  as- 
certaining the  quantity  of  cotton  on  hand  and  determining  the  ques- 
tion of  what  we  may  call  ultimate  liability  between  the  carrier, 
warehouseman,  buyer  and  seller,  and  the  various  insurers  whose 
covers  often  overlap.  We  not  only  find  different  rules  in  adjacent 
territory,  but  even  in  the  same  town,  and  at  the  same  compress 
each  railroad  may  have  different  rules  governing  the  acceptance 
or  delivery  of  shipments.  Reference  to  all  these  documents  is 
necessary  to  give  such  a  paper  any  educational  value,  but  I  have 
made  my  references  to  the  various  documents  as  few  and  short  as 
possible,  and  have  attached  copies  of  the  forms  in  general  use  ex- 
cept those  which  some  interests  do  not  wish  me  to  publish. 

in  adjusting  cotton  losses  in  the  primary  markets  of  the  South, 
we  encounter  many  complications  and  difficulties  which  you  do  not 
meet  in  similar  losses  in  the  Northern  field,  for  here  the  cotton  is 
bought  and  sold  in  large  lots  of  usually  fifty  bales  or  over.  Be- 
fore it  reaches  this  port,  it  has  been  classed,  graded  and  valued,  and 
after  it  lands  here  it  is  again  classed  and  valued  by  competent  men. 
Nor  is  there  any  difficulty  in  determining  the  quantity  in  any  given 
warehouse.  Northern  people  realize  that  a  bale  of  cotton  is  a 
valuable  unit,  handle  it  accordingly,  and  the  adjuster  can  usually 
obtain  all  records  concerning  it.  There  is  no  question  here  as  to 
what  constitutes  delivery  from  seller  to  buyer,  nor  much  difficulty 
in  determining  who  owns  the  cotton  and  under  whose  policy  it  was 
covered  at  the  time  of  the  loss,  all  such  matters  being  settled  by 

444 


Cotton  Losses  and  Cotton  Salvage  Handling        \ 

the  Exchange  and  Warehouse  rules.  It  is  very  different  in  the 
South,  where  with  the  exception  of  the  large  ports,  such  as  New 
Orleans,  Savannah,  Galveston  and  some  inland  terminal -points  like 
Memphis,  Tennessee,  Dallas,  etc.,  there  are  no  Exchange  or  other 
recognized  rules  governing  the  delivery  of  cotton;  therefore  local 
customs  and  usages,  differing  in  the  various  places,  have  to  be  con- 
sidered in  determining  the  question  of  ownership  and  liability.  The 
receipts  issued  by  the  majority  of  compresses  and  warehouses  call 
for  delivery  to  bearer,  and  do  not  require  any  endorsement.  Cot- 
ton is  good  collateral  upon  which  the  banks  loan  most  liberally. 
Where  a  buyer  has  any  established  credit  with  his  bank,  it  is  not 
unusual  for  such  bank  to  allow  him  to  make  drafts  on  it  for  all  the 
cotton  he  buys,  attaching  the  warehouse  receipts  or  bills  of  lading 
thereto  as  collateral.  The  bank  pays  these  drafts  on  presentation 
and  charges  them  to  his  account  where  they  are  carried,  really  as 
overdrafts,  although  for  the  sake  of  appearances  and  apparent  com- 
pliance with  the  banking  laws,  they  may  call  it  by  some  other 
name.  In  many  of  these  banks  we  find  the  same  loose  business 
methods  that  are  almost  universal  in  the  Southern  cotton  business. 
Some  warehousemen  are  so  careless  that  they  do  not  always  require 
the  surrender  of  their  warehouse  receipts  when  delivering  cotton 
in  their  custody  to  people  they  know,  hence  the  fact  that  the  as- 
sured produces  receipts  covering  so  many  bales  of  cotton  in  the 
burned  warehouse  is  far  from  conclusive  evidence  that  he  had  that 
much  cotton  there. 

From  the  time  the  American  cotton  crop  is  picked  off  the  plant 
to  the  time  it  reaches  the  mills,  it  seems  to  be  abused  by  every  one 
who  handles  it.  In  my  sea-faring  days  when  I  used  to  come  in 
contact  with  American,  Egyptian  and  Indian  cotton  in  various 
countries,  we  could  spot  an  American  bale  almost  as  far  as  we  could 
see  it,  as  it  was  always  distinguished  from  its  Egyptian  and  Indian 
cousins  by  its  ragged,  torn  and  generally  disreputable  appearance. 
In  those  days  the  American  cotton  bale  was  a  glaring  contrast  to 
the  American  clipper  ships  which  we  then  found  in  so  many  ports, 
admired  by  all  and  conceded,  even  by  the  conceited  British  sea- 
man of  that  day,  to  be  the  trfmmest  and  most  beautiful  craft  that 
ever  sailed  the  seas.  The  American  cotton  bale  is  still  with  us,  a 
typical  example  of  the  careless  and  wasteful  methods  of  the  Ameri- 
can cotton  business. 

Few  people  who  are  not  connected  with  some  branch  of  the 
cotton  industry  appreciate  the  magnitude  and  importance  of  the 

445 


The  Fire  Insurance  Contract 

business  or  its  controlling  influence  in  the  development  of  this 
country.  In  1790  there  were  697,897.  slaves  in  the  United  States 
(of  which -21,324  were  in  New  York  State);  in  1860  there  were 
3,953,760  in  the  country.  This  increase  was  entirely  due  to  the 
development  of  cotton  planting  in  the  Southern  states.  As  early 
as  1790  slaves  were  becoming  an  expensive  burden  to  their  owners, 
for,  except  as  personal  servants,  their  labor  could  only  be  profitably 
employed  in  raising  rice,  tobacco  and  cotton.  The  cotton  crop  was 
not  then  a  very  important  one,  and  the  best  "field-hands"  brought 
only  $200  each  in  the  slave  markets.  It  is  probable  that  this  eco- 
nomic pressure  would  in  twenty  or  thirty  years  time  have  set/.dd 
the  slave  question  wdth  little  or  no  controversy,  but  this  pressure 
was  reversed  by  the  inventions  of  Kay  and  Cartwright  perfecting 
the  loom,  Arkwright  and  Hargraves  the  spinning  frame  and  mule, 
and  Watt  the  steam  engine.  These  created  a  demand  for  cotton 
which  could  not  be  supplied  by  the  slow  methods  of  ginning  by  hand, 
or  the  old  roller  process,  but  was  met  by  Whitney's  invention  of 
the  cotton  gin  in  1793,  from  which  date  the  wonderful  develop- 
ment of  cotton  into  a  world  power  really  begins. 

In  1790  the  United  States  produced  3,138  bales.  In  1914  the 
world's  cotton  crop  was  approximately  twenty-nine  million  bales,  of 
which  the  United  States  produced  fourteen  and  a  half  million;  the 
balance  of  America  two  million ;  India  five  million ;  China  four 
million;  Egypt  and  Russia  a  million  and  a  quarter  each;  and  all 
other  countries  approximately  a  million  and  a  half. 

The  United  States  exports  from  eight  to  ten  million  bales  of 
cotton  per  annum,  worth  approximately  five  hundred  million  dollars 
in  its  raw  state  on  the  American  seaboard,  being  more  than  25  per- 
cent of  our  total  exports  and  exceeding  the  combined  value  of  the 
three  next  important  products,  namely :  Iron  and  steel  manufac- 
tures, meat  and  dairy  products,  and  food  stufifs.  The  value  of 
raw  cotton  exports  usually  exceeds  the  balance  of  trade  in  favor 
of  the  United  States,  thus  a  failure  of  the  crop  or  serious  reduction 
in  exports  would  immediately  turn  the  balance  of  trade  against  us. 
As  far  as  the  insurance  interests  are  concerned,  cotton  is  undoubt- 
edly the  greatest  premium  producer»of  any  single  commodity  or 
industry. 

History  of  the:  Cotton  Crop  and  Its  Cultivation. 
When  we  are  considering  this  commodity,  it  is  well  to  have 
some  knowledge  of  it  beyond  the  fact  that  it  is  a  vegetable  fibre, 
spun  into  yarn  and  used  principally  for  making  cloth. 

446 


Cotton  Losses  and  Cotton  Salvage  Handling 

The  use  of  cottcm  in  the  Liberal  Arts  seems  to  have  originated 
in  India  where  it  was  undoubtedly  grown,  spun  and  woven  in  pre- 
historic times,  thousands  of  years  before  the  Christian  Era.  It  is 
mentioned  first  in  the  Rig  Veda,  a  Hindu  Hymn,  supposedly  writ- 
ten about  1500  B.  C}  In  800  B.  C,  the  religious  law,  as  given  in 
the  Sacred  Institutes  of  Manu,  prescribed  heavy  penalties  for  thefts 
of  cotton.  Herodotus  wrote  some  time  about  440  B.  C.  that  the 
Hindus  ''possess  a  kind  of  plant  which — instead  of  fruit — produces 
wool  of  a  finer  and  better  quality  than  that  of  a  sheep,  and  of  this 
the  Indians  make  their  clothes."  Cotton  is  not  mentioned  in  the 
Bible,  though  there  are  many  references  to  spinning,  weaving,  and 
dyeing  linen  and  wool.  Some  writers  claim  it  was  not  used  by  the 
ancient  Egyptians  as  the  mummy  wrappings  and  other  cloths  found 
in  the  ancient  tombs  are  made  of  linen,  that  is,  flax  and  not  cotton, 
but  these  men  were  bold  sailors  and  explorers,  and  it  seems  very 
probable  they  had  seen  and  traded  in  cotton  during  their  many 
Eastern  voyages. 

There  is  no  doubt  the  use  of  cotton  for  making  cloth  was 
known  on  the  American  continent  long  before  Columbus  first  visited 
its  shores,  for  it  is  recorded  that  when  during  his  first  voyage 
in  1492,  he  landed  on  the  Bahamas,  the  natives  came  out  to  his 
ships  in  canoes,  bringing  with  them  cotton  yarn  and  cloth  for  the 
purpose  of  barter,  and  later,  on  landing  in  Cuba,  he  was  surprised 
to  find  cotton  canvas  and  cord  in  general  use.  During  Magellan's 
first  circumnavigation  of  the  globe  in  1519,  he  found  the  BraziHans 
using  cotton  cloths.  Cortez,  on  his  expedition  through  Mexico  in 
1519,  found  cotton  in  general  use  there  and  was  so  pleased  with  the 
quality  and  beauty  of  the  Mexican  cotton  goods  that  he  sent  his 
emperor,  Charles  V.,  a  present  of  some  cotton  mantles  and  cloaks. 

When  Pizarro  conquered  Peru  in  1522,  he  found  the  natives 
growing  and  manufacturing  cotton  in  large  quantities. 

The  first  mention  of  its  cultivation  in  the  territory  which  sub- 
sequently became  the  United  States  of  America,  is  found  in  "A 
Declaration  of  the  State  of  Virginia,"  published  in  London  in  1620, 
where,  in  a  list  of  articles  "To  be  had  in  the  Virginia  Colony,"  we 
found  "cotton  wool  8d.  per  pound."  But  it  was  probably  first  cul- 
tivated, to  any  considerable  extent,  on  the  Cape  Fear  River  in  Caro- 
lina by  some  colonists  from  Barbadoes  who  settled  there  in  1664, 
bringing  their  cotton  seed  with  them. 

1  The  Culture  and  Commerce  of  Cotton  In  India,  by  L.  F.    Royle,  London. 

1851. 

447 


The  Fire  Insurance  Contract 

There  are  writers,  some  of  whom  are  entitled  to  great  respect, 
who  maintain  cotton  was  originally  indigenous  to  India,  from  which 
country  it  was  carried  and  planted  in  Persia,  Greece,  Egypt,  South 
Africa,  Spain  and  North  and  South  America,  but  if  we  credit  the 
reports  of  Columbus,  Magellan,  Cortez  and  Pizarro,  we  must  hold 
it  was  also  indigenous  to  the  American  continents  and  islands,  or 
admit  some  earlier  voyages  of  Eastern  explorers  than  those  recorded 
by  Columbus  and  his  followers. 

We  know  it  quickly  responds  to  changes  of  climate,  soil,  fer- 
tilizers and  methods  of  cultivition,  so  that  seed  brought  from  one 
country  or  district  to  another  often  assumes  the  characteristics  of 
another  species.  The  cotton  plant,  the  botanical  name  of  which  is 
the  Gossypium,  reproduces  itself  from  its  own  single  seeds,  which 
grow  in  a  pod  or  *'boll,"  in  some  varieties  as  many  as  thirty-six 
growing  in  a  single  boll,  and  to  which  seeds  the  cotton  lint  is  at- 
tached, as  your  hair  is,  or  with  some  of  you  I  should  say  was,  at- 
tached to  your  heads. 

In  some  districts,  among  which  are  parts  of  India,  Peru  and 
Porto  Rico,  the  cotton  plant  grows  as  a  shrubby  perennial,  making 
a  tree  from  ten  to  twenty  feet  high,  with  a  trunk  from  five  inches 
to  eight  inches  in  diameter,  but  when  cultivated  commercially  it  is 
generally  grown  as  an  annual,  making  a  shrub  from  two  to  six 
feet  high. 

CuiyTlVATlON  AND  HANDLING  UnDER 

Present  Conditions  in  U.  S. 

The  seed  is  planted  in  the  spring,  usually  in  drilled  rows,  with 
from  2^  to  5  feet  spaces  between  rows,  the  plants  being  hoed 
or  chopped  out  when  they  reach  a  suitable  size,  leaving  single  plants 
spaced  from  8  to  36  inches  apart,  according  to  the  district,  rich- 
ness of  the  soil,  etc.  After  this,  in  order  to  keep  the  ground  free 
from  weeds  and  retain  the  moisture,  it  is  cultivated  at  short  in- 
tervals until  some  thirty  days  before  the  crop  is  ready  for  picking. 

The  periods  of  growth  average  as  follows — from  time  of  plant- 
ing to  first  appearance  above  ground,  15  days;  to  first  bud,  40 
days;  first  blooms,  65  days;  first  open  bolls,  136  days.  The  aver- 
age yield  is  slowly  increasing,  but  I  doubt  if  it  exceeds  225  pounds 
of  lint  cotton  per  cultivated  acre. 

Picking.  There  have  been  many  attempts  made  to  perfect  a 
mechanical  cotton  picker,  but  so   far  none  have  proved  commer- 

448 


Cotton  Losses  and  Cotton  Salvage  Handling 

cially  successful,  and  the  crop  is  still  picked  by  hand.  .The  cot- 
ton fibre  hangs  from  the  bolls  or  pods,  apparently  ready  to  drop 
of  its  own  accord,  but  it  really  clings  somewhat  tenaciously  to  its 
pod,  and  when  picked  or  plucked  therefrom  the  seeds  come  with  it ; 
in  fact,  the  seeds  are  buried  in  the  lint  from  which  they  can  be  re- 
moved only  by  the  ginning  process.  When  the  picker's  sack  is 
full  he  carries  it  to  the  wagon,  where  it  is  weighed,  as  the  pickers 
are  usually  paid  by  the  pound,  and  at  the  close  of  the  day  hauled 
to  the  farmer's  house  and  deposited  on  the  porch  or  in  some  vacant 
shack  until  it  is  hauled  to  the  gin.  The  cotton  in  this  state  is 
known  as  '^seed  cotton,"  as  it  contains  all  the  seeds  buried  in  the 
lint. 

Seed  cotton  is  seldom  insured  (most  forms  limiting  their  cove*^ 
to  ''Cotton  in  Bales"),  yet  its  fire  hazard  is  not  as  great  as  after 
it  is  ginned  and  baled.  Many  insurance  men  will  scolf  at  this  state- 
ment, yet  a  few  simple  experiments  will  convince  them  of  its  truth. 
Seed  cotton  ignites  easily  but  the  fire  usually  flashes  over  the  pile 
then  goes  out  of  its  own  accord.  During  the  Civil  War,  when  so 
much  cotton  was  intentionally  destroyed,  it  was  found  that  other 
fuel  was  necessary  to  burn  the  seed  cotton.  If  there  was  much 
of  it  in  a  warehouse  the  building  might  be  burned  down  but  a 
large  pile  of  cotton  would  be  left  unconsumed.  Lint  cotton  on  the 
other  hand  when  once  ignited  will  smoulder  and  bum  until  all  is 
consumed.  Immersing  a  burning  bale  in  water  will  not  extinguish  the 
fire,  which  continues  smouldering  and  eating  into  the  bale.  Bales 
taken  from  the  water  after  a  week's  immersion  have  burst  into  flame 
as  soon  as  they  were  opened.  I  have  heard  many  people  say  that  if 
a  bale  of  cotton  that  has  been  wet  or  has  absorbed  any  great  amount 
of  moisture,  is  loaded  tightly  in  a  closed  freight  car,  the  hold  of  a 
vessel,  or  even  in  a  warehouse,  it  is  very  liable  to  spontaneous  com- 
bustion, but  that  theory  is  slowly  being  discredited  and  many  in- 
spectors now  raise  no  objection  to  loading  damp  or  wet  bales. 

Ginning.  In  due  course  the  farmer  hauls  his  seed  cotton  to 
the  gin  where  the  lint  or  fibre  is  separated  from  the  seeds,  by  be- 
ing passed  through  a  machine  containing  a  series  of  saws,  from 
which  the  lint  is  brushed,  then  drawn  by  suction  and  blown  to  the 
baling  press  where  it  is  compressed  in  a  box  27  inches  wide  by 
54  inches  long,  making  a  bale  approximating  27.4  inches  by  43.5 
inches  by  56.8  inches,  having  a  density  of  about  12  lbs.  per  cubic 
foot  and  weighing  about  500  pounds;  the  weights  vary  from  400 
pounds  to  650  pounds,  the  average  now  being  about  520  pounds. 

449 


The  Fire  Insurance  Contract 

During  this  baling  process  the  bale  is  theoretically  covered,  but  in 
practice  only  partially  covered,  with  a  very  poor  quality  of  coarse 
burlap  and  bound  with  five  to  seven  "ties,"  i.  e.,  iron  bands  weigh- 
ing about  one  pound  each.  One  excuse  for  only  partially  covering 
the  gin  bale  is  that  it  will  probably  be  recompressed  and  the  bag- 
ging is  enough  to  cover  the  reduced  package.  This  makes  what 
is  known  as  the  ''Gin  Bale."  When  it  is  turned  out  of  the  press  the 
ginner  attaches  a  tag  or  ticket  bearing  the  ginner's  serial  number 
and  delivers  the  bale  to  the  farmer  with  a  ticket  giving  the  gross 
weight.  In  some  states  the  law  requires  the  ginner  to  state  also 
the  tare  or  net  weight,  r^id  to  keep  a  record  of  all  cotton  ginned  by 
him,  and  to  make  periodical  returns  of  same  to  the  government. 

The  seed  which  has  been  separated  from  the  fibre  is  also  de- 
livered to  the  farmer  or  bought  from  him  by  the  ginner  who  usually 
buys  the  seed  for  account  of  some  cotton  seed  oil  mill.  The  per- 
centage of  lint  cotton  recovered  from  seed  cotton  is  approximately 
one-third  of  the  gross  weight  of  the  seed  cotton;  thus  for  every 
500-pound  bale  of  cotton  the  farmer  gets  he  should  have  1,000 
pounds  of  cotton  seed  worth  from  $20  to  $40  per  ton  according 
to  the  market,  which  depends  largely  on  the  price  of  cotton  oil. 
The  charge  for  ginning  varies  from  40  cents  to  60  cents  per  100 
pounds,  the  latter  being  the  usual  price.  This  charge  includes  the 
bagging  used  to  cover  the  bale,  also  the  ties.  As  the  ginner  fur- 
nishes these  materials  he  usually  purchases  the  cheapest  grade  he 
can  get,  most  of  the  covering  used  being  a  very  coarse  jute  bag- 
ging or  burlap  and  much  of  it  second  hand.  It  is  supposed  to  take 
from  six  to  seven  yards  of  44-inch  material,  weighing  ly^.  pounds 
to  3  pounds  per  yard  to  each  bale,  the  average  weight  probably 
being  something  less  than  2  pounds  per  yard.  Seven  yards  at 
2  pounds  is  14  pounds,  plus  six  bands  at  1  pound  makes  20  pounds, 
and  the  tare  on  these  bales  is  usually  figured  at  20  pounds  per  B/C, 
which  is  4  percent  on  a  500-pound  bale,  but  tare  is  not  deducted  in 
selling  or  buying  cotton  in  any  of  the  primary  markets;  there  the 
agreed  price  per  pound  is  paid  for  the  gross  weight  of  the  bale, 
as  shown  by  the  gin  ticket  or  as  shown  on  the  scales  when  reweighed. 
When  cotton  is  sold  on  some  of  the  exchanges  or  to  the  mills,  tare 
is  deducted  at  from  22  pounds  to  24  pounds  per  bale,  or  when 
exported,  the  tare  taken  on  the  Liverpool  market  being  6  percent 
of  the  gross  weight.  In  some  of  the  Continental  markets  the  cov- 
ering is  removed,  the  cotton  weighed  and  only  the  actual  net  weight 
is  paid  for. 

450 


Cotton  Losses  and  Cotton  Salvage  Handling 

There  are  several  makes  of  "Gin  Compressors,"  which,  unfor- 
tunately are  not  in  general  use  though  they  put  up  a  much  better 
bale  than  the  old  type  of  ''Gin"  or  "Box  Press,"  one  measuring 
approximately  20  inches  by  26  inches  by  24  inches,  or  18  inches  by 
30  inches  by  48  inches,  with  a  density  of  about  33  pounds  per  foot, 
and  tare  of  only  12  pounds.  The  "Compressed  Bale,"  as  turned 
out  in  the  large  compresses  by  the  old  Morse  or  Webb  press,  theo- 
retically measures  18x28x56,  with  a  density  of  22  pounds  per  cubic 
foot,  and  tare  of  22  pounds.  This  weighs,  of  course,  the  same  as  the 
"Ginned"  bale,  plus  two  or  three  extra  ties,  and  such  ^'patches"  as 
may  be  put  on. 

The  Compre:sse:d  Bale 

Gin  bales  are  so  light  in  comparison  to  their  bulk  that  a  box 
car  cannot  be  loaded  with  them  to  even  half  of  its  weight  carrying 
capacity,  so  to  facilitate  transport  by  rail  or  water  they  are  usually 
"Compressed"  or  "highdensitized,"  for  which  purpose  compresses 
are  located  at  most  of  the  central  railroad  points  or  junctions  and 
ports  in  the  Cotton  Belt.  These  are  huge  machines  operated  by  a 
direct  acting  steam  piston  in  a  72-inch  to  96-inch  cylinder.  The 
gin  bale  is  placed  in  the  machine,  the  bands  taken  off,  the  burlap 
loosened,  and  patches  of  burlap  laid  on  the  holes  made  by  the 
sampling,  then  pressure .  is  applied  on  two  sides,  that  is,  the  top 
and  bottom,  and  seven  or  eight  new  bands  are  put  around  it.  This 
turns  out  the  "Compressed  Bale"  which  theoretically  measures 
18x28x56,  with  a  density  of  22  pounds  per  cubic  foot,  and  tare  of 
from  20  pounds  to  22  pounds.  While  its  greater  density  enables 
more  bales  to  be  loaded  in  a  car  or  any  other  given  space,  it  is  far 
from  being  a  satisfactory  package  on  account  of  its  irregular  shape 
due  to  the  pressure  being  applied  only  to  the  top  and  bottom, 
which  makes  the  sides  more  or  less  rounded  and  leaves  it  of  a 
somewhat  oval  shape. 

All  railroad  rate  quotations  are  based  on  the  assumption  that 
the  bales  will  have  to  be  compressed  and  include  the  charges  for 
compressing  which  are  paid  by  the  railroad.  Unless  cotton  is  or- 
dered shipped  "Flat,"  i.  e.,  uncompressed,  and  for  which  a  higher 
freight  rate  is  charged,  the  railroad  company  has  the  privilege  of 
having  the  cotton  compressed  in  transit  at  its  expense.  Thus  cot- 
ton shipped  from  some  small  town  in  western  Georgia  to  Savannah 
would  be  stopped  en  route  at  the  first  place  where  there  was  a  com- 
press, unloaded,  compressed,  and'  reloaded,  all  at  the  railroad's  ex- 
pense, and  then  sent  through  to  Savannah. 

451 


The  Fire  Insurance  Con  tract 

A  new  method  of  further  compressing  cotton  is  now  coming 
into  use  especially  for  ocean  shipment,  known  as  the  "High  Density" 
press.  These  are  much  like  the  old  type  of  press  with  side  pieces 
added,  which  turns  out  a  bale  with  four  square  sides. 

There  are  also  two  or  three  methods  of  rolling  cotton  into 
"round  bales,"  that  is,  the  Lowry  Press,  making  a  bale  of  38  inches 
by  18  inches,  with  an  average  density  of  47  pounds  per  cubic  foot, 
weighing  250  pounds ;  and  the  "American  Round  Lap  Press,"  mak- 
ing a  round  bale  35  inches  by  22  inches,  with  a  density  of  35  pounds 
per  cubic  foot,  weighing  275  pounds. 

A  new  hydraulic  press,  "The  Standard  Compress,"  makes  a 
bale  approximately  24x24x28  inches,  having  a  density  of  about 
33  pounds  per  cubic  foot,  which  from  my  observation  of  many 
of  them  that  have  been  exposed  to  fire,  water  and  country  damage, 
seems  to  be  in  every  way  the  best  square  sided  bale  yet  produced 
from  an  insurance  standpoint.  This  makes  a  bale  with  square  sides 
and  ends  that  can  be  neatly  and  entirely  covered,  leaving  no  loose 
cotton  to  be  set  on  fire  by  every  spark  that  falls  on  it.  The  pres- 
sure is  applied  evenly  on  all  surfaces  so  the  strata  or  layers  of  cot- 
ton are  not  distorted  and  the  sides  of  the  bale  are  virtually  cal- 
endered by  the  steel  surfaces  of  the  press,  precluding  its  absorb- 
ing water  or  moisture  as  rapidly  as  the  ordinary  compressed  bale 
does. 

Marketing 

Cotton  merchants  or  buyers  can  be  divided  into  four  general 
classes  as  follows : 

The  Factor  is  really  a  commission  merchant  to  whom  the 
planter  or  owner  consigns  cotton  to  be  sold  for  his  account  either 
at  designated  price  or  to  be  sold  on  the  market  at  the  factor's  dis- 
cretion. These  factors  usually  protect  their  clients  by  obtaining 
straight  fire  policies  carrying  the  Commission  Clause.  Where  the 
"General  Floater"  (Form  No.  8  C^  or  "Limited  Floater"  (Form 
No.  9  C)  is  used,  it  sometimes  requires  much  careful  investigation 
to  obtain  a  correct  list  of  cotton  under  cover  of  the  factor's  policies 
and  to  ascertain  whether  any  of  the  consignees  have  other  insur- 
ance that  should  contribute  to  the  loss.  The  factor's  records  are 
usually  no  better  kept  than  the  average  run  of  cotton  accounts  and 
seldom  show  weights  or  grades,  in  the  absence  of  which  it  is  neces- 
sary to  follow  each  bale  back  through  consignee  to  ginnery  to  ob- 
tain the  required  information,  unless  the  Assured  is  willing  to  set- 

452 


Cotton  Losses  and  Cotton  Salvage  Handling 

tie  on  basis  of  average  weight  per  bale,  as  shown  by  weight  sheets 
of  cotton  passing  through  the  burned  warehouse  or  through  some 
other  warehouse  in  the  same  town. 

The  Merchant  is  a  very  ambiguous  term  as  used  in  the  primary 
cotton  markets,  but  I  should  say  it  is  generally  applied  to  the  men 
who  make  the  buying  and  selling  of  cotton  merely  a  side  line  to 
their  more  important  business  of  general  merchandising  or  banking. 
They  obtain  much  of  their  cotton  from  advances  of  credit  for  mer- 
chandise or  crop  loans  to  the  smaller  planters,  and  their  operations 
are  generally  confined  to  their  home  towns.  These  men  usually 
carry  only  specific  fire  insurance  policies. 

The  Buyer  and  Exporter.  These  last  include  by  far  the  most 
important  element  in  the  cotton  trade.  Some  of  the  larger  firms 
operate  in  several  states,  having  many  resident  buyers  and  branch 
offices  in  each  state  as  well  as  in  New  York  and  Boston  and  some 
of  them  in  Liverpool,  Manchester,  Havre,  Bremen,  etc.  Some  of 
these  firms  buy  only  in  lots  from  the  factors,  merchants  and  larger 
planters,  but  many  of  them  buy  by  the  bale  from  the  planters  when 
they  haul  their  cotton  to  town.  Their  representatives  in  smaller 
towns  ship  the  cotton  they  buy  to  the  large  compresses  where  the 
firm  "concentrate"  their  shipments.  This  term  ''concentrate"  as 
used  in  the  cotton  trade,  is  often  misconstrued  by  the  laymen  as 
meaning  the  act  of  compressing  the  bale  to  a  greater  density,  but 
it  means  the  gathering  or  assembling  at  some  central  point,  (in- 
variably at  some  large  compress)  of  the  purchases  made  in  the 
adjacent  territory.  The  firm  may  want  1,000  bales  of  good  middling 
for  some  New  England  customer.  They  could  not  buy  such  quan- 
tity of  one  grade  at  any  one  place  (except  the  larger  Exchange 
points)  without  overbidding  the  market,  but  could  probably  select 
it  out  of  10,000  B/C  of  various  grades  shipped  to  point  of  concen- 
tration from  their  local  representatives  at  twenty  dififerent  places. 
This  process  of  concentration  is  explained  under  the  title  Com- 
presses. 

The  Spinner  usually  buys  only  for  his  own  mill,  and  the  cotton 
is  seldom  at  his  risk  until  it  reaches  the  mill  warehouse  and  comes 
under  cover  of  his  specific  policies. 

We  will  assume  the  planter  hauls  three  or  four  bales  of  his 
ginned  cotton  into  his  market  town.  Leaving  his  wagon  in  the  pub- 
lic square,  he  calls  on  some  of  the  cotton  merchants  or  buyers  who 
inspect  and  take  samples  of  each  bale  and  offer  him  what  they  think 

453 


The  Fire  Insurance  Contract 

the  cotton  is  worth,  or  more  properly  speaking,  the  lowest  price 
they  think  it  can  be  bought  for.  If  he  accepts  same,  the  buyer  in- 
structs him  to  deliver  the  cotton  to  some  stated  warehouse,  which 
the  planter  does,  obtaining  a  receipt  for  the  cotton  shov/ing  the 
weight  and  number  of  each  bale.  He  takes  the  receipts  to  the 
buyer  who  probably  gives  him  a  draft  on  the  local  bank  for  the 
agreed  price,  which  draft  calls  for  the  warehouse  receipt  to  be 
attached  to  it. 

Sampling,  Classing  and  Grading.  To  obtain  samples  for  grad- 
ing or  classing  (the  terms  are  synonomous)  a  deep  cut  is  made 
through  the  bagging  across  the  face  of  the  bale  and  two  or  more 
liberal  handfuls  of  cotton  are  pulled  out;  this  sample  will  weigh 
from  four  ounces  to  one-half  pound  or  more,  according  to  the  greed 
of  the  man  pulling  it.  In  many  cases  a  sample  is  taken  from  each 
side  of  the  bale,  thus  making  a  total  of  from  six  ounces  to  one 
pound.  As  a  general  rule  a  sample  is  drawn  from  a  bale  of  cotton 
each  time  it  is  sold.  These  samples  are  jokingly  spoken  of  by  the 
buyers  as  ''The  City  Crop."  When  they  accumulate  the  buyers  sell 
them  for  about  1  cent  below  the  Middling  price.  Some  compresses 
and  warehouses  also  sample  every  B/C  they  tako  in;  in  fact,  the 
amount  of  cotton  accumulated  by  some  compresses  from  this  pro- 
cess has  been  the  subject  of  legislative  debate  and  threatened  inves- 
tigation. From  the  samples  thus  drawn  the  cotton  is  graded  by  an 
expert  usually  called  a  "Classer."  All  cotton  is  "Graded"  accord- 
mg  to  its  color,  i.  e.,  whiteness  and  purity  or  freedom  from  leaf, 
hulls,  dirt  or  trash.  The  "Grade"  has  no  reference  to  the  "Staple," 
i.  e.,  length  of  fibre,  except  that  in  the  absence  of  any  specification 
in  the  offer  or  contract  between  seller  and  buyer  as  to  length  of 
staple  (i.  e.,  fibre)  it  is  assumed  to  call  for  "Upland"  or  "Short 
Staple  Cotton,"  that  is,  a  "staple"  or  fibre  not  shorter  than  J^  of  an 
mch  or  longer  than  one  inch. 

The  samples  are  usually  marked  or  carded  with  the  number  of 
the  bale,  either  the  gin  ntimber,  or  warehouse  number  being  used, 
or  the  buyer  may  attach  his  own  tag  or  ticket  to  the  bale  and  use 
his  own  number.  These  samples  are  kept  in  the  buyer's  office 
until  he  sells  and  ships  the  cotton. 

U.  S.  Government  Standards. 

There  have  been  many  unsuccessful  attempts  to  establish  some 
uniform  system  of  designating  the  different  grades,  and  in  1914 
the  U.  S.  Congress  passed  what  is  known  as  "U.  S.  Cotton  Fu- 

454 


Cotton  Losses  and  Cotton  Salvage  Handling 

tures  Act"  (U.  S.  Statutes  at  Large,  Vol.  38,  P.  693,  2nd  Sess. 
63rd  Congress)  to  which  there  have  been  several  amendments  and 
virtually  a  re-enactment  in  August,  1916.  This  act  directed  the 
Secretary  of  Agriculture  to  "Establish  and  promulgate  standards  of 
Cotton  by  which  its  quality  or  value  may  be  judged  or  determined, 
including  its  grade,  length  of  staple,  strength  of  staple,  color,  and 
such  other  qualities,  properties,  and  conditions  as  may  be  standard- 
ized in  practical  form,  which,  for  the  purposes  of  this  act,  shall  be 
known  as  the  'Official  Cotton  Standards  of  the  United  States.'  " 

In  order  to  enforce  the  adoption  of  these  grades  on  the  various 
Exchanges  the  act  levies  a  tax  ''in  the  nature  of  an  excise  of  2  cents 
for  each  pound  of  cotton  involved"  in  any  sale  for  future  delivery 
where  such  contract  of  sale  is  not  based  on  or  does  not  specify 
the  grade  in  Official  Cotton  Standards.  The  act  also  provides  for 
settlement  of  disputes  between  vendor  and  vendee  through  arbitra- 
tion by  the  Department  of  Agriculture.  The  Secretary  of  Agricul- 
ture has  now  (September  1,  1916)  established  and  promulgated 
twenty  "Standard  Grades"  for  short  staple  cotton  as  follows  (see 
U.  S.  Dept.  of  Agriculture  Service  and  Regulatory  Announcements 
Xo.  10,  issued  9/1/16). 

U.  S.  GOVERNMENT  STANDARDS. 

(Promulgated   Aug.    12,    1916.) 

(1)  Middling   Fair, 

(2)  Strict    Good    Middling. 

(3)  Good    Middling. 

(4)  Strict   Middling. 

(5)  MIDDLING. 

(6)  Strict   Low    Middling. 

(7)  Low   Aliddling. 

(8)  Strict   Good   Ordinary. 

(9)  Good  Ordinary. 

T  3  Yellow  Tinged   Good   Middling. 

T  4  Yellow  Tinged  Strict  Aliddling. 

T  5  Yellow  Tinged  Middling. 

T  6  Yellow  Tinged  Strict  Low  Middling 

T  7  Yellow  Tinged  Low  Middling. 

S  3  Yellow  Stained  Good   Middling. 

S  4  Yellow  Stained  Strict  Middling. 

S  5  Yellow  Stained  Middling. 

B  3  Blue  Stained  Good  Middling. 

B  4  Blue  Stained  Strict  Middling. 

B  5  Blue  Stained  Middling. 

The  numbering  given  in  left-hand  column  is  the  writer's  arbi- 
trary system  of  numbering  for  convenient  reference  and  has  no 
relation  to  the  Government  Standards  or  any  system  of  numbering 
recognized  by  the  cotton  trade. 

455 


The  Fire  Insurance  Contract 

The  American  Standards  are  based  on  seven  full  grades,  i.  e., 
three  above  and  three  below  the  basis  grade  of  Middling,  thus: 

Fair  )  .  (  Low  Middling 

Middling  Fair         )        MIDDLING        (  Good  Ordinary 

Good  Middling       )  (  Ordinary 

The  U.  S.  half  grades  are  made  by  prefixing  the  word  "Strict" 
to  their  full  grade  names. 

In  the  Liverpool  Standards  the  half  grades  are  formed  by 
prefixing  the  word  ''Fully"  instead  of  the  word  "Strict,"  as  in  the 
U.  S.  Standards. 

A  further  division  is  sometimes  made  to  represent  a  quarter 
grade  by  prefixing  the  word  "Barely."  Thus  "Barely  Middling" 
is  one-quarter  grade  below  Middling. 

Samples  of  the  nine  standard  grades  of  white  cotton  can  be 
bought  from  the  Department  of  Agriculture  for  $25.00.  The  New 
York,  Boston,  New  Orleans,  Dallas,  Galveston,  Augusta,  Savannah, 
Memphis,  St.  Louis  and  all  the  other  important  Cotton  Exchanges 
in  the  United  States  have  adopted  U.  S.  Official  Cotton  Standards. 
They  have  likewise  been  adopted  by  Rotterdam,  but  not  by  Liver- 
pool. On  September  1,  1916,  the  Liverpool  Cotton  Exchange  pro- 
mulgated and  adopted  a  new  "Series  of  Standard  Grades,"  one  for 
"American  Upland  Cotton,"  one  for  "American  Gulf  Cotton,"  and 
one  for  "American  Texas  Cotton,"  as  follows .  I  give  the  Liverpool 
Standard  with  the  nearest  equivalent  grade  of  the  U.  S.  Standard 
as  reported  by  the  U.  S.  Department  of  Agriculture. 

A   comparison  of  the  Liverpool  Cotton  Standards  for  American    {Gulf)    Cotton 
with  the  Official   Cotton  8ta7idards  of  the   United  States  for  grade. 

United  States  Standard        Gulf  Liverpool  standard  Remarks 

Middling  Fair , No  equivalent. 

Strict   Good   Middling.  Middling  Fair,  %  grade  above  Color    brighter.      Leal 

equal. 

Good    Middling Fully     Good     Middling,     grade 

equal Color  equal.   Leaf  equal. 

Strict  Middling Good  Middling,  %  grade  below  Color  equal.  Slightly  more 

leaf. 


Middling    Fully  Middling,  grade  equal .  .  Color  brighter.    More  leaf. 

~' '     Idling,    ^^    gn  '        ' 

Strict  Low  Middling.  .  Fully     Low     Middling,     grade 


Strict  Low  Middling.  .  Middling,    i^    grade   above    .  .  .  Color  brighter.    More  leaf. 


equal Color      slightly      brighter. 

More  leaf.  Types  vari- 
able, 4  above  and  4 
below. 

Low  Middling... — ..  Low  Middling,  grade  equal  ...  Color     slightly     brighter. 

More  leaf.  Types  vari- 
able, 4  above  and  4  be- 
low. 

Strict  Good  Ordinary.  Fully    Good    Ordinary,    grade 

equal    Color  grayer  and  less  red. 

Slightly  more  leaf. 

Good   Ordinary Good  Ordinary,   grade  equal..   Color  slightly  grayer  and 

whiter.  Less  red. 
Slightly  more  leaf  and 
shale. 

Good    Ordinary Ordinary,   %,  grade  lower Color    grayer.     More    leaf 

and  shale. 

456 


Cotton  Losses  and  Cotton  Salvage  Handling 

A   comparison  of  the  Liverpool  Cotton  Standards  for  American   (Texas)    Cotton 
with  the  Official  Cotton  Standards  of  the  United  States  for  grade. 

United  States  standard       Texas  Liverpool  standard  Remarks 

Middling  Fair   No  equivalent. 

Strict   Good   Middling.  Middling  Fair,   14    grade  above  Color  whiter.    Leaf  equal. 

Good  Middling Fully  Good  Middling,  14  grade 

below    Color  equal.  Slightly  more 

leaf. 
Strict  Middling Good    Middling,    %    grade    be- 
low     Color  equal.     More  leaf. 

Middling    Fully    Middling,    ^    grade   be- 
low      Color  brighter.    More  pep- 
pery leaf. 

Strict  Low  Mddling...  Middling,   %   grade  above Color    brighter.       Slightly 

less  leaf. 
Strict  Low  Middling.  .  Fully     Low     Middling,     grrade 

equal     Color  brighter.    More  pep- 
pery leaf  and  more  va- 
riable. 
Low  Middling   Low  Middling,  grade  equal Color  brighter.    More  pep- 
pery leaf. 
StrlH    Good   Ordinary.  Fully     Good     Ordinary,     grade  Color     brighter.      Slightly 

equal    more  leaf. 

Good   Ordinary    Good  Ordinary,  14  grade  above  Color  brighter.    More  leaf. 

Good    Ordinary Ordinary,    14    grade  below....    Color     brighter.       Larger 

and  more  leaf. 
A  comparison  of  the  Liverpool  Cotton  Standards  for  American   {Upland)   Cotton 
with   the   Official   Cotton  Standards   of   the    United   States   for  grade. 

United  States  standard       Upland  Liverpool  Standard  Remarks 

Middling  Fair No  equivalent. 

Strict   Good   Middling.   Middling  Fair,   Vj   grade  above  Color  whiter.  Leaf  equal. 

Good    Middling Fully     Good     Middling,     grade 

equal     Color   equal.     Leaf   equal. 

Strict  Middling Good   Middfing,   grade  equal..  Color   brighter.      Leaf 

equal.        Preparation 

poorer. 
Middling   Fully  Middling,  grade  equal..   Color     slightly      brighter. 

Leaf  about  equal. 
Strict  Low  Middling...  Middling,    ^   grade  above Color  brighter.      Leaf 

slightly  less. 
Strict  Low  Middling.  .  Fully     Low     Middling,     grade 

equal Color  equal.     Leaf  equal. 

Low  Middling   Low  Middling,   %   grade  above  Color    brighter.     Leaf 

equal. 
Strict  Good  Ordinary.  Fully     Good     Ordinary,    grade 

equal Color  brighter.  More  leaf. 

Good  Ordinary    Good  Ordinary,  14  grade  above  Color  grayer.     Less  leaf. 

Good   Ordinary    Ordinary,    %    grade   lower Color  bluer.    Leaf  equal. 

Beside  the  above  there  are  trade  definitions  used  in  various 
districts  that  are  too  numerous  to  mention,  such  as  ^'Dogtail," 
*'BolHe,"  "Half  and  Half,"  etc.  Bollie  cotton  is  found  principally 
in  Western  Oklahoma  and  the  Panhandle  districts  of  Texas,  where 
owing  to  cold  or  late  seasons  some  of  the  cotton  does  not  mature 
sufficiently  to  warrant  picking  in  the  usual  manner  and  the  bulls 
are  picked  from  the  plant  and  put  through  a  ginning  process  which 
leaves  a  much  larger  percentage  of  the  boll  or  husk  and  dirt  in  the 
cotton  than  is  permissible  in  any  recognized  grade. 

Some  few  years  ago  a  Georgia  planter  developed  a  hybrid 
variety  of  cotton  which  he  tested  in  a  certain  district  in  Western 
Oklahoma  producing  an  exceptionally  heavy  yield.  The  next  year 
he  sold  this  seed  to  planters  in  that  vicinity  who  produced  an  un- 
usually large  crop,  but  when  mature  the  cotton  was  found  to  lack 
both  strength  of  fibre  and  length  of  staple  to  such  an  extent  that 

457 


The  Fire  Insurance  Contract 

it  was  difficult  to  find  a  market  for  it,  though  it  required  an  expert 
classer  to  distinguish  it  from  the  better  grade  of  cotton  raised  in 
that  district.  These  are  features  against  which  the  adjuster  must 
continually  guard  when  he  is  handling  losses  for  claimants  whose 
reputation  or  integrity  is  not  above  question. 

Middling  is  the  contract  or  basis  grade.  All  market  quotations 
and  Exchange  contracts  for  future  delivery  are  made  on  Middling 
basis.  The  grades  above  Middling  bring  more  than  the  market 
quotation  for  Middling  and  the  grades  below  Middling  bring  less. 
These  variations  in  price  are  known  as  "Commercial  Differences" 
and  change  from  time  to  time  as  promulgated  by  the  Cotton  Ex- 
changes in  what  are  known  as  ''Spot  Markets."  If  a  contract  for 
sale  for  future  delivery  reads  "1,000  B/C  May  delivery.  Subject 
to  U.  S.  Cotton  Futures  Act,  Section  Five,"  the  seller  may  tender 
any  cotton  grading  from  Good  Ordinary  up  to  Middling  Fair,  and 
settlement  will  be  made  by  payment  above  or  below  the  contract 
price  of  15  cents  Middling,  on  the  Commercial  Differences,  for  the 
grades  delivered,  as  evidenced  by  the  published  quotations  based  on 
actual  sales  made  at  place  of  contract  (if  that  place  be  a  spot 
market)  on  the  sixth  business  day  prior  to  date  of  delivery.  Under 
the  United  States  Cotton  Futures  Act  the  Secretary  of  Agriculture 
has  designated  the  following  as  Spot  Markets;  the  quotations  of 
which  are  to  be  used  in  determining  differences. 

Alontgomery,   Ala.  Boston,   Mass. 

Little   Rock,  Ark.  Memphis,  Tenn. 
Augusta,  Ga.                       '  Dallas,    Texas. 

Savannah,  Ga.  Galveston,  Texas. 

New   Orleans,    La.  Houston,  Texas. 

Norfolk,  Va. 

The  differences  promulgated  by  the  Secretary  of  Agriculture, 

for  November  23rd,  1916,  were  as  follows: 

The  following  averages  of  the  differences  between  grades,  as  figured  from 
the  November  23  quotations  of  the  eleven  markets  designated  by  the  Secretary 
of  Agriculture,  are  the  differences  established  for  deliveries  in  this  market  on 
November  30  : 

Grade                                    Cents.  Grade                                    Cents. 

Middling  Fair    80   on  Mid.  Strict  Middling 21  off  Mid. 

Strict  Good  Middling   56  on  Mid.  Middling    43  off  Mid. 

Good  Middling 34  on  Mid.  Strict  Low  Middling  .  .      .77  oti  Mid. 

Strict  Middling 18  on  Mid.  Low   Middling    1.17  off  Mid. 

Middling    Basis.  "Yellow  Stained — 

Strict  Low  Middling    ...      .27  ofC  Mid.  Good  Middling 49  off  Mid. 

Low  Middling 66  off  Mid.  Strict  Middling 70  ofC  Mid. 

Strict  Good  Ordinary  .  . .    1.11  ofC  Mid.  Middling    95  off  Mid. 

Good   Ordinary    1.57  off  Mid.  "Blue"   Stained— 

"Yellow  Tinged—  Good  Middling 52  off  Mid. 

Strict  Good  Middling    .      .28  on  Mid.  Strict  Middling 82  off  Mid. 

Good  Middling   Even.  Middling    1.15  off  Mid. 

The  Secretary  of  Agriculture  has  also  promulgated  definitions 
of  certain  grades  of  cotton  that  cannot  be  delivered  in  settlement 
of  such  contracts  (S.  R.  A.  Markets  No.  10,  September  1,  1916)  : 

458 


Cotton  Losses  and  Cotton  Salvage  Handling 

Gin-Cut  Cotton. 

Gin-cut  cotton  is  cotton  that  shows  damage  in  ginning,  through 
cutting  of  the  saws,  to  an  extent  that  reduces  its  value  more  than  two 
grades,  said  grades  being  of  the  official  cotton  standards  of  the  United 
States. 

Gin  cutting  of  a  less  extent  than  that  mentioned  above  which  re- 
duces the  cotton  below  the  value  of  Good  Ordinary  would  render  the 
cotton  untenderable  though  the  extent  of  injury  were  less  than  that  de- 
scribed, as  the  fifth  subdivision  of  section  5  states  specifically  that  cotton 
the  value  of  which  is  reduced  below  that  of  Good  Ordinary  shall  not  be 
delivered  on,  under,  or  in  settlement  of  a  contract. 

Reginned  Cotton. 

Reginned  cotton  is  such  as  has  passed  through  the  ginning  process 
more  than  once;  also  such  cotton  as,  after  having  been  ginned,  is  sub- 
jected to  a  cleaning  process  and  then  baled. 

Repacked   Cotton. 

Repacked  cotton  will  be  deemed  to  mean  factors',  brokers',  and  all 
other  samples;  also  "loose"  or  miscellaneous  lots  collected  together  and 
rebaled. 

False  packed  cotton. 

Cotton  bales  will  be  deemed  false  packed  whenever  containing  sub- 
stances entirely  foreign  to  cotton,  or  containing  damaged  cotton  in  the 
interior  with  or  without  any  indication  of  such  damage  upon  the  ex- 
terior; also  when  plated  (that  is,  composed  of  good  cotton  upon  the 
exterior  and  decidedly  inferior  cotton  in  the  interior)  in  a  manner  not 
to  be  detected  by  customary  examination;  also  when  containing  pick- 
ings or  linters  worked  into  them. 

Mixed  Packed  Cotton. 

Mixed  packed  cotton  shall  be  deemed  to  mean  such  bales  as  show 
a  difTerence  of  more  than  two  grades  between  samples  drawn  from  the 
heads,  top,  and  bottom  sides  of  the  bale,  or  when  such  samples  show  a 
diflference  in  color  exceeding  two  grades  in  value,  said  grades  being  of 
the  official  cotton  standards  of  the  United  States. 

Water  Packed   Cotton. 

Water  packed  cotton  shall  be  deemed  to  mean  such  bales  as  have 
been  penetrated  by  water  during  the  baling  process,  causing  damage  to 
the  fiber,  or  bales  that  through  exposure  to  the  weather  or  by  other 
means,  while  apparently  dry  on  the  exterior,  have  been  damaged  by 
water  in  the  interior.  > 

Cotton  of  Perished  Staple. 

Cotton  of  perished  staple  is  such  as  has  had  the  strength  of  fiber 
as  ordinarily  found  in  cotton  destroyed  or  unduly  reduced  through  ex- 
posure, either  to  the  weather  before  picking  or  after  baling,  or  to  heat- 
ing by  fire,  or  on  account  of  water  packing,  or  through   other   causes. 

Cotton  of  Immature  Staple. 

Cotton  of  immature  staple  is  such  as  has  been  picked  and  baled 
before  the  fiber  has  reached  a  normal  state  of  maturity,  resulting  in  a 
weakened  sta'ple   of  inferior  value. 

Cotton  of  Seven-eighths-inch  Staple. 

After  investigation  it  is  likely  that  a  standard  for  cotton  seven- 
eighths  of  an  inch  in  length  of  staple  will  be  issued.     In  the  meantime, 

459 


The  Fire  Insurance  Contract 

the  examiners  authorized  to  hear  disputes  will  pull  the  cotton  so  that 
the  ends  will  be  squared  off  fairly  well  without  unduly  reducing  the 
bulk  of  the  drawn  sample.  When  the  measure  is  applied  a  fair  quantity 
of  the  cotton  must  remain  in  order  to  show  that  the  sample  has  not  been 
pulled  too  fine  before  measuring.  When  thus  pulled  and  measured  as 
cotton  experts  are  accustomed  to  do  its  fair  average  length  shall  be  not 
less  than  seven-eighths  of  an  inch,  in  order  that  the  cotton  be  tenderable 
under  a  contract  made  in  compliance  with  section  5  of  the  act. 

Cotton  that  is  less  than  seven-eighths  of  an  inch  in  length  of 
staple,  that  is,  with  a  fibre  less  than  seven-eighths  of  an  inch  long, 
will  not  be  accepted  as  standard  grade. 

Long  Staple  Cotton.  Cotton  with  a  staple  or  fibre  longer  than 
one  inch  is  known  as  "Long  Staple  Cotton,"  and  is  grown  princi- 
pally on  the  "bottom  lands"  of  the  Mississippi,  Arkansas  and  White 
Rivers,  and  some  sections  of  Texas,  Arkansas,  Arizona  and  Cali- 
fornia. This  cotton  is  graded  for  color  and  purity  the  same  as  the 
short  staple  cotton  and  is  also  graded  by  16ths  of  an  inch  for  length 
of  "Staple"  or  fibre  over  one  inch  up  to  ly^  inches,  and  brings  a 
premium  or  excess  price  according  to  its  length.  There  is  no  set 
rule  governing  this  excess  price — as  an  example  we  give  quotations 
from  responsible  firms  in  New  Orleans  and  Vicksburg  on  April 
1st,  1913: 


460 


Cotton  Losses  and  Cotton  Salvage  Handling 


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461 


The  Fire  Insurance  Contract 

These  quotations  show  that  the  premiums  are  relatively  higher 
for  the  grades  above  Middling  and  the  penalties  greater  for  the 
grades  below  Middling  than  with  short  cotton.  Nevertheless,  every 
additional  one-sixteenth  of  an  inch  in  the  length  of  staple  usually 
adds  as  much  to  the  market  value  of  the  cotton  as  does  a  full  grade 
in  the  grading.  This  is  especially  true  for  staples  up  to  1^  inches 
in  length.  There  is  a  greater  difference  of  opinion,  however,  con- 
cerning length  of  staple  than  there  is  concerning  the  grade. 

As  noted  above  the  government  has  now  established  twenty 
Standard  Grades  for  short  staple  cotton.  Long  staple  cotton 
comes  in  all  these  twenty  grades,  besides  which  it  is  graded  by 
16ths  of  an  inch  from  1  inch  to  1^^  inches,  making  eight  grades  for 
each  Standard  Grade,  or  a  total  of  160  grades.  Thus  Good  Mid- 
dling 1  1/16 — 1^ — 1  3/16  inches,  etc.  The  writer  recalls  a  loss 
where  one  claimant  lost  372  bales  which  comprised  sixty-eight  dif- 
ferent grades,  the  prices  of  which  ranged  from  14  to  29  cents  per 
pound.  Some  exceptional  grades  of  long  staple  cotton  have  sold 
for ^45  cents  per  pound  when  the  Middling  basis  was  only  15  cents. 

Sea  Island  Cotton  is  a  distinct  variety  differing  in  many  essen- 
tial feature  from  both  the  Upland  and  Long  Staple  cottons. 
The  plant  grows  much  taller  with  smoother  leaves  and  flow- 
ers of  a  brighter  yellow,  the  bolls  are  smaller  though  longer  and 
more  pointed,  the  seeds  smoother  and  almost  bare  of  fuzz  or  lint. 
The  fibre  is  longer  and  much  finer,  looking  more  like  silk  and  re- 
sembling the  Egyptian  cotton  which  comes  in  competition  with  it  for 
some  purposes.  The  best  Sea  Island  Cotton  is  grown  on  the  islands 
off  the  Coast  of  South  Carolina,  that  State,  however,  produces  only 
an  average  of  8,000  four- hundred  pound  bales  per  annum.  It  is 
also  grown  on  a  narrow  strip  of  Central  Georgia,  about  one  hun- 
dred miles  from  the  coast,  extending  from  the  South  Carolina  to 
the  Florida  line,  the  County  of  Lowndes  producing  more  than  any 
other,  and  in  four  or  five  counties  south  of  th^  line  in  Florida. 
Georgia  produces  about  50,000  and  Florida  about  30,000  bales, 
making  the  total  average  production  about  90,000  four-hundred 
pound  bales  per  annum.  It  costs  much  more  to  produce  than  any 
other  variety,  greater  care  is  exercised  in  selecting  the  seed,  in 
cultivating,  picking,  sorting,  ginning  and  baling.  It  is  ginned  on  a 
roller  gin  as  the  more  rapid  operation  of  the  saw  gin  injures  the 
fibre.  The  South  Carolina  cotton  is  put  up  in  bags  7.5  feet  long 
and  about  2.5  feet  in  diameter.  This  is  pressed  in  with  a  light 
hand-screw  press,  making  a  bale  weighing  from  300  to  400  pounds, 

462 


Cotton  Losses  and  Cotton  Salvage  Handling 

and  looking  like  the  old  style  wool  sack.  The  interior  Sea  Island 
cotton  is  packed  by  a  steam  press  into  bales  about  the  same  size 
and  shape  as  the  Upland  cotton,  but  better  covered  with  burlap 
secured  by  sewing  instead  of  iron  bands,  and  weighing  only  400 
pounds.  The  price  of  short  staple  Upland  cotton  has  little  bearing 
on  Sea  Island.  Some  extra  fine  cotton,  with  a  staple  two  inches 
and  over,  from  the  Carolina  Islands,  brings  from  fifty  to  eighty 
cents  per  pound ;  but  the  supply  and  demand  for  such  cotton  is  very 
limited.  It  is  said  that  Queen  Victoria  would  wear  none  but  white 
cotton  stockings,  the  material  for  which  was  selected  from  these 
island  cottons.  While  she  undoubtedly  required  stockings  of  lib- 
eral dimensions,  her  death  would  have  caused  no  falling  off  in  the 
demand  if  fashions  had  not  changed  until  the  modern  woman  would 
rather  wear  the  cheap  worthless  imitation  silk  than  the  better  look- 
ing and  better  wearing  pure  white  cotton  our  grandmothers  prized 
so  highly. 

Sea  Island  is  classified  according  to  length  of  staple  by  six- 
teenths of  an  inch,  as  explained  above  in  reference  to  long  staple 
cottons,  and  these  classes  are  subdivided  into  five  or  six  grades 
judged  by  color,  "purity  and  appearance,  and  designated  Fancy, 
Extra  Choice,  Choice,  Extra  Fine,  Fine  and  *'Dogs."  The  most 
reliable  quotations  of  Sea  Island  cotton  are  those  promulgated  by 
the  Charleston  and  Savannah  Exchanges,  but  they  cannot  be  taken 
as  definitely  determining  values  of  many  types. 

The  Metric  System 
As  the  metric  system  is  slowly  coming  into  more  general  use 
in  the  cotton  trade,  the  adjuster  will  sometimes  find  the  specifica- 
tions of  length  expressed  in  millimeters  instead  of  fractions  of  an 
inch,  thus  "29  M/M"  standing  for  29  millimeters.  Unless  the  ad- 
juster is  accustomed  to  working  in  metric  measures,  he  will  have 
to  convert  them  to  the  equivalent  fractions  of  an  inch  for  which 
purpose  he  should  keep  the  following  formula  and  table  for  ready 
reference. 

Millimeters  X  .03937  =  inches. 
Millimeters  -r-  25.4  =  inches. 

1^       inch— 1.0625  of  an  inch,  or  26.98  M/M. 

1  l/18inch=1.125  of  an  inch,  or  28.57  M/M. 

ll\       inch=1.1875  of  an  inch,  or  30.15  M/M. 

XVa       inch=1.25  of  an  inch,  or  31.74  M/Al. 

28  M/M=l. 10236  of  an  inch. 

29  M/M=l. 14173  of  an  inch. 

30  M/M=l. 18110  of  an  inch. 

31  M/M=1.22047  of  an  inch. 

32  M/M=1.25984  of  an  inch. 

463 


The  Fire  Insurance  Contract 

Pricks — Quotations — Computing  Values 

The  published  market  quotations  of  cotton  are  always  given  in 
cents  per  pound  for  the  United  States  markets  and  in  pence  per 
pound  for  the  English  markets.  Unless  some  other  grade  is  speci- 
fied the  quotations  represent  the  price  of  Middling  Upland.  The 
fluctuation  in  price  is  always  referred  to  as  so  many  ^'points,"  a 
point  being  one-tenth  of  a  mill  or  one-hundredth  of  a  cent.  Thus  if 
yesterday's  quotation  was  10  cents  (ten  cents  per  pound)  and  you 
are  told  today  the  market  has  gone  up  50  points  it  would  mean  the 
price  has  gone  up  to  10.50  cents.  A  diflFerence  of  100  points  or 
one  cent  is  $5  on  a  500-pound  bale.  Thus  on  a  loss  of  several 
thousand  bales  a  change  of  a  few  points  makes  a  considerable  dif- 
ference to  the  underwriters. 

The  majority  of  compresses  and  warehouses  issue  separate 
receipts  for  each  bale,  and  to  facilitate  checking  the  individual 
claimant's  schedule  to  the  warehouse  and  railroad  records,  salvage 
inventory,  etc.,  it  is  usually  well  to  list  all  bales  from  warehouse 
receipts  in  numerical  order.  I  use  forms  printed  specially  for  this 
purpose,  ruled  in  tens  and  fifties  so  entries  are  easily  counted,  and 
have  found  that  making  these  lists  invariably  saves  time  and  ex- 
pense in  proving  up  a  general  balance  sheet  of  the  warehouse.  It 
is  impossible  on  these  numerical  lists  to  separate  the  cotton  by 
grades,  hence  when  you  come  to  extend  prices  and  figure  values 
you  must  either  make  a  separate  computation  and  extension  on  each 
bale,  or  make  up  another  list  separating  the  cotton  by  grades  with 
out  respect  to  numerical  order,  or  adopt  some  system  of  averaging 
grade  and  price.  Your  numbered  list  will  appear  as  follows:'  I 
give  10  B/C  as  an  example  and  take  the  New  York  basis  quotation 
of  November  28th,  1916,  which  was  20.38,  and  the  promulgated 
'"differences"  for  that  date  which  are  given  above. 

Receipt  No.  Grade   and   Staple  Weight  Difference      Price  Value 

2001  Low    Mid 510—  .66  $19.72  $100.57 

4  Mid 505  basis  20.38  102.92 

6  Good  Mid 5204-  .34  20.72  107.74 

2130  St.    Mid.   Tinged     .  .  .  485 —  .21  20.17  97.82 

2275  Good    Ord 530—  1.57  18.81  99.69 

6  St.    Mid.    Stained    ...  515 —  .82  19.56  100.73 

2460  Low   Mid 506 —  .66  19.72  99.78 

4  Good    Mid 502+  .34  20.72  104.01 

2500  Mid 508  basis  20.38  103.53 

2702  St.   Mid 512+  .18  20.56  105.27 

5093  $1,022.06 

Prove  the  above  extensions  and  footings  and  then  think  how 
long  it  would  take  you  to  price,  extend,  foot  and  re-check  twenty 
schedules  aggregating   10,000   B/C.     Or  try  the  other  method  of 

464 


Total 

Points 

On 

Off 

1.32 

.68 

.21 

1.57 

.82 

.18 

.86 

3.92 

.86 

10)3.06( 

Cotton  Losses  and  Cotton  Salvage  Handling 

making  out  new  schedules,  separating  the  bales  by  grades,  and  you 
will  appreciate  the  value  of  some  short  cuts,  of  which  this  is  the 
simplest : 

1  Differences 

Bales        I     On  Off 


2  .66 

2  .34 
1  .21 

I  1.57 

1  .82 

1  .18 

~8  ~~  ~~ 

2  Basis 

10 

.306 

From  the  above  you  note  the  total  points  on  are  .86,  the  total 
off  3.92,  net  off  3.06  on  10  B/C,  or  an  average  of  .306  off;  basis 
of  c20.38  gives  us  c20.074  as  the  average  price  of  5,093  pounds, 
which  is  $1,022.37  as  the  value,  a  difference  of  only  31  cents  from 
the  specified  method.  Sometimes  the  difference  of  bale  weights  of 
certain  grades  preclude  using  such  short  cuts,  but  usually  they  are 
accurate  enough  for  adjustment  purposes. 

Local  Markkts 

While  in  the  majority  of  losses  the  actual  or  market  value  of 
the  cotton  can  be  ascertained  by  taking  the  quotations  of  the  near- 
est "Spot  Market"  for  the  day  of  fire  and  deducting  therefrom  the 
cost  of  freight  from  scene  of  fire  to  market  point,  we  find  many 
cases  where  that  method  is  not  practicable,  because  the  cotton 
grown  in  some  districts,  such  as  Northern  Georgia  and  Western 
Oklahoma,  owing  to  its  stronger  fiber  and  longer  staple  (though  it 
may  not  be  so  great  as  to  class  it  as  long  staple  cotton)  brings  a 
premium  of  10  to  25  points  or  over  above  the  Exchange  quotations 
for  the  general  run  of  cotton  of  same  grade.  For  instance,  the 
spot  quotation  for  Middling  cotton  at  Dallas,  Texas,  may  be  15 
cents  (Middling  basis)  on  the  day  a  fire  occurs  at  Altus,  Oklahoma. 
Freight  from  that  point  to  Dallas,  we  will  assume  for  the  purpose 
of  this  example,  is  fifty  cents  per  hundred  pounds,  or  $2.50  per  500- 
pound  B/C.  Therefore,  taking  the  Dallas  quotation  as  a  basis,  the 
market  value  at  Altus  would  be  only  14.50,  yet  we  may  find  buyers 
at  Altus  were  actually  paying  14.75.  The  cause  of  this  higher  price 
or  premium  is  that  the  Altus  district  produces  cotton  of  better 
staple  than  the  average  run  of  Texas  cotton  handled  through  Dallas. 
Where  several  claimants  have  sustained  losses  by  the  same  fire, 

465 


The  Fire  Insurance  Contract 

all  interested  adjusters  should  refrain  from  closing  any  loss  or 
definitely  agreeing  on  the  basis  price  with  any  individual  Assured 
until  all  adjusters,  or  at  least  those  representing  the  majority  in- 
terests, have  had  ample  opportunity  to  investigate,  confer  and  agree, 
among  themselves,  on  what  basis  price  is  to  be  taken  in  determining 
values  of  all  cotton  involved  in  the  fire.  The  adjusters  should 
always  ascertain  by  examination  of  invoices,  orders,  telegrams  and 
other  records  in  the  buyers'  ofiices  what  ''limit"  they  were  giving, 
i.  e.,  what  price  their  local  men  were  allowed  to  pay,  at  place  of 
fire,  and  before  reaching  a  decision  discuss  prices  with  the  larg- 
est and  most  influential  claimants.  If  such  examination  convinces 
the  adjusters  that  the  buyers  were  paying  14.75  for  middling  on 
day  of  fire,  they  should  agree  on  that  figure  as  the  maximum  basis 
price  to  be  allowed  in  settlement  of  any  loss  and  all  should  adhere 
strictly  to  that  basis.  If  an  adjuster  deviates  from  the  agreement 
and  pays  any  claimant,  even  for  a  few  bales,  above  the  agreed  basis, 
news  of  such  action  invariably  reaches  all  Assured  and  cause:^ 
needless  trouble  and  dissatisfaction  in  the  settlement  of  all  other 
losses.  Even  if  the  adjusters  take  a  week  to  investigate  and  de- 
termine the  question  of  price,  during  that  time  they  can  be  check- 
ing up  the  various  statements  and  ascertaining  grade  and  quantity 
lost  by  each  claimant,  and  as  it  is  customary  in  the  settlement  of  all 
large  cotton  losses  to  advance  from  70  percent  to  90  percent  of  any 
claimant's  estimated  loss  as  soon  as  title  and  approximate  quantity 
is  ascertained  without  waiting  to  determine  grade  and  price,  such 
delay  imposes  no  hardship  on  the  Assured.  Where  a  loss  is  not 
settled  on  the  basis  of  Spot  Market  Exchange  quotations  the  ad- 
juster's reports  should  show  why  any  other  figure  was  taken. 

Cotton  Future:s 

Although  losses  are  usually  adjusted  on  the  "Spot"  marker 
basis  and  quotations,  the  adjuster  will  find  many  purchases,  sales  and 
quotations  based  on  the  Future  markets.  A  loss  may  occur  in  Sep- 
tember and  the  Assured  argue  that  the  burned  cotton  was  sold  for 
delivery  in  December  at  so  many  points  on  ''New  York  December," 
and  that  as  soon  as  he  learned  he  had  lost  500  B/C  by  the  fire,  he 
bought  December  Futures  for  500  B/C  and  therefore  the  loss  lo 
him  is  the  value  of  the  burned  cotton  based  on  the  December  Fu- 
ture quotation.  Before  the  adjuster  can  iutelligently  discuss  this 
feature  with  his  claimant  he  must  understand  what  this  "Future" 
and  the  buying  and  selling  "Hedges"  really  mean.    Let  us  suppose 

466 


Cotton  Losses  and  Cotton  Salvage  Handling 

that  in  July  a  cotton  mill  in  Massachusetts  is  asked  by  one  of  its 
customers  to  quote  them  a  price  on  so  many  thousand  yards  of 
cloth,  of  stated  specifications,  for  March  delivery.  The  mill,  not 
wishing  to  gamble  on  the  price  they  might  have  to  pay  for  the 
necessary  cotton,  say  1,000  bales  of  Strict  Middling,  during  Novem- 
ber and  December,  buys  from  some  cotton  broker,  usually  a  mem- 
ber of  one  of  the  large  Cotton  Exchanges,  500  B/C  of  November 
Futures  and  500  B/C  of  December  Futures,  at  the  July  quotations 
for  those  months  and  uses  those  prices  as  a  basis  to  figure  on  the 
offered  order.  All  the  mill  has  to  do  to  obtain  these  future  con- 
tracts is  deposit  a  satisfactory  margin  (from  $1  to  $5  per  bale) 
either  in  cash  or  by  established  credit,  with  the  broker,  and  in  re- 
turn receive  a  valid  contract  calling  for  the  delivery  of  500  B/C 
in  November  and  500  B/C  in  December,  but  this  contract  gives  the 
seller  the  option  of  delivering  cotton  of  any  grade  from  Good  Or- 
dinary to  Fair,  the  price  when  invoiced  being  adjusted  according 
to  the  grades  actually  delivered  based  on  the  published  "Differences" 
at  time  of  delivery.  As  the  mill  could  not  use  six  or  seven  differ- 
ent grades  in  making  up  their  cloth,  the  cotton  delivered  on  this 
Future  Option  might  not  meet  their  requirements  and  they  there- 
fore ask  some  of  the  cotton  dealers  or  merchants  to  quote  them 
prices  on  the  desired  grade,  i.  e.,  1,000  B/C  Strict  Middling  F.  O.  B. 
New  Bedford,  November  and  December  delivery.  John  Doe  & 
Co.,  Dallas,  Texas,  quote  them  a  price  of  15  cents,  which  they 
accept,  and  the  order  is  confirmed  in  the  usual  manner.  You  will 
note  their  contract  with  Doe  calls  for  the  delivery  of  1,000  B/C 
Strict  Middling  (the  grade  they  require)  and  Doe  will  not  be  per- 
mitted to  deliver  any  other  grade  and  adjust  on  the  differences  as  in 
the  case  of  the  Future  Contract  mentioned  above,  so  the  mill  now 
knows  exactly  what  the  required  cotton  is  going  to  cost  them  and 
if  they  have  confidence  in  Doe's  ability  to  fulfill  their  contract  or 
pay  the  necessary  damages  if  they  fail  to  fill  it,  the  mill  may  close 
out  their  Future  Contract,  or  if  they  doubt  Doe's  financial  stand- 
ing they  may  decide  to  hold  it  imtil  Doe  makes  delivery. 

When  Doe  made  this  sale  to  the  mill  he  did  not  own  1,000  B/C 
Strict  Middling,  but  expected  to  buy  it  from  the  crop  then  matur- 
ing. He  did  not  wish  to  speculate  on  the  price  any  more  than  the 
mill  did,  and  only  wanted  to  make  a  legitimate  trading  profit  from 
buying  the  cotton  in  the  ordinary  course  of  his  business  during  the 
season  between  his  making  the  sale  in  July  and  making  delivery  as 
called  for  in  December.  In  making  his  offer  of  15  cents  he  figured 
the  price  as  follows : 

467 


The  Fire  Insurance  Contract 

New  York  December  Future 12.80 

Plus    for    Strict   Middling    18 

Freight  Dallas  to  New  Bedford    85 

Insurance    .10 

Buying-  Expenses    .50 

Profit 50 

14.93 

If  Doe  can  buy  the  required  1,000  B/C  at  an  average  cost  of 
13.05  per  pound  F.  O.  B.  Dallas  he  will  make  fifty  points,  or  $2.50 
per  bale  profit,  but  suppose  the  market  steadily  advances  when  the 
season  opens  and  Doe  finds  when  he  has  succeeded  in  accumulating 
the  1,000  B^C  that  it  has  cost  him  an  average  of  14.05  per  pound 
instead  of  13.05  F.  O.  B.  Dallas.  In  that  case  Doe  would  lose  50 
points  or  $2.50  per  B/C.  To  protect  him  from  such  possible  loss 
Doe  "hedged"  his  sale  to  the  mill  when  he  made  it  in  July  by  buying 
1,000  B/C  December  Futures  at  12.80.  While  Futures  and  Spots 
do  not  always  advance  and  decline  in  the  same  ratio,  the  inequality 
or  disparity  that  sometimes  appears  in  the  quotations  need  not  be 
considered  here.  We  shall  therefore  assume  that  the  future  market 
advanced  in  the  same  ratio  as  the  spot  market,  and  in  November, 
when  Doe  was  ready  to  deliver  the  1,000  B/C  to  the  mill,  December 
Futures  were  quoted  @  13.80,  this  would  give  Doe  a  profit  of  100 
points  when  he  closed  or  sold  his  future  contract,  as  he  would  do  as 
soon  as  he  made  delivery  to  the  mill,  and  would  ofifset  his  loss 
through  having  paid  14.05  for  the  actual  cotton  instead  of  his  esti- 
mated cost  of  13.05. 

Taking  the  other  side  of  the  case  let  us  assume  the  market  had 
continued  to  decline  after  Doe  made  his  sale  in  July,  and  he  w^as 
able  to  accumulate  the  1,000  B/C  at  an  average  cost  of  12.03  in- 
stead of  his  estimated  cost  of  13.05  F.  O.  B.  Dallas.  December 
Futures  would  decline  at  the  same  rate  and  when  he  closed  out  his 
future  option  he  would  have  to  pay  his  broker  from  whom  he 
bought  it,  the  difference  between  12.80,  the  price  at  which  he  bought 
the  option,  and  11.80,  the  quotation  for  December  Futures  when  he 
closed  it  out.  Thus,  if  the  market  advances,  his  gain  on  the  future 
option  offsets  what  he  loses  by  having  to  pay  more  than  he  esti- 
mated for  the  actual  cotton,  and  if  the  market  declines  his  loss  on 
the  future  option  offsets  whatever  he  may  have  gained  in  having 
bought  the  actual  cotton  for  less  than  he  had  estimated. 

Suppose  Doe  finds  about  October  30th  that  he  has  purchased 
500  B/C  more  than  he  has  orders  for.  He  anticipates  obtaining 
orders  for  all  the  cotton  he  can  buy  during  the  season,  but  as  the 
market  is  fluctuating  with  an  apparent  tendency  to  decline  he  does 

468 


Cotton  Losses  and  Cotton  Salvage  Handling 

not  care  to  speculate  by  holding  so  much  actual  unsold  cotton,  be- 
sides which  his  bank  from  whom  he  has  borrowed  at  least  50  per- 
cent of  what  the  cotton  has  cost  him  does  not  care  to  carry  a  loan 
of  $75  per  bale  on  cotton  that  may  be  worth  only  $70  next  week, 
and  $65  the  week  after.  In  order  to  insure  both  the  bank  and  him- 
self against  any  material  loss  through  the  decline  in  market  price  of 
the  cotton  he  is  holding,  Doe  can  sell  the  500  bales  of  December  or 
January  Futures. 

It  is  now  in  order  to  discuss  the  conditions  as  to  ownership 
and  liability  under  which  cotton  may  be  found  in  different  ware- 
houses and  compresses,  and  for  this  purpose  we  need  only  con- 
sider one  of  the  larger  compresses  situate  at  an  Atlantic  port,  for 
they  usually  produce  examples  of  all  conditions. 

Cotton  in  Compresses. 
Cotton  in  compresses  falls  under  the  following  classes  or  con 
ditions.     (For  convenience  of  reference  I  have  designated  these  as 
Class  ''W,"  ''S,"  "C,"  etc.) 

/.  Class  "W" — "Warehoused  Cotton."  Cotton  held  on  storage 
by  a  compress  company  as  warehousemen  and  for  which  they  have 
issued  receipts  which  generally  carry  some  of  the  usual  clauses 
stamped  or  printed  thereon  to  the  effect  that  the  compress  com- 
pany "Is  not  liable  for  loss  by  Act  of  Providence  or  loss  by  fire." 
Under  these  receipts  the  compress  company,  and  therefore  their  in- 
surers, are  not  liable  for  loss  to  cotton  held  thereunder  unless  it  is 
claimed  such  cotton  comes  under  protection  of  policies  carrying 
the  "Commission  Clause"  as  set  forth  on  page  488.  Under 
the  common  law  decisions  the  warehouseman  is  not  liable  for  loss 
by  fire  to  property  in  his  charge  unless  he  has  specifically  assumed 
that  liability  or  agreed  to  insure  the  property,  and  the  insertion 
of  any  clause  excluding  loss  by  fire  does  not  change  his  position 
in  the  premises.  The  same  condition  as  to  liability  exists  where 
no  receipts  have  been  issued  as  under  class  *^C,"  "K"  and  "H." 

2.  Class  "8*' — "Storage  Cotton!'  Cotton  held  by  a  compress 
company  on  storage  as  warehousemen  and  for  which  they  have 
issued  receipts  with  notice  printed  or  stamped  thereon  to  the  effect 
that  said  cotton  is  insured.  The  compress  company  is  liable  for  fire 
loss  to  such  cotton,  and  their  insurers  would  be  liable  to  it  under 
policies  carrying  the  usual  "Commission  Clause"  reading:  "Owned 
or  held  by  the  assured  in  trust,  or  on  commission,  or  on  joint  account 
with  others,  or  sold  but  not  delivered." 

469 
16 


The  Fire  Insurance  Contract 

5.  Class  "C — "Consigned  Cotton."  Cotton  consigned  to  buy- 
ers in  "Care  of  Compress  Company"  under  the  usual  form  of 
"Straight"  or  "Open"  B/L  or  under  "Order"  B/L,  and  which  the 
compress  company,  as  agent  of  the  consignee,  has  received  from  the 
raih'oad  company,  has  receipted  for,  and  has  or  has  not  unloaded. 
In  the  absence  of  any  agreement  to  the  contrary  neither  the  com- 
press company  nor  its  insurers  are  liable  for  loss  to  such  cotton 
(unless  they  can  be  held  liable  under  the  "in  trust"  wording  in  the 
commission  clause),  and  the  railroad  is  released  from  liability  un- 
der its  B/L  the  moment  the  compress  company  receives  and  re- 
ceipts for  the  cotton. 

4.  Class  "K" — Consigned  Cotton — Cotton  Shipped  Unde-y 
Straight  or  Open  Bill  of  Lading,  or  Under  Order  Bill  of  Lading, 
Which  is  Not  Consigned  To  or  In  Care  of  the  Compress  Company. 
Cotton  consigned  under  open  or  order  B/L  to  "John  Doe,  Cottonville, 
Texas"  (and  not  as  in  Class  "C"  "care  of  Compress  Company"), 
and  which  the  carrier,  without  any  direct  orders  from  consignee  or 
consignor,  has  delivered  to  the  compress  company,  and  for  which  the 
compress  company  has  receipted  and  unloaded.  In  these  cases  it 
is  often  difficult  to  determine  who  is  liable  for  loss  by  fire  occurring 
within  forty-eight  hours  after  notice  of  arrival  has  been  duly  sent 
or  given  the  consignee.  The  deciding  point  is,  "Did  the  compress 
company  receive  and  unload  the  cotton  as  agent  of  the  carrier  or  as 
agent  of  the  consignee?"  This,  as  explained  in  the  next  paragraph, 
may  depend  on  the  custom  of  the  carrier,  compress  and  cotton  buy- 
ers in  handling  cotton  at  that  particular  point. 

5.  Class  "L" — ''Inbound  Bill  of  Lading  Cotton/'  Cotton  con- 
signed as  described  in  classes  "C"  and  "K,"  but  which  was  still  hi 
the  carrier's  custody,  in  that  no  one  purporting  to  represent  the 
consignee  had  receipted  for  the  cotton  or  otherwise  released  the 
carrier.  The  uniform  bill  of  lading,  which  is  known  and  designated 
as  "Standard  Form  of  Order  Bill  of  Lading  approved  by  the  In- 
terstate Commerce  Commission  by  Order  No.  787  of  June  27,  1908," 
and  most  forms  of  open  B/L  contain  this  clause : 

"No  carrier  or  party  in  possession  of  any  of  the  property  herein 
described  shall  be  liable  for  any  loss  thereof  or  damage  thereto  or  de- 
lay caused  by  the  act  of  God  ....  For  loss,  damage  or  delay  caused  by 
fire  occurring  after  forty-eight  hours  (exclusive  of  legal  holidays)  after 
notice  of  the  arrival  of  the  property  at  destination,  or  at  port  of  ex- 
port (if  intended  for  export)  has  been  duly  sent  or  given,  the  carrier's 
liability  shall  be  that  of  warehouseman  only." 

The  railroad,  under  such  bill  of  lading,  is  liable  to  the  con- 
signee for  loss  occurring  within  forty-eight  hours  of  the  consignee's 

470 


Cotton  Losses  and  Cotton  Salvage  Handling 

receipt  of  the  above  required  notice,  providing  the  consignee  has 
not  received  the  shipment  and  released  the  carrier  prior  to  the  ex- 
piration of  said  forty-eight  hours,  but  the  carrier  is  not  liable  for 
loss  occurring  more  than  forty-eight  hours  after  the  consignee  has 
had  notice  of  arrival. 

There  are  many  decisions  showing  a  v^ide  range  of  difference 
as  to  what  constitutes  the  required  forty-eight  hours'  notice,  some 
computing  forty-eight  hours  from  the  hour  the  required  notice  is 
received;  others  construing  it  as  requiring  two  full  business  days' 
notice.  Various  railroads  follow  different  methods  of  issuing  these 
notices,  some  allowing  their  agents  to  give  verbal  notice,  and  oth- 
ers mailing  postal  cards  to  consignee's  address,  irrespective  of  any 
verbal  notice  being  given. 

It  is  a  common  custom  of  the  railroads  to  deliver  to  the  com- 
press all  cotton  consigned  as  above  shown  in  Class  "K,"  unless 
the  consignee  is  a  local  consumer  (i.  e.,  mill  operator)  or  a  local 
buyer  known  as  ov/ning  or  using  another  warehouse.  Some  rail- 
roads make  a  practice  of  obtaining  written  orders  from  the  buyers 
concentrating  their  cotton  at  compress  on  their  line,  instructing  the 
railroad  to  deliver  all  cotton  consigned  to  such  buyers  to  designated 
compress  in  the  specified  town.  Such  orders  make  the  compress 
company  the  consignee's  agent  to  receive  their  cotton,  and  the 
compress  company's  receiving  such  cotton  (irrespective  of  whether 
the  compress  company  or  the  railroad  company  actually  does  the 
unloading)  releases  the  railroad  company  from  all  liability,  and 
when  so  received  the  compress  company  holds  the  cotton  as  ware- 
houseman for  the  consignee. 

Where  the  railroad  has  failed  to  obtain  such  written  orders 
the  necessary  understanding  or  agreement  may  frequently  be  shown 
and  approved  by  long  standing  custom  at  the  given  point. 

6.  Class  "C" — "Cotton  Under  Clearance,"  i.  e.,  cotton  for 
which  the  owners  have  given  the  compress  company  what  is  usu- 
ally termed  a  "Press  Order"  or  "Shipping  Order."  These  orders 
usually  show  the  receipt  numbers  of  the  bales  of  cotton  to  be 
shipped,  said  receipts  being  surrendered  therewith  and  the  neces- 
sary shipping  orders  attached.  In  exchange  for  this  press  order  and 
warehouse  receipts  for  the  cotton  covered  thereby,  the  compress 
company  gives  the  shipper  or  owner  a  ''Clearance  Receipt." 

Some  railroads  constitute  the  compress  company  their  repre- 
sentatives or  agents  to  receive  cotton  for  shipment,  and  in  such  cases 

471 


The  Fire  Insurance  Contract 

the  railroad  will  issue  their  Bs/L  in  exchange  for  these  ''Clearance 
Receipts"  in  the  same  manner  as  the  B/L  would  be  issued  if  the 
cotton  covered  thereby  had  been  actually  loaded  on  the  car  and  the 
car  sealed  by  the  railroad  company.  Where  the  compress  company 
represents  the  railroad  in  this  manner  it  usually  gives  bond  to  the 
railroad  for  the  faithful  performance  of  its  duty,  and  carries  in- 
surance written  in  the  name  of  the  compress  company  "for  account 
of  the  railroad  company,"  the  policies  stating  that  the  insurance 
covers  the  common  carrier's  liability  of  the  railroad  company  and/or 
the  liability  of  sTich  compress  company  to  the  railroad  company. 
This  insurance  also  covers  transit  cotton.  (See  policy  form  No.  302 
attached. ) 

The  general  construction  placed  on  such  policy  is  that  cotton 
held  by  the  compress  company  under  clearance  receipts,  but  which 
has  not  been  loaded  on  cars,  and  the  cars  sealed  and  delivered  to 
the  railroad  company,  is  held  by  the  compress  as  agent  for  the 
carrier,  and  not  as  warehouseman,  and  such  cotton,  therefore,  is 
not  usually  held  as  coming  under  cover  of  the  "Warehouseman's" 
policy,  though  a  liberal  construction  of  the  Commission  Clause 
might  hold  it  so  covered.  This  is  only  another  example  of  the 
danger  to  the  assured  from  the  custom  now  so  generally  followed 
by  many  brokers  of  inserting  the  Commission  Clause  in  all  mer- 
chandise or  warehouse  forms. 

Where  B/L  is  issued  before  cotton  is  actually  loaded,  the  lia- 
bility still  falls  on  the  compress  company  as  the  carrier's  agent,  but 
the  owner  of  the  cotton  should  make  claim  under  the  bill  of  lading 
against  the  railroad  as  a  common  carrier. 

As  soon  as  the  cotton  is  actually  loaded  the  compress  com- 
pany delivers  a  "Loading  Notice"  to  the  railroad  agent  and  ob- 
tains said  agent's  receipt  therefor.  The  signing  of  this  receipt  re- 
leases the  compress  company  and  their  insurers  from  all  liability 
and  brings  the  cotton  under  Class  "O,"  passing  the  liability  on  to 
the  railroad  as  common  carriers  under  their  B/L  and  thus  bringing 
same  under  cover  of  the  railroad  company's  policies  covering  their 
common  carrier's  liability,  unless,  as  is  frequently  the  case,  such 
policies  specifically  exclude  cotton  from  their  protection. 

/.  Class  'V— ''Outbound  B/L  Cotton/'  That  is  cotton  to 
be  shipped  from  the  compress,  which  has  been  loaded  on  cars,  the 
cars  sealed  and  the  receipt  acknowledged  by  the  railroad  company 
through  their  issuing  B/L  thereon.     Such  cotton  is  at  the  carrier's 

472 


Cotton  Losses  and  .Cotton  Salvage  Handling 

risk,  and  neither  the  compress  nor  their  insurers  are  in  any  way 
liable  therefor. 

8.  Class  "V — "Transit  Cotton"  That  is  cotton  shipped  under 
through  B/L  from  some  inland  point  consigned  to  some  distant 
place  (usually  some  port  or  New  England  point)  that  has  been 
unloaded  at  the  compress  to  be  compressed  and  then  forwarded  to 
final  destination  as  shown  by  the  B/L. 

In  accepting  cotton  for  shipment  from  any  interior  point,  un- 
less the  consignors  order  the  same  "to  go  through  flat"  or  uncom- 
pressed, the  railroad  company  reserves  the  right  or  |»nvilege  of 
stopping  same  in  transit  at  any  compress  on  its  lines  and  have  it 
there  compressed  at  the  carrier's  cost.  This  right  of  compression 
in  transit  is  recognized  and  authorized  by  the  Interstate  Commerce 
Commission  (see  R  585)  ;  the  published  freight  schedules  are  based 
on  cotton  being  so  compressed,  a  much  higher  rate  being  charged 
where  it  is  shipped  through  uncompressed.  This  privilege  of  com- 
pression in  transit  is  for  the  benefit  of  the  carrier  in  that  it  enables 
them  to  load  almost  twice  as  many  bales  of  compressed  cotton  in 
the  ordinary  box  car  as  they  can  load  of  uncompressed  cotton. 
Thus  transit  cotton  in  any  compress  to  which  it  has  been  sent  by 
the  carrier  for  such  compression  is,  so  far  as  the  owner  of  the 
cotton  is  concerned,  solely  at  the  carrier's  risk.  Some  railroads 
have  contracts  with  the  various  compress  companies  on  their  lines 
providing  for  the  manner  in  which  transit  cotton  is  to  be  handled, 
and  in  some  cases  the  contracts  define  the  compress  company's  posi- 
tion in  respect  to  all  cotton  received  from  and  shipped  by  such 
railroad.  Such  contracts  should  be  carefully  examined  as  well  as 
the  state  statutes,  railroad  commissioner's  rules,  etc.,  and,  if  an 
interstate  shipment,  the  Interstate  Commerce  Commission's  rules 
should  be  carefully  examined  in  all  cases  where  any  such  question 
of  liability  is  involved.  •  , 

It  was  recently  decided  in  a  case  taken  on  appeal  to  the  Su- 
preme Court  of  New  York  (Leo  L.  D'Utassy  v.  Southern  Pacific 
Company)  that  even  where  a  shipper  indicates  his  preference  of 
the  compress  in  which  the  cotton  is  to  be  compressed  in  transit  by 
endorsing  the  B/L  submitted  for  the  railroad's  execution  "To  be 
compressed  at  Cleveland  Compress  Company,  Houston,  Texas," 
the  railroad  is  not  thereby  released  from  liability  for  burning  of 
cotton  while  being  so  compressed,  nor  is  the  railroad  under  any 
obligation  to  observe  such  instruction,  it  being  privileged  to  have 

473 


the  cotton'  compressed  in  transit  at  any  point  it  deems  expedient. 
In  that  particular  case  the  consignor  was  part  owner  of  the  desig- 
nated compress,  the  burning  of  which  destroyed  the  cotton,  yet  the 
railroad  was  held  liable  as  common  carrier  and  had  to  pay  the  con- 
signor the  value  of  the  cotton. 

The:  W^stkrn  We:ighing  and  Inspection  Bureau. 

The  various  railroads  have  so  many  different  customs,  rules 
and  forms  under  which  they  handle  cotton  that  one  can  explain 
only  a  few  of  them  in  a  paper  of  this  character.  Texas  and  Okla- 
homa are  the  only  districts  where  there  is  any  general  rule  recog- 
nized and  followed  by  all  railroads  and  compresses.  All  roads 
operating  in  those  states  are  members  of,  and  combine  in  maintain- 
ing, the  "Western  Weighing  and  Inspection  Bureau."  This  or- 
ganization employs  inspectors  who  supervise  the  loading  and  un- 
loading of  all  cotton  at  the  Texas  and  Oklahoma  compresses,  as 
follows : 

On  receipt  of  way-bill  the  railroad  agent  furnishes  compress 
superintendent  with  memorandum  of  .billing  on  W.  W.  &  I.  B. 
Inbound  Cotton  Report"   (form  853). 

On  receipt  of  above  memo,  car  seals  are  broken  by,  and  cot- 
ton unloaded  under  supervision  of,  the  W.  W.  &  I.  B.'s  inspector, 
and  as  the  cotton  is  unloaded  and  moved  into  the  press,  the  com- 
press company's  men  make  up  a  "weight  sheet"  (form  102)  which 
carries  the  following  data: 

WEIGHTS 

On  Bales  Cotton  for  Account  of 

From  Station  R.  R. 

Car  No.  Initial  B/L  W/B  Marks 

Number  of  B/C  Signed  for  on  B/I.  S/O— B/L 

Press  Tag  Shipper's  Actual  Net  S/O 

No.  Tag  No.        Weight     Dockage    Weight  No.  Class 

Not  Responsible  for  Loss  or  Damage  by  Fire,  Flood  or  Other 

Agencies,  Unless  Caused  by  the  Wilful  Act  or  Gross  Negligence  of 

The  Compress  Company.     Not  Negotiable. 

Date  and  Hour  Unloaded  Weighed  by  Supt. 

The  cotton  is  weighed  as  it  passes  into  the  press  and  the  com- 
press tags  attached  thereto,  and  when  the  inspector  finds  it  checks 

474 


Cotton  Losses  and  Cotton  Salvage  Handling 

out  with  the  amount  called  for  in  the  inbound  report  (form  853) 
a  "Receiving  Slip"  (form  No.  101)  is  issued  in  triplicate  and 
signed  by  the  inspector  and  superintendent,  one  copy  of  which  is 
turned  over  to  the  railroad  agent,  one  copy  retained  by  the  inspec- 
tor, the  triplicate  being  retained  by  the  compress  superintendent. 
The  compress  superintendent's  signature  to  this  report  is  official 
acceptance  of  and  completes  the  delivery  from  the  railroad  to  the 
compress.  The  superintendent  issues  the  compress  company's  re- 
ceipts (form  No.  104)  for  the  number  of  bales  called  for  by  the 
inbound  report  and  turns  said  receipts  over  to  the  railroad  agent, 
who  holds  same  until  surrender  of  B/L  (if  shipment  is  under  Order 
B/L),  and  payment  of  freight  expense  bill.  Where  the  consignee 
has  established  the  necessary  credit  with  the  railroad  by  giving 
bond  or  otherwise,  the  compress  agent  sends  the  receipts  for  open 
B/L  shipments  direct  to  the  consignee,  and  the  railroad  agent  draws 
on  consignee  for  freight  charges.  The  consignee  is  not  required  to 
surrender  the  Open  B/L's  to  railroad,  but  must  surrender  an  Order 
Bill  of  Lading  before  he  can  obtain  the  compress  or  warehouse  re- 
ceipts. 

The  compress  superintendent  sends  one  copy  of  weight  sheet 
(form  No.  102)  to  consignee  retaining  the  manifold  for  the  com- 
press company's  files.  Some  compresses  pull  two  samples  of  each 
bale  as  it  passes  under  the  scales  and  send  one  sample  with  the 
weight  sheets  to  the  consignee,  keeping  the  other  sample  themselves. 

Shipment  of  Cotton  from  Compresses  is  made  as  follows : 

The  shipper  makes  out  a  shipping  order  carrying  the  tag  num- 
ber and  marks  of  the  bales  to  be  shipped,  attaches  thereto  compress 
company's  receipts  covering  said  bales  and  bill  of  lading  form  filled 
out  as  required  showing  consignee,  destination,  etc.,  ready  for  signa- 
ture. The  shipper  sends  these  papers  to  the  compress  who  locate  the 
identical  bales  ready  for  shipment.  They  are  then  loaded  on  cars 
under  supervision  of  the  W.  W.  &  I.  B.'s  inspector,  who  checks  off 
each  bale  as  loaded  on  what  is  termed  an  *'Outbound  Report"  or 
Loading  Report  (form  No.  105).  As  soon  as  loaded  the  inspector 
seals  the  car  and  signs  the  report,  which  is  also  signed  by  the  com- 
press superintendent.  The  inspector's  signature  to  this  report  con- 
stitutes delivery  from  the  compress  company  or  shipper  to  the  rail- 
road company.  One  copy  of  the  report  is  given  to  the  shipper  and 
one  copy  to  the  railroad  agent  with  the  bills  of  lading  attached, 
which  he  will  sign  and  deliver  to  the  shipper  on  surrender  of  the 

475 


The  Fire  Insurance  Contract 

duplicate  copy  of  the  Outbound  Report.  Under  this  system  the 
compress  company  issues  no  clearance  until  the  cotton  is  actually 
loaded,  and  the  railroad  will  not  issue  or  sign  bills  of  lading  until 
they  are  furnished  with  the  inspector's  Loading  Report.  This  re- 
port is  considered  equivalent  to  a  bill  of  lading  and  the  railroad  is 
liable  for  any  loss  occurring  after  it  is  issued,  even  if  the  bill  of 
lading  has  not  been  signed. 

The  above  seems  an  excellent  method  and  is  the  best  I  have 
encountered,  but  is  far  from  fool  proof,  as  you  will  note  from  the 
following  case,  which  is  yet  in  litigation.  B,  a  cotton  buyer  located 
at  X,  bought  200  B/C  from  C,  located  at  Y,  terms  F.  O.  B.— Y. 
and  ordered  same  shipped  under  Order  B/L  to  him  (B)  care  of 
Compress  at  X.  C  shipped  this  cotton  as  ordered,  attached  draft 
for  face  of  invoice  to  the  B/L  which  was  sent  to  the  bank  at  X 
for  collection.  These  200  B/C  reached  the  compress  at  X  on  May 
1st,  on  which  day  the  railroad  notified  B  of  arrival,  as  required  by 
the  B/L  conditions.  The  compress  company  (under  supervision 
of  the  W.  W.  &  L  B.'s  inspector)  unloaded,  weighed,  and  sampled 
the  cotton  and  sent  weight  sheets  and  samples  to  B  (who  received 
them  May  2nd)  and  sent  the  "receiving  slip"  and  compress  re- 
ceipts to  the  railroad  agent  to  hold  until  surrender  of  B/L  and  pay- 
ment of  freight.  B  was  in  no  hurry  to  meet  C's  draft  and  take  up 
the  B/L  or  pay  the  freight,  for  he  had  his  samples  and  weights 
and  might  as  well  have  the  use  of  that  money  until  he  wished  to 
ship  or  deliver  the  cotton.  On  May  10th  D,  an  exporter  with 
headquarters  at  Dallas,  came  to  B's  office  at  X,  looked  over  the 
samples  of  this  cotton,  and  agreed  to  buy  the  200  B/C  for  $16,000. 
D.  gave  B.  a  draft  on  D's  firm  for  $16,000,  which  draft  required 
the  compress  receipts  for  the  200  B/C  to  be  attached  to  it  when 
presented  for  acceptance.  As  explained  above,  B  could  not  obtain 
these  receipts  which  the  railroad  agent  held,  until  he  had  paid 
C's  draft,  obtained  the  Order  B/L,  surrendered  same  to  the  rail- 
road, and  paid  the  freight  from  Y  to  X.  The  compress,  with  these 
200  B/C  was  totally  destroyed  by  fire  at  1  a.  m.,  May  11th.  On 
May  12th  B.  paid  C's  draft,  took  up  the  B/L  which  was  attached 
thereto  and  tendered  same  with  the  freight  charges  from  Y  to  X, 
to  the  railroad's  agent  and  demanded  the  compress  receipts  for  the 
200  B/C.  The  railroad  agent  refused  to  surrender  the  compress 
receipts  saying  the  railroad's  General  Claim  Agent  had  instructed 
him  not  to  surrender  any  receipts  or  take  any  action  that  would 
change  conditions  as  they  existed  at  time  of  fire.     D  refused  to 

476 


Cotton  Losses  and  Cotton  Salvage  Handling 

pay  the  draft  for  $16,000  without  the  receipts-  attached.  B,  D 
and  C  each  carried  open  reporting  poHcies  (i^orm  300)  in  different 
companies,  covering  their  cotton  as  soon  as  it  became  "the  prop- 
erty of  the  assured  or  legally  at  his  risk."  The  compress  com- 
pany carried  the  ordinary  fire  policies  form  with  the  Commission 
Clause.  The  railroad  also  carried  insurance  on  its  common  car- 
rier's liability.  C's  insurers  refused  to  pay  for  this  cotton  claiming 
it  had  been  sold  to  B,  whose  insurers  refused  to  pay  claiming  it 
had  been  sold  to  D.  As  D  could  produce  no  evidence  of  title  and 
would  not  pay  B  because  he  could  not  deliver  the  receipts,  D's 
insurers  refused  to  admit  liability.  The  railroad  presumably  acting 
on  the  advice  of  their  insurers,  denied  liability  as  more  than  48 
hours  had  elapsed  between  B's  receiving  notice  of  arrival  and 
burning  of  the  cotton.  This  placed  B  between  the  devil  and  a  deep 
sea  that  did  not  look  either  blue  or  inviting.  C  had  fulfilled  his 
contract  when  he  loaded  the  cotton  at  Y,  so  B  had  no  recourse  in 
that  direction. 

By  suing  D  as  his  vendee  he  would  bar  himself  from  making 
any  claim  against  his  own  insurers,  or  against  the  railroad.  B's 
insurers  held  the  cotton  was  not  at  his  risk,  as  the  property  right 
had  passed  to  D.  On  the  other  hand  if,  setting  himself  up  as  the 
owner  of  the  cotton,  he  sued  the  railroad  and  failed  to  recover  from 
them,  he  could  hardly  bring  another  action  against  D  as  his  ven- 
dee. B  worried  over  the  problem  for  several  months  during  which 
period  the  interested  insurers,  or  at  least  their  adjuster,  was  not 
always  asleep  at  the  switch,  and  finally  B,  being  a  resourceful  gen- 
tleman, or  possibly  being  well  advised,  brought  suit  against  the 
railroad  not  for  the  loss  of  the  cotton  or  its  value,  but  for  damages 
he  sustained  by  failure  to  collect  D's  $16,000  draft  through  the 
railroad's  refusal  to  surrender  the  receipts  to  which  he  was  un- 
doubtedly entitled  when  he  tendered  C's  Order  B/L  and  the  freight 
charges  called  for  thereby.  As  this  action  is  still  pending  in  the 
courts  I  must  refrain  from  making  any  comment  on  the  question 
of  liability.  In  fact,  I  have  heard  that  B  has  been  persuaded  to 
amend  his  complaint  and  is  now  endeavoring  to  recover  from  the 
railroad  as  common  carriers  for  the  value  of  the  cotton,  and  if 
such  is  the  case  and  he  obtains  judgment  against  the  railroad,  they 
in  turn  will  recover  from  their  insurers,  which  was  a  contingency 
the  adjuster  was  endeavoring  to  avoid. 

Even  where  the  railroads  maintain  such  organizations  as  the 
Western  Weighing  and  Inspection  Bureau,  we  cannot  assume  that 

477  *    V    , 


The  Fire  Insurance  Contract 

delivery  to  or  by  the  carrier  can  only  be  made  as  prescribed  by  the 
bureau's  rules,  for  unfortunately  local  customs  or  state  laws  fre- 
quently require  us  to  recognize  other  methods. 

Under  the  laws  of  some  states  the  railroad^  must  accept  cot- 
ton whenever  it  is  tendered  at  any  of  their  platforms,  even  though 
they  have  no  available  cars  to  ship  it  in,  and  in  several  instances 
we  have  recovered  from  the  railroad  for  cotton  so  tendered 
although  no  B/L  had  been  issued. 

Public  Warehouse:s 

From  the  time  it  leaves  the  gin  until  it  reaches  the  mill  or 
factory,  comparatively  little  cotton  is  handled  or  stored  in  private 
warehouses,  that  is,  warehouses  where  none  but  the  owner's  own 
cotton  is  handled,  so  we  will  eliminate  the  private  warehouse  from 
this  discussion  and  consider  only  those  warehouses  in  which  cotton 
is  stored  for  various  owners,  or  for  any  one  who  may  offer  it  for 
such  storage.  We  will  assume  that  John  Doe  owns  and  operates 
a  warehouse  with  a  capacity  of  5,000  bales,  situate  on  a  side  track 
of  the  Air  Line  Railroad  in  the  Town  of  Cottonville. 

John  Doe  issues  warehouse  receipts  reading: 

"Received  of  George  Smith one  bale  of  cot- 
ton in  apparent  good  order.  Mark  G.  S.  Weight  500  lbs.  Deliverable 
to  bearer  upon  return  of  this   receipt  and  payment  of  charges." 

Nearly  all  warehouse  receipts  contain  a  clause  reading:  **Risk 
of  fire  excepted,"  or  some  similar  wording.  We  often  find  the  only 
record  kept  by  such  warehousemen  is  what  is  usually  known  as  a 
"Bale  Book,"  which  gives  the  numbers  of  the  receipts  issued,  with 
more  or  less  detailed  information,  sometimes  giving  the  date  of 
issue,  to  whom  issued,  and  marks  and  weight  of  bale ;  against  which 
is  subsequently  entered  the  date  of  shipment  and  number  of  Clear- 
ance or  Loading  Order  on  which  same  was  shipped.  There  are 
many  cases,  however,  in  which  the  Bale  Book  carries  no  informa- 
tion other  than  the  number  of  the  receipts  issued  and  possibly  i 
cross  or  some  other  pencil  check  to  indicate  which  receipts  have 
been  surrendered  and  cancelled  either  by  transfer  or  shipment, 
without  giving  date  of  issue  or  cancellation — that  is,  there  will  be 
such  entry  if  the  warehouseman  does  not  forget  to  make  it  when 
he  cancels  the  receipts.  Some  warehouses  do  not  weigh  the  cotton 
when  received,  hence  there  is  no  record  of  weights.  Some  ware- 
housemen use  a  manifold  receipt  form,  leaving  the  carbon  for  their 
permanent  files.  Others  use  a  receipt  with  stub,  which  stub  v.'e 
find  they  frequently  fail  to  fill  out. 

478 


Cotton  Losses  and  Cotton  Salvage  Handling 

You  will  note  that  these  warehouse  receipts  are  invariabl) 
worded  so  as  to  preclude  the  warehousemen  being  held  liable  foi 
loss  by  fire.  Under  the  common  law,  unless  the  warehouseman  had 
specifically  agreed  to  assum.e  liability  for  loss  by  fire,  he  would 
not  be  liable  for  such  loss,  unless  it  were  proved  the  fire  was  due  to 
his  own  negligence,  so  it  would  seem  there  is  no  necessity  for  the 
receipts  referring  to  the  fire  risk,  except  in  those  states  where  they 
have  attempted  to  make  the  warehouseman  liable  for  any  loss, 
whether  the  same  is  caused  by  fire,  the  acts  of  God,  or  otherwise. 

These  public  warehousemen  usually  agree,  when  specifically 
requested,  to  insure  cotton  stored  with  them,  for  which  they  make 
an  extra  charge  over  and  above  their  regular  storage  charges,  and 
their  agreement  to  insure  such  cotton  may  be  evidenced  in  various 
ways,  the  usual  method  being  to  stamp  with  a  rubber  stamp  the 
word  ^'Insured"  on  the  receipts  covering  the  cotton  which  the  ware- 
houseman has  agreed  to  insure. 

The  production  of  a  receipt  stamped  ''Insured"  is  not,  how- 
ever, conclusive  evidence  that  the  holder  of  the  receipt  or  owner 
of  the  cotton  has  any  claim  against  the  warehouseman  for  insur- 
ance on  it,  for  the  original  owner  or  bailor,  say  a  farmer  or  local 
merchant,  who  first  placed  the  bale  in  the  warehouse  and  told  the 
warehouseman  he  wished  him  to  insure  it,  may  shortly  after  sell 
said  bale  to  some  large  buyer.  The  warehouseman  may  be  advised 
of  this  sale,  and  knowing  the  buyer  always  insures  his  own  cotton, 
the  warehouseman  would  know  he  would  not  pay  him  for  keeping 
it  insured,  and  therefore  would  mark  it  ofi:  his  list  of  insured  cot- 
ton, if  he  happened  to  keep  such  record,  which  unfortunately 
many  of  them  do  not.  When  we  find  such  receipts  marked  ''In- 
sured" in  the  hands  of  the  large  buyers  carrying  Buyer's  Transit 
or  Per  Bale  Policies,  we  do  not  insist  on  holding  them  as  covered 
under  the  warehouseman's  policies,  unless  we  can  find  some  record 
of  parol  evidence  of  their  being  insured,  for  the  account  of  buyer 
or  holder  other  than  the  mere  stamp  on  the  receipt,  but  if  such 
record  is  found,  they  should  be  held  as  covered  under  the  Ware- 
houseman's Policies,  which  would  be  contributing  insurance  with 
Fire  Policies  issued  to  the  owner  or  holder  of  the  receipt,  but  if 
the  owner  or  holder  of  the  receipt  was  insured  under  Marine  Poli- 
cies (Form  M),  said  Marine  Policies  would  not  cover  such  cotton, 
as  the  Marine  Companies  are  wiser  than  their  cousins  in  the  fire 
business,  in  that  their  policies  contain  a  clause  reading: 

"Warranted  by  the  Assured  free  from  any  liability  for  merchandise 
in  the  possession  of  any  carrier  or  other  bailee  who  may  be  liable  for 

479 


The  Fire  Insurance  Contract 

any  loss  or  damage  thereto;  and  free  from  any  liability  for  merchandise 
shipped  under  a  bill  of  lading  containing  a  stipulation  that  the  carrier 
may  have  the  benefit  of  any  insurance  thereon;  and  that  any  assurance 
against  fire  granted  herein  shall  be  null  and  void  to  the  extent  of  any 
fire  insurance  which  thjs  assured  or  any  carrier  or  other  bailee  has,  at 
the  time  of  the  fire,  and  which  would  attach  if  this  policy  had  not  been 
issued." 

The  clause  I  have  just  read  is  very  interesting  when  consid- 
ered with  the  Commission  Clause  now  found  on — I  think  I  am  safe 
in  saying — the  majority  of  fire  insurance  poHcies  covering  ware- 
house stocks  of  merchandise.  In  cases  where  the  warehouseman  is 
carrying  insurance  issued  to  John  Doe  covering  on  cotton  in  ware- 
house, his  own  or  held  by  him  in  trust,  or  ''sold  but  not  delivered," 
or  for  which  he  is  legally  liable,  there  is  little  chance  of  the  ware- 
houseman's insurers  avoiding  liability,  even  though  the  receipts  are 
not  stamped  "Insured,"  and  bear  the  usual  legend  excluding  lia- 
bility for  fire  risk. 

We  will  assume  that  George  Smith,  a  local  merchant  in  Cot- 
tonville,  bought  three  bales  of  cotton  from  a  farmer,  whom  he  told 
to  deliver  it  to  John  Doe's  warehouse,  have  it  weighed,  bring  the 
receipts  to  him,  and  he  would  pay  the  agreed  price.  The  farmer 
hauled  this  cotton  to  the  warehouse  and  received  from  John  Doe 
three  receipts,  each  for  one  bale,  marked  "G.  S.,"  weighing,  say, 
500  pounds,  which  receipts  he  handed  to  George  Smith,  who  in 
turn  gave  him  a  draft  on  the  Farmers  National  Bank  for  $150,  at- 
taching the  three  receipts  to  said  draft.  The  farmer  presents  the 
draft  to  the  bank,  which  pays  him  $150,  charging  it  to  George 
Smith's  account,  and  puts  the  three  receipts  with  other  similar  re- 
ceipts, which  the  bank  holds  as  collateral,  in  an  envelope  marked 
"George  Smith."  Mr.  Smith,  as  before  stated,  is  a  local  mer- 
chant running  a  general  store.  Buying  cotton  is  only  a  side  issue 
with  him.  He  may  carry  specific  fire  policies  covering  specifically 
in  John  Doe's  warehouse,  as  per  Form  IOC,  or  he  may  know  that 
John  Doe  carries  insurance  under  Form  IOC  and  after  he  has  set- 
tled with  the  farmer,  he  may  telephone  Doe  telling  him  to  insure 
these  three  bales,  which  Doe  agrees  to  do,  but  as  the  receipts  have 
already  been  issued  without  being  stamped  "Insured,"  there  is  no 
record  made  of  the  transaction.  Frequently  Smith  omits  to  tele- 
phone Doe  and  forgets  all  about  insuring  this  cotton  until  the  fire 
occurs,  then  he  conveniently  thinks: 

"Why,  no,   I   could  not  possibly  have  been  so  thoughtless  as   that. 
I  must  have  told  Doe  to  insure  it," 

and  he  immediately  calls  Doe  up  over  the  'phone  and  says  he  supn 

poses  Doe  has  sufficient  insurance  to  cover  that  cotton,  reminding 

480 


Cotton  Losses  and  Cotton  Salvage  Handling 

him  that  he  had  telephoned  him  to  insure  these  three  bales.  Doe 
may  say  he  does  not  remember  having  received  such  notice,  but  he 
has  sufficient  insurance  to  cover  all  the  cotton,  so  will  let  it  go 
at  that,  and  John  Doe's  insurers  pay  for  it.  On  the  other  hand, 
he  may  flatly  deny  receiving  any  order  or  instructions  to  insure, 
and  possibly  not  having  sufficient  insurance  to  cover  his  own  cot- 
ton, plus  that  which  he  knows  he  has  agreed  to  insure,  he  tells 
Smith  that  he  must  look  elsewhere  for  his  protection. 

Now  Smith  may  sell  most  of  his  cotton  to  the  Chino- American 
Cotton  Company,  who  carry  a  Marine  Policy,  Form  M,  or  Buyers' 
Transit  Policy,  Form  300,  issued  by  some  of  the  Fire  Insurance 
Companies,  so  goes  to  the  agent  of  the  Chino-American,  and  en- 
deavors to,  and  undoubtedly  sometimes  does,  persuade  him  to  in- 
clude the  receipts  for  these  three  bales  with  the  cotton  which  the 
Chino-American  Company  lost  by  the  same  fire,  which  the  Chino- 
American  can  easily  do,  providing  they  are  dishonest  and  have  no 
consideration  for  the  insurers.  As  I  will  shortly  explain,  these 
frauds  can  only  be  detected  and  prevented  by  detailed  audits  of 
the  buyers'  books. 

I  have  never  come  in  contact  with  any  class  of  men  whose 
standard  of  business  honesty  and  integrity  equals  the  better  class 
of  cotton  buyers  and  exporters,  but  unfortunately  there  are  a  few 
who  do  not  recognize  any  moral  obligation  to  their  insurers,  and 
who  will  not  hesitate  to  take  advantage  of  any  loop-hole  and  make 
claim  for  the  loss  of  cotton,  for  carrying  which  the  insurers  would 
never  have  received  any  premium  if  the  fire  had  not  occurred.  I 
will  cite  a  few  more  examples  of  this  evil,  as  they  illustrate  some 
features  for  which  the  adjuster  must  always  be  on  the  lookout. 

You  may  think  this  is  a  fraud  which  could  easily  be  detected 
and  prevented,  and  it  might  be  if  the  companies  issuing  per  bale 
policies  insisted  on  the  assured  making  daily  reports  including  all 
the  information  the  policy  calls  for.  The  Per  Bale  Policy  contains 
a  clause  reading: 

"Warranted  by  the  assured  as  a  condition  of  this  insurance  that  all 
purchases  and  sales  and/or  shipments  of  cotton  insured  hereunder  shall 
be  reported  daily,  (Sundays  and  holidays  excluded)  to  this  Company, 
and  that  an  accurate  record  shall  be  kept  by  the  assured  of  all  such  pur- 
chases, sales  and/or  shipments,  showing  the  dates  of  all  such  trans- 
actions and  other  particulars  affecting  this  insurance — which  record  shall 
be  open  to  the  inspection  of  an  authorized  representative  of  this  Com- 
pany on  request." 

One  form  in  general  use  contains  the  clauses: 

"When  this  policy  becomes  effective  the  assured  agrees  to  report 
to  this  Company  through  its  Agent  as  named  herein,  all  cotton  in  his  or 

481 


their  possession  and  thereafter  to  REPORT  DAILY,  SUNDAYS  AND 
HOLIDAYS  EXCEPTED,  all  purchases,  sales  and/or  shipments  of 
cotton  made  by  him  or  them,  including  in  this  report  the  value  of  all 
such  sales  and/or  shipments." 

"The  assured  under  this  policy  hereby  covenants  and  agrees  to  keep 
a  set  of  books,  showing  a  complete  daily  record  of  all  cotton  handled, 
showing  among  other  things  the  weight  and  classification  of  each  bale, 
and  all  purchases,  sales  and/or  shipments  with  the  identity  of  each  bale 
and  its  location  and  removal  from  yards  or  compress  to  other  locations, 
and  in  case  of  loss  to  produce  such  books  to  this  company  or  this  policy 
shall  be  void." 

But  possibly  because  they  thought  the  enforcement  of  these 
clauses  would  make  the  adjustment  of  cotton  losses  merely  a 
pleasant  pastime,  they  considerately  retained  the  clause  reading: 

"It  is  understood  and  agreed  by  this  Company  that  unintentional 
omissions  and/or  errors  on  the  part  of  the  assured  in  reporting  cotton 
purchased,  sold  or  shipped,  in  accordance  with  the  requirements  of  this 
policy,  do  not  vitiate  this  insurance  and  the  assured  agrees  that  he  will 
pay  premium,  at  the  rates  agreed,  on  all  such  omissions  and/or  errors." 

We  often  find  some  local  merchant  who  has  had  cotton  on 
which  he  carried  no  insurance,  which  he  intended,  or  hoped,  to  sell 
to  some  friendly  buyer  who  carried  an  open  reporting  policy,  but 
before  the  sale  was  consummated  the  cotton  was  destroyed  by  fire. 
The  merchant  then  hands  his  warehouse  receipts  to  his  friend,  the 
buyer  with  the  open  policy,  or  even  a  specific  fire  policy,  who  re- 
ports it  to  the  adjuster  as  his  own  cotton.  Suppose  the  adjuster 
calls  for  sales  contracts  or  confirmations  or  invoices  and  drafts 
covering  payments ;  they  may  produce  confirmations  or  invoices 
which  have  been  made  after  the  fire  though  showing  dates  prior 
thereto  and  claim  policy  requirements  as  to  reporting  had  been  com- 
plied with  as  the  purchase  was  reported  "weeks  ago"  in  Section  One 
of  the  Daily  Report  for  some  date  which  they  cannot  specify.  This 
statement  as  to  the  report  is  in  many  cases  a  difficult  one  to  prove 
or  disprove,  as  the  records  may  be  so  carelessly  kept  that  the  pur- 
chases reported  in  Section  One  cannot  be  traced.  If  they  allege  the 
cotton  has  been  paid  for,  that  can  usually  be  proved  and  traced 
through  the  bank  records,  for  I  have  never  met  a  cotton  man  who 
had  the  audacity  of  many  of  our  New  York  claimants,  who  will 
say  when  driven  into  a  corner  that  they  borrowed  the  cash  from  a 
relative  and  paid  it  direct  to  the  seller.  The  competent  and  ex- 
perienced adjuster  can  generally  frustrate  these  nefarious  schemes, 
but  only  at  the  cost  of  a  great  deal  of  time  and  labor,  for  where  a 
buyer  handles  200,000  or  more  B/C  in  a  season,  purchased  in  small 
lots  of  one  or  two  up  to  fifty  bales,  if  his  records  are  in  bad  order 
it  may  take  two  or  three  weeks  of  difficult  auditing  work  to  prove 

482 


Cotton  Losses  and  Cotton  Salvage  Handling 

out  the  accounts.  Another  method  by  which  the  assured  under 
these  open  poUcies  sometimes  endeavors  to  collect  for  the  cotton 
of  some  friendly  uninsured  merchant,  and  upon  which  the  under- 
writers never  would  have  received  premiums,  is  for  the  assured, 
the  merchant,  and  several  of  their  employees  to  make  affidavits  to 
the  effect  that  the  merchant  was  buying  the  cotton  for  the  assured's 
account  and  then  to  support  this  by  an  affidavit  from  the  banker 
who  had  financed  the  purchase  for  the  merchant  stating  the  assured 
had  said  the  merchant  was  buying  for  his  account  and  that  he  (the 
assured)  would  guarantee  all  advances  the  bank  made  to  the  mer- 
chant. 

Several  years  ago  a  compress  containing  about  four  thousand 
bales  of  cotton  burned  in  a  small  town  in  the  South,  a  place — I 
should  say — of  seven  or  eight  thousand  inhabitants,  but  in  which, 
owing  to  its  being  an  important  railroad  junction,  a  great  deal  of 
cotton  is  handled.  I  had  nothing  to  do  with  adjusting  this  loss, 
but  two  or  three  years  later  my  investigation  of  a  second  cotton 
fire  in  the  same  town  disclosed  the  following  facts  concerning  the 
first  fire.  Up  to  a  year  or  two  preceding  the  first  fire,  there  were 
many  specific  Fire  Policies  issued  by  the  local  agents  covering  on 
cotton  in  that  town.  The  agents  had  comnlained  about  losing  the 
business,  and  it  was  suspected  that  some  of  the  buyers  holding 
Open  or  Reporting  Policies  had  promised  the  local  merchants  from 
whom  they  bought  more  or  less  cotton  that  in  the  event  of  loss  on 
cotton  held  by  the  merchant  they  would  bring  it  under  the  protec- 
tion of  the  buyer's  policy,  and  although  such  cotton  was  not  at  the 
buyer's  risk  at  time  of  loss,  or  properly  under  cover  of  the  Open 
Policies,  the  Underwriters  would  probably  be  called  on  to  pay  for 
it.  There  were  another  compress  and  several  independent  ware- 
houses in  that  town;  a  number  of  merchants  were  buying  cotton 
on  the  street  and  taking  same  from  their  customers  in  the  usual 
manner.  There  was  no  specific  or  other  fire  insurance  carried  by 
the  merchants,  although  they  undoubtedly  owned  several  thousand 
bales  of  cotton.  As  far  as  I  could  ascertain  from  my  investigation 
made  two  years  later,  the  buyers  holding  reporting  policies  pro- 
duced compress  receipts  for  all  the  cotton  claimed  to  have  been 
burned,  and  the  adjusters  seem  to  have  accepted  these  receipts  as 
satisfactory  evidence  of  ownership  without  auditing  the  accounts 
to  prove  title  and  paid  the  claims  without  any  question. 

In  my  judgment  the  situation  was  one  which  warranted  the 
adjuster's  making  a  complete  audit  of  all  the  compress,  warehouse, 

48i 


railroad  and  buyers'  records.  The  experienced  adjuster  has  no 
difficulty  in  obtaining  access  to  all  these  records,  as  the  banks,  rail- 
roads, and  large  buyers  will  always  assist  him  if  fraud  is  suspected. 

A  year  or  two  later  a  third  fire  occurred  in  a  warehouse  in  this 
same  town.  The  warehouse  books  showed  there  were  several  hun- 
dred bales  more  of  uninsured  cotton  contained  in  the  warehouse 
than  could  possibly  have  been  destroyed.  The  warehouseman  car- 
ried no  insurance,  and  the  only  interest  we  had  in  determining  the 
amount  of  uninsured  cotton  was  in  connection  with  the  unidentified 
salvage,  and  to  preclude  any  assured  collecting  for  his  friends'  un- 
insured cotton.  The  warehouse  had  burned  so  that  a  reasonably 
accurate  count  of  the  bands  could  be  made,  from  which  we  could 
establish  approximately  how  many  bales  had  been  destroyed.  The 
warehouseman  admitted  that  his  books  were  wrong,  stating  he  had 
undoubtedly  delivered  some  cotton  and  cancelled  or  destroyed  the 
receipts,  which  he  had  failed  to  mark  off  the  bale  book.  We  made 
him  advertise  in  the  local  papers,  asking  all  who  held  his  ware- 
house receipts  to  send  them  to  a  certain  bank  for  examination.  This 
resulted  in  bringing  to  light  five  receipts  which  the  warehouseman 
finally  agreed  was  all  the  uninsured  cotton  contained  in  the  ware- 
house, although  his  books  showed  there  were  several  hundred  bales. 
We  know  there  were  several  hundred  warehouse  receipts  held  by 
two  merchants,  upon  which  no  claim  was  ever  made,  but  which 
would  undoubtedly  have  been  presented  by  some  assured  if  we  had 
not  checked  up  all  the  other  warehouses  and  the  season's  shipments 
through  the  railroad  records.  I  recall  several  instances,  some  of 
which  I  will  mention  later,  where  claim  has  been  made  for  cotton, 
supported  by  the  warehouse  receipts,  that  we  have  proved  by  the 
railroad  records  had  been  shipped  out  of  town  before  the  loss  oc- 
curred. 

Railroad  and  Commercial  Terms 

Controversies  frequently  arise  over  the  construction  of  familiar 
commercial  and  railroad  terms,  and  I  will  attempt  to  give  you  a  few 
of  the  most  generally  recognized  and  what  I  believe  are  the  correct 
definitions. 

The  terms  most  frequently  encountered  in  the  adjustment  of 
cotton  losses  are : 

(1)  F.   O.  B.  is  the  abbreviation  of  "Free  on  Board." 

(2)  F.    O.    B.    (Named    Point)    is    the    abbreviation    for    "Free    on 

Board  at  point  named. 

48 } 


Cotton  Losses  and  Cotton  Salvage  Handling 

(3)  F.   O.  B.   (Named   Point)    F.  A.  is  the  abbreviation  for  "Free 

on   Board   (at  named  point)    Freight  Allowed." 

(4)  F.  A.  S.   (Named  Port)   is  the  abbreviation  for  "Free   Along- 

side Vessel." 

-  (5)     F.  O.  B.  SS   (Named  Port)   is  the   abbreviation  for  "Free  on 
Board  Steamship"  at  Named  Port. 

(6)  C.  &  F.  is  the  abbreviation  for  "Cost  and  Freight." 

(7)  C.  I.  F.  is  the  abbreviation  for  "Cost,  Insurance,  Freight." 

C.   A.   F.   is  the  abbreviation   for  "Cost,  Assurance,   Freight," 
meaning  the  same  thing. 

(8)  O.  R.  and  S.   R.  are  abbreviations,  respectively,  for  "Owner's 

Risk"  and  "Shipper's  Risk." 

(9)  S.  L.  &  C.  is  the  abbreviation  for  "Shipper's  Load  &  Count." 

(10)  L.  C.  L.  is  the  abbreviation  for  "Less  than  Carload  Lots." 

F.  O.  B.,  the  abbreviation  for  "Free  on  Board/'  means  free  on 
board  car,  lighter,  or  ship  and  not  delivery  in  warehouse  or  com- 
press. For  example,  if  the  terms  of  sale  are  '^F.  O.  B.  Cottonville," 
without  any  designation  as  to  routing,  and  the  buyer  knew  when 
making  the  purchase  that  the  identical  cotton  bought  was  then  in 
Cottonville,  the  seller  must,  at  his  own  cost  and  expense : 

(1)  place  the  cotton  on  or  in  cars  or  lighters  furnished  by  the 
transportation  company  serving,  or  most  conveniently  located, 
to  the  warehouse  where  the  cotton  is  stored  in  Cottonville; 

(2)  secure  clear  bill  of  lading  consigning  cotton  to  the  buyer; 

(3)  as  he  has  to  secure  clear  bill  of  lading,  the  seller  is,  of  course, 
responsible  for  any  loss  or  damage  to  the  cotton  until  it  has 
been  loaded  and  clean  bill  of  lading  obtained; 

Under  these  terms  the  buyer 

(1)  accepts  responsibility  for  any  loss  or  damage  incurred  after 
issue  of  bill  of  lading; 

(2)  is  responsible  for  and  must  pay  all  transportation  charges  in- 
cluding demurrage,  if  any; 

(3)  arrange  for  all  subsequent  movement  of  this  shipment. 

In  other  words,  the  seller  has  completed  his  contract  by  load- 
ing the  cotton  and  obtaining  bill  of  lading. 

If  the  terms  of  sale  were  "F.  O.  B.  Dallas,"  the  seller  would 
be  required  to  prepay  the  freight  from  Cottonville  to  Dallas  and  the 
cotton  would  be  at  the  seller's  risk,  and  he  would  be  responsible 
for  all  loss  or  damage  thereo  until  the  shipment  arrived  at  Dallas. 

Where  the  contract  of  sale  or  confirmation  reads,  "F.  O.  B." 
without  naming  any  point,  it  is  assumed  to  mean  F.  O.  B.  cars  or 
lighters  furnished  by  the  carrier  serving  the  warehouse  or  compress 
where  the  cotton  is  located  at  time  of  sale.  Suppose  the  terms  are 
"F.  O.  B.  New  Orleans,"  and  the  buyer  knew  the  cotton  was  at 

485 


some  other  point  at  time  of  sale,  the  seller  would  only  be  required 
to  deliver  the  cotton  free  on  board  the  incoming  conveyance  taking 
it  to  New  Orleans.  If,  however,  the  buyer  knew  the  cotton  was 
in  New  Orleans  at  time  of  sale,  the  only  construction  that  can  be 
placed  on  the  term  "F.  O.  B."  is  that  it  requires  the  seller  at  his 
own  cost  and  expense  to  place  the  cotton  on  such  outgoing  con- 
veyance as  the  buyer  may  designate. 

Nearly  all  export  sales  of  cotton  are  made  on  ''C.  I.  F."  (named 
port)  terms.    This  requires  the  seller  to : 

(1)  Secure  the  necessary  freight  contracts  carrying  the  goods  to 
the  named  destination;  ^ 

(2)  deliver  the  cotton  to  the  carrier; 

(3)  pay  all  freight  charges  to  destination; 

(4)  secure  clear  bill  of  lading  covering  shipment  to  destination; 

(5)  obtain  and  pay  for  the  necessary  marine  insurance  payable  to 
the  consignee  or  his  order. 

Under  these  terms  the  seller  is  responsible  for  all  loss  or  dam- 
age until  the  goods  have  been  delivered  to  the  carrier,  clean  bill  of 
lading  with  the  required  marine  insurance  secured,  properly  en- 
dorsed and  negotiated  by  delivery  to  the  buyer  or  his  agent.  The 
buyer  is  responsible  for  loss  and  damage  occurring  thereafter,  for 
which  he  must  make  claim  on  the  carrier  or  underwriter  according 
to  who  may  be  responsible  therefor.  The  buyer  must  also  pay  all 
costs  of  unloading  or  discharging,  lighterage,  and  landing  at  distina- 
tion,  and  all  customs  duties  and  wharfage  charges. 

The  only  difference  between  the  "C.  I.  F."  and  ''C.  &  F."  terms 
is  that  under  the  latter  the  seller  is  relieved  from  the  responsibility 
of  insuring  the  shipment.  The  other  terms  need  no  further  explana- 
tion. 

In  adjusting  cotton  losses  and  auditing  cotton  accounts  we 
sometimes  find  the  assured  will  attempt  to  construe  "F.  O.  B."  as 
meaning  one  thing  when  he  is  making  up  his  Daily  Reports  or  pre- 
mium statements  and  place  a  very  different  construction  on  the 
term  when  a  loss  occurs.  For  instance,  we  will  find  John  Doe 
with  headquarters  at  Dallas  has  been  purchasing  cotton  at  the  tribu- 
tory  points  such  as  Fort  Worth,  Greenville,  Paris,  Dennison  and 
Sherman,  his  confirmations  reading  "F.  O.  B.  Dallas,"  and  pur- 
chases were  not  shown  on  his  Daily  Report  as  coming  at  his  risk 
until  landed  at  Dallas,  but  when  a  loss  occurs  at  Sherman  he  will 
make  claim  on  his  underwriters  for  loss  on  cotton  destroyed  at 
warehouse  at  Sherman,  which  he  had  purchased  under  confirmation 

486 


Cotton  Losses  and  Cotton  Salvage  Handling 

reading  ^'F.  O.  B.  Dallas,"  alleging  the  agreement  between  buyer 
and  seller  was  that  he  accepted  delivery  of  the  cotton  where  it  lay 
at  Sherman  at  time  of  purchase,  and  that  the  term  ''F.  O.  B.  Dallas" 
referred  only  to  terms  of  payment,  he  agreeing  to  pay  for  the  cot- 
ton when  landed  in  Dallas.  In  other  words,  instead  of  buying 
"F.  O.  B.  Dallas,"  the  terms  really  were  "In  warehouse  @  Sherman 
freight  allowed  to  Dallas/'  If  we  are  forced  to  admit  the  assured's 
contention  and  accept  liability  for  the  cotton  at  Sherman,  I  require 
a  letter  over  the  assured's  signature  explaining  his  construction  of 
the  terms  and  stating  that  the  term  "F.  O.  B.  Dallas"  in  his  con- 
firmations has  always  been  construed  as  referring  only  to  paymeni 
emd  that  both  buyer  and  seller  have  always  understood  that  he  ac- 
cepted delivery  of  the  cotton  as  it  lay  at  the  local  point  at  time  of 
purchase.  We  then  forward  this  letter  to  the  interested  under- 
writers and  suggest  they  demand  an  audit  of  the  assured's  accounts 
for  previous  years,  going  as  far  back  as  it  is  possible  to  obtain 
the  necessary  records,  and  make  up  premium  statements  based  on 
the  assured's  construction,  which  would  require  him  to  pay  at  least 
one-eighth  of  one  percent  more  premium  on  all  cotton  he  has 
handled. 

Another  controversy  which  sometimes  arises  is  the  question  of 
allowing  what  are  known  to  the  trade  as  freight  expense  bills.  The 
railroads  make  "common  point  quotations";  that  is  to  say,  the 
freight  to  Galveston  from  the  smaller  towns  tributory  to  Dallas,  i.  e.. 
Fort  Worth,  Greenville,  Paris,  Dennison,  and  Sherman — is  the  same 
as  the  freight  from  Dallas  to  Galveston.  When  John  Doe  has  cot- 
ton shipped  from  Sherman  to  Paris  under  local  bill  of  lading,  he 
is  charged  the  local  freight  rate  from  Sherman  to  Paris,  which, 
considering  the  distance,  is  several  times  higher  than  the  rates  from 
Sherman  to  Galveston.  When  Doe  pays  this  freight  bill,  which 
we  will  assume  is  $1.50  per  bale,  he  obtains  a  receipt  which  en- 
titles him  to  credit  for  the  full  amount  paid  when  he  reships  the 
cotton  to  Galveston  or  other  "common  point."  Theoretically,  this 
credit  is  supposed  to  be  given  only  when  the  same  identical  bales 
are  reshipped,  but  in  practice  he  can  obtain  this  credit  on  any  ship- 
ments. The  object  of  this  arrangement  is  to  permit  buyers  to  con- 
centrate— that  is,  assemble  and  sort  their  cotton  at  points  where 
there  are  compresses  or  other  necessary  facilities.  Supposing  a 
compress  at  Paris  burns  with  100  bales  of  Doe's  cotton.  The  com- 
press could  not  be  rebuilt  and  in  operation  within  the  period  dur- 
ing which  Doe  could  get  credit  for  his  $150  worth  of  expense  bills 

487 


The  Fire  Insurance  Contract 

applying  to  the  burned  cotton.  In  other  words,  as  a  result  of  the 
fire  Doe  is  prevented  from  obtaining  any  credit  or  benefit  for  the 
$150  freight  he  has  paid  on  having  the  cotton  shipped  into  Paris, 
whereas  if  it  had  not  burned  he  would  have  obtained  credit  for 
the  full  $150.  If  John  Doe  had  sold  this  cotton  as  it  lay  at  Paris, 
say  for  $80  per  bale,  he  could  have  made  his  invoices  for  $8,000 
plus  $150  expense  bills,  attaching  the  bills  to  the  invoices,  which 
would  be  as  good  as  cash  to  the  buyer  w^hen  they  came  to  ship 
the  cotton  to  port  or  New  England  point.  The  as'sured  contends 
therefore,  that  the  actual  market  value  of  cotton  subject  to  credit 
of  these  expense  bills  is  the  market  value  plus  the  expense  bills, 
and  the  assured's  actual  loss  by  the  fire  is  the  market  value  plus 
the  expense  bill,  for  which  the  underwriters  should  compensate 
him,  and  they  usually  do. 

Cotton  Insurancd  Forms 
The  Commission  Clause 
There  are  now  in  general  use  two  different  methods  of  insur- 
ing cotton,  i.  e.,  "Specific  Insurance"  written  in  the  usual  manner 
under  various  forms  attached  to  the  Standard  Fire  Policy,  and 
"Per  Bale  Insurance,"  written  under  forms  attached  to  the  Stand- 
ard Fire  Policy,  or  somewhat  similar  forms  attached  to  the  "Marine 
Cargo  Policy."  Copies  of  these  'Ter  Bale"  forms  are  given  in 
the  appendix,  and  the  adjuster  should  have  a  thorough  understand- 
ing of  their  construction  and  application  before  taking  up  any  loss. 
The  specific  insurance  forms  are  promulgated  by  the  S.  E.  U.  A.  and 
similar  organizations,  and  for  convenience  of  reference  we  have 
designated  them  by  the  S.  E.  U.  A.  numbers.  There  is  no  form  in 
general  use  covering  "Seed  Cotton"  (i.  e.,  cottcai  as  it  is  picked 
from  the  plant  and  before  it  is  ginned)  or  "Loose  Cotton"  (i.  e., 
cotton  not  baled).  All  forms  specify  "Cotton  in  Bales."  All  the 
specific  forms  carry  the  "Commission  Clause,"  and  therefore  cover 
cotton,  owned  by  the  assured;  held  by  the  assured  in  trust;  held 
on  commission;  held  on  joint  account;  and  sold  by  the  assured  but 
not  delivered  or  removed.  All  these  specific  forms  except  13- A 
cover  all  cotton  in  bales  coming  under  any  of  the  conditions  of  the 
Commission  Clause,  which  the  assured  might  have  at  the  specified 
locations.  Form  13-A  covers  "not  exceeding"  the  stated  amount  on 
each  specified  bale  which  it  requires  to  be  designated  by  marks 
and  numbers.  The  Commission  Clause  in  this  form  contains  the 
additional  wording  "or  upon  which  advances  have  been  made," 
presumably  meaning  only  advances  made  by  assured. 

488 


Cotton  Losses  and  Cotton  Salvage  Handling 

The  only  wording  of  the  Commission  Clause  that  need  be  con- 
sidered is  "Held  by  assured  in  trust" — this  includes  all  that  could 
come  under  cover  of  the  other  headings  which  are  only  surplusage. 
The  Commission  Clause  is  the  subject  of  another  lecture,  and  I 
only  call  artention  to  some  few  points  in  order  to  impress  upon  you 
the  necessity  of  understanding  and  always  having  this  clause  in 
mind  when  handling  losses  under  specific  policies.     This  clause  as 

originally  worded  in  the  good  old  times,  read  " for  which  the 

assured  is  legally  liable,"  the  purpose  of  that  wording  being  to 
exclude  from  cover  of  the  policy  all  property  of  others  for  which 
the  assured  was  not  legally  liable.  The  change  in  punctuation  and 
substitution  of  the  words  "or  for"  in  place  of  the  word  ^'for" 
brings  in  an  element  of  danger,  especially  under  the  Co-insurance 
or  Average  Clauses,  to  both  Insurer  and  assured,  from  which  I 
believe  the  Insurers  only  escape  annoying  complications  and  serious 
losses  because  many  local  and  special  agents,  the  insuring  public 
and  the  majority  of  attorneys,  do  not  appreciate  its  possibilities. 
As  far  as  the  cotton  insurer's  interests  are  concerned,  there  is  what 
almost  amounts  to  a  tacit  understanding  that  the  operation  of  this 
clause  shall  be  ignored  to  a  certain  extent,  and  where  we  find  the 
warehouseman  or  other  bailee  carrying  policies  containing  it,  which 
were  undoubtedly  taken  out  with  the  intention  of  covering  only 
such  cotton  as  he  had  agreed  to  insure,  or  for  which  he  was  legally 
liable  m  event  of  loss,  we  do  not  endeavor  to  bring  all  the  other 
cotton  in  the  warehouse  under  coVer  of  such  policies.  I  would  sug- 
gest that  those  who  are  studying  this  subject  should  read  the  de- 
cision in  the  "Baltimore  Warehouse  Case." 

Home  V.  Baltimore  Whse  Co.   (U.  S.   Supreme   Ct.,   1876),  93  U.  S. 
5^/,  6  1.  U  J.  39. 

Hough    &    Clendenning   v.    Peoples    Ins.    Co.    (Md.    Ct.    of    Appeals, 
1872),  36  Md.  398,  5  Bennett  418. 

Utica  Canning   Co.  vs.   Home   Ins.   Co.    (N.   Y.   Sup.    Ct.    1909)    116 
N.  Y.  934,  38  Ins.  Law.  Jour.  813,  and  the  authorities  cited  therein. 

In  the  Baltimore  Warehouse  case  the  charter  and  by-laws  of 
the  warehouse  company  required  that  each  warehouse  receipt  it 
issued  should  contain  on  its  face  a  notice  that  the  property  men- 
tioned therein  was  held  by  the  corporation  as  bailees  only,  and  was 
not  insured  by  the  corporation,  and  all  the  receipts  bore  that  legend. 
The  policy  under  which  this  action  was  brought  stated'  that  it  did — 

,  .  .  insure  Baltimore  Warehouse  Co.  against  loss  or  damage  by  fire  to 
the  amount  of  $20,000,  on  merchandise  hazardous  or  extra  hazardous, 
their  own  or  held  by  them  in  trust,  or  in  which  they  have  an  interest 
or  liability,  contained  in,  etc." 

489 


The  Fire  Insurance  Contract 

The  warehouse  company  had  some  property  of  their  own  in 
the  warehouse,  besides  which  they  were  doing  a  pubHc  warehouse 
business  and  had,  of  course,  a  lien  for  charges  on  all  storage  goods. 

The  court  held  that  in  construing  the  clause  ^'merchandise  held 
in  trust,"  the  phrase  "in  trust"  is  to  be  understood  in  its  mercan- 
tile sense  and  not  confined  to  property  held  by  legally  appointed 
trustees;  that  the  policy  in  question  covered  all  the  merchandise  in 
the  warehouse;  that  the  warehouse  company  could  collect  the  full 
loss  on  all  merchandise,  and  after  deducting  for  their  own  prop- 
erty and  charges  on  storage  goods,  hold  the  balance  in  trust  for 
owners  of  the  other  merchandise. 

The  court  further  held  that  while  the  wording  of  the  receipts 
was  notice  to  the  holders  that  the  warehouse  company  were  not  in- 
surers of  the  property,  neither  that  wording  nor  anything  in  the 
charter  or  bylaws  precluded  the  warehouse  company  from  obtain- 
ing insurance  to  the  full  value  of  the  goods  left  with  them. 

The  court  further  held  that  where  the  owners  of  the  merchan- 
dise had  taken  out  specific  policies  in  their  own  names  such  policies, 
together  with  the  warehouse  company's  policies  carrying  the  Com- 
mission clause,  constituted  double  insurance  and  the  loss  should  be 
apportioned  between  them  accordingly. 

It  is  well  to  consider  this  case  in  connection  with  the  various 
cotton  insurance  forms  carrying  the  Commission  Clause,  as  a  thor- 
ough understanding  of  the  subject  may  enable  the  adjuster  to  avoid 
many  pitfalls. 

This  brings  us  to  consideration  of  a  subject  upon  which  I  have 
observed  many  claimants,  agents  and  adjusters  are  dangerously 
ignorant,  that  is. 

What  constitutes  a  sale  or  a  delivery,  and  when  does  the  cotton 
"become  the  property  of  the  assured  or  legally -at  their  risk?": 
or  what  is  termed  in  the  Common  Law,  "A  bargain  and  sale  of 
goods."  The  point  of  greatest  interest  to  the  adjuster  is,  when 
does  the  title  to,  or  property  right  in,  the  goods  bargained  for  pass 
from  the  vendor  to  the  vendee  so  as  to  bring  same  legally  at  the 
risk  of  the  vendee  and  make  him  liable  for  any  loss  thereto. 

At  the  principal  ports  or  exchange  centers  such  as  New  York 
and  New  Orleans,  there  are  rules  and  recognized  customs  of  the 
Cotton  Trade  and  Exchanges,  which  clearly  define  how  and  when 
title,  and  risk  passes  and  delivery  is  made.     For  instance,  at  those 

490 


•-        Cotton  Losses  and  Cotton  Salvage  Handling 

points  where  all  cotton  sold  is  weighed  each  time  it  is  sold,  title 
passes  and  delivery  is  made  from  seller  to  buyer  as  each  bale  passes 
under  the  scales,  but  in  the  smaller  places  there  are  no  such  estab- 
lished rules  or  customs,  and  the  question  is  often  a  very  difficult 
one  to  decide.  You  will  probably  think  that  the  various  Cotton 
Exchanges  and  similar  associations  would  have  adopted  rules  or 
by-laws  definitely  defining  how, delivery  was  to  be  made  and  ex- 
actly at  what  stage  of  the  transaction  the  property  right  passed  and 
the  cotton  became  at  the  risk  of  the  buyer,  but  unfortunately  such 
is  not  the  case.  Only  a  few,  of  the  exchanges  have  adopted  such 
rules,  and  they  are  more  or  less  ambiguous.  We  seldom  find  a 
large  cotton  loss  where  annoying  complications  are  not  raised  over 
this  point,  and  it  would  seem  as  if  the  interested  parties,  that  is, 
•  the  underwriters,  banks,  railroads,  and  cotton  buyers,  could  well 
afiford  to  employ  some  competent  man  as  a  missionary  to  visit  the 
various  exchanges  and  persuade  them  all  to  adopt  uniform  rules 
governing  this*Yeature  of  their  business. 

The  trend  of  modern  trade  customs  is  making  this  question  too 
important  to  the  adjuster  of  manufacturing  and  warehouse  losses  to 
warrant  my  attempting  more  than  a  rough  outline,  especially  in  a 
paper  of  this  character,  but  I  call  attention  to  some  of  the  principal 
points  involved  giving  a  few  citations  which  will  indicate  the  course 
of  reading  necessary  to  continue  the  study. 

First,  let  us  take  the  Common  Law  Rule  that  a  "bargain  and 
sale"  can  only  be  made  when  the  vendor  possesses  the  articles  sold 
in  such  deliverable  state  that  no  act  of  the  vendor's  is  required  such 
as  weighing  or  measuring,  to  separate  or  segregate  them  from  other 
stock  or  otherwise  positively  indentify  the  specific  articles  sold.  If 
you  offer  to  sell  something  you  do  not  own  or  which  requires  labor 
on  your  part  to  put  into  deliverable  condition,  you  can  only  make  an 
''Executory  Contract  of  Sale"  that  you  intend  to  execute  at  some 
future  time,  and  the  title  would  not  pass  until  it  was  executed. 
Under  the  Common  Law  rule,  if  a  seller  makes  a  proposition  which 
the  buyer  accepts  and  the  goods  are  then  in  possession  of  the  seller 
with  nothing  further  required  to  put  them  into  deliverable  condition, 
such  as  weighing  or  measuring  to  separate  or  segregate  them  from 
other  stock,  the  title  and  property  right  in  the  goods  sold  passes  from 
seller  to  buyer  on  the  latter's  acceptance  of  the  offer  and  no  writ- 
ten memorandum,  confirmation,  bill  of  sale  or  physical  delivery  is 
required. 

491 


From  the  above  you  will  note  that  payment  is  not  necessary  to 
complete  the  sale;true,  the  seller  may  refuse  to  deliver  the  goods  be- 
fore payment  or  satisfactory  credit  arrangements  have  been  made, 
but  title  to  the  goods  passes  and  they  are  at  the  buyer's  risk  as  soon 
as  he  accepts  the  seller's  offer. 

Where  the  goods  are  not  designated  by  marks  or  numbers,  or 
segregated  from  other  stock,  or  vv^here  anything  remains  for  the 
seller  to  do  to  put  the  goods  in  deliverable  state,  title  does  not  pass 
imtil  such  work  has  been  performed  and  the  goods  sold  are  seg- 
regated or  otherwise  specifically  designated. 

In  1676  England  enacted  the  "Statute  of  Frauds."  This  has 
been  copied  with  some  variations  by  many  other  countries,  includ- 
ing most  of  the  United  States;  in  fact,  Texas  is  the  only  State  I 
recall  that  has  no  '^Statute  of  Frauds"  stating  how  a  sale  of  chattels 
must  be  validated.  In  that  State  the  Common  Law  rule  would  still 
be  in  force  but  for  the  fact  that  Texas  came  to  us  from  the  Spanish 
and  not  the  English  line,  and  was  therefore  under  the  Latin  and  not 
the  English  Common  Law,  yet  the  decisions  seem  to  indicate  the 
Texas  courts  have  accepted  the  Common  Law  rule.  Though  differ- 
ing in  some  details  these  statutes  as  a  rule  provide  that  all  contracts 
for  the  sale  of  goods,  chattels  or  things  in  action,  above  a  stated 
price  (ranging  in  different  States  from  $50  to  $300)  shall  be  in- 
valid unless  the  contract  or  some  note  or  memorandum  thereof  be  in 
writing ;  and  in  most  States  the  Law  requires  this  writing  to  be  sub- 
scribed or  signed  "by  the  party  to  be  charged  or  his  agent." 

The  Statute  of  Frauds  did  not  materially  change  the  Common 
Law  rule,  as  far  as  any  interest  the  adjuster  may  have  in  the  sub- 
ject is  concerned,  other  than  to  require,  at  least  in  most  States,  some 
written  evidence  of  the  transaction  to  be  signed  or  subscribed  by 
the  party  to  be  charged  or  his  agent.  This  does  not  necessarily 
mean  there  must  be  a  formal  Bill  of  Sale  or  confirmation  given. 
It  was  held  in  Halsell  et  al.  v.  Renfrow  et  al.  (U.  S.  Sup.  Ct.  1906) 
112  U.  S.  287,  that  a  complete  contract  binding  under  the  Statute 
of  Frauds  may  be  gathered  from  letters,  telegrams  and  writings 
between  the  parties  relating  to  the  subject  matter  and  so  connected 
with  each  other  that  they  may  be  said  to  fairly  constitute  one  paper 
relating  to  the  contract.  This  case  was  carried  to  the  Federal 
Courts  on  appeal  from  the  Supreme  Court  of  Oklahoma,  whose 
Statute  of  Frauds  require  "Some  note  or  memorandum  thereof  in 
writing  to  be  subscribed  by  the  party  to  be  charged  or  his  agent." 

492 


Cotton  Losses  and  Cotton  Salvage  Handling 

As  I  have  recently  closed  two  cases  which  furnish  very  good  ex- 
amples of  several  of  the  questions  discussed  in  this  lecture,  I  will 
give  you  the  report  I  made  to  the  Underwriters  which  recites  all  the 
facts  and  outlines  the  law  and  decisions  on  which  I  based  my  find- 
ings. The  only  changes  I  have  made  are  the  substitution  of  fictitious 
names  for  the  parties. 

ADJUSTER'S  REPORT. 

FIRE:  graham,  OKLAHOMA,  MARCH  21ST,  1916. 

ALLEGED  SALES  BY  JOHN  DOE  OF  104  B/C  TO 
RICHARD  ROE  AND  50  B/C  TO  FRANK  BROWN,  ALL 
WHICH  WAS  DESTROYED  IN  ABOVE  FIRE. 

Both  the  vendor,  Doe,  and  the  vendees,  Roe  and  Brown,  had 
reported  this  cotton  to  their  Underwriters  as  being  under  their  re- 
spective policies  (Form  No.  300  and  Form  M),  and  the  question 
of  liability  between  the  respective  underwriters  turns  on  the  point 
of  what  constitutes  a  sale  or  when  does  title  pass  to  cotton  sold  in 
Oklahoma?  As  shown  in  the  following  memorandum  I  have  been 
unable  to  find  any  recognized  rule  or  established  custom  of  the 
cotton  trade  that  would  have  any  bearing  on  the  question  involved, 
and  it  therefore  seems  as  if  we  must  be  largely,  if  not  entirely,  gov- 
erned by  the  statutes,  Common  Law  rules  and  decisions. 

1.  Statute  of  Frauds'.  Revised  Laws  of  Oklahoma,  1910, 
Chapter  12,  Article  2: 

"941.  The  following  contracts  are  invalid,  unless  the  same  or  some 
note  or  memorandum  thereof  be  in  writing  and  subscribed  by  the  party 
to  be  charged  or  his  agent:" 

"Fourth.  An  agreement  for  the  sale  of  goods,  chattels,  or  things 
in  action,  at  a  price  not  less  than  fifty  dollars,  unless  the  buyer  accept 
or  receive  part  of  such  goods  and  chattels,  or  evidences,  or  some  of 
them,  of  such  things  in  action,  or  pay  at  the  same  time  some  part  of 
the  purchase  money;  but  when  a  sale  is  made  by  auction,  an  entry  by 
the  auctioneer  in  his  sale  book,  at  the  time  of  the  sale,  of  the  kind  of 
property  sold,  the  terms  of  sale,  the  price  and  the  name  of  the  pur- 
chaser and  person  on  whose  account  the  sale  was  made  is  a  sufficient 
memorandum." 
Decisions: 

(a)  Delivery  will  not  take  a  contract  out  of  the  Statute  where  same 
is  to  a  carrier  on  the  defendant's  order,  to  be  shipped  to  a  third  party, 
and  by  carrier  delivered  at  place  of  destination. 

T.  &  K.  Hdwe.  Co.  v.  Minneapolis  Threshing  Machine  Co.  (Ok- 
lahoma Supreme  Ct.,  April  20th,  1908),  95  Pac.  Rep.  427. 

(b)  An  order  for  goods  which  is  sought  and  procured  by  the 
seller  is  to  be  deemed  as  accepted  by  him  at  once  and  if  signed  by  the 
buyer  becomes  a  contract  binding  on  him  within  the  Statute  of  Frauds, 
and  no  other  acceptance  or  notice  of  acceptance  is  necessary. 

Cameron  Coal  &  Merc.  Co.  v.  Universal  Metal  Co.   (Oklahoma 
bupreme   Ct,  July    12,   1910),   110   Pacific    Rep.   720. 

493 


The  Fire  Insurance  Contract 

(c)  A  verbal  sale  of  cotton  worth  more  than  $50  is  invalid  where 
samples  are  delivered  as  mere  specimens. 

Moore  v.  Love,  57  Mississippi  765  (1880). 

(d)  A  complete  contract,  binding  under  the  Statute  of  Frauds, 
may  be  gathered  from  letters,  telegrams  and  writings  between  the 
parties  relating  to  the  subject  matter  and  so  connected  with  each  other 
that  they  may  be  said  to  fairly  constitute  one  paper  relating  to  the  con- 
tract. 

Halsell  et  al.  v.  Renfrow  et  al.  (U.  S.  Sup.  Ct.,  1906),  112  U.  S. 

287;  appealed  from  Sup.  Ct.  of  Oklahoma,  September  3,  1904, 

78  Pac.   Rep.    118,   140  Okla.  674. 
See  also   California,    Colorado,    Maryland,   Minnesota  and   Mis- 

«!issippi  decisions  in  line  with  above. 

Common  Law  Rule. 

(e)  By  the  Common  Law  Rule  if  the  seller  makes  a  proposition 
and  the  buyer  accepts  same  and  the  goods  are  then  in  possession  of 
the  seHer  with  nothing  further  required  to  identify  them  or  prepare 
them  for  delivery,  the  title  and  property  in  the  goods  sold  passes  from 
seller  to  buyer  on  the  latter's  acceptance. 

(f)  Where  the  goods  are  not  designated  by  marks  or  numbers  or 
segregated  from  other  stock  or  where  anything  remains  for  the  seller 
to  do  to  put  the  goods  in  a  deliverable  state,  title  does  not  pass  until 
such  work  has  been  performed  and  the  goods  sold  are  segregated  or 
otherwise  specifically  designated. 

(g)  "Until  the  property  which  is  the  subject  of  sale,  is  designated 
and  defined  it  is  as  it  were  a  sale  without  a  subject  matter  in  esse 
which  cannot  take  effect  in  praesenti,  for  the  want  of  that  necessary 
ingredient  in  the  sale  to  act  on  and  it  is,  therefore,  necessarily  execu- 
tory and  incomplete.  The  purchaser,  in  such  a  sale,  cannot  maintain 
an  action  to  recover  specific  property,  if  delivery  be  refused,  because 
he  has  no  right  to  any  specific  part  of  the  bulk,  an  undefined  portion 
of  which  he  has  contracted  for.  In  such  an  action  he  must  describe 
and  identify  with  reasonable,  certainty,  according  to  its  character,  the 
property  he  sues  for,  and  this  he  cannot  do,  because  his  rights  are  in- 
definite, and  cannot  be  attached  to  or  located  in  any  designated  part 
of  the  mass.  He  has  not  that  jus  in  re  -which  alone  entitles  him  to 
recover,  and  without  which  his  purchase  is  incomplete.  This  reason 
does  not  exist  where  the  subject  matter  of  the  sale  is  designated  and 
defined,  as  where  the  whole  bulk  is  sold.  It  is  true,  it  may  have  to 
be  weighed,  counted  or  measured;  but  if  this  is  to  be  done  to  enable  the 
parties  to  make  a  settlement  and  not  for  the  purpose  of  completing  the 
sale,  the  right  passes  to  and  vests  in  the  purchaser,  but  title  does  not 
pass  when  any  of  these  operations  are  necessary  to  separate  the  goods 
from  a  larger  mass  of  which  they  form  a  part.  If  the  entire  mass  i? 
sold  and  must  be  measured  or  weighed  merely  to  ascertain  the  prir«; 
for  the  purpose  of  settlement  the  better  opinion  on  principle  and  HU- 
thority  is  that  title  passes  when  the  sale  is  made." 

See   Benjamin   on   Sales,   Parsons   on   Contracts,   and   oth'.-*    ^a- 
thorities. 

In  considering  the  above  it  must  be  remembered  that  'nc  Okla- 
homa Statute  of  Frauds  is  very  explicit  in  that  it  re^^tiires  some 
memorandum  to  be  "subscribed"  by  the  purchaser. 

2.     Rules  of  the  Oklahoma  State  Cotton  Exchange : 
The  only  rule  I  have  been  able  to  find  having  any  bearing  on  the 
question  involved  is  Rule  1,  reading: 

494 


Cotton  Losses  and  Cotton  Salvage  Handling 

"A  contract  for  the  sale  of  cotton  shall  be  deemed  final  when  the 
price,  quantity,  quality,  time  and  place  or  places  of  delivery  have  been 
agreed  upon  between  the  buyer  and  seller,  and  no  contract  can  be 
rescinded  without  the  mutual  consent  of  both  parties  thereto;  and,  un- 
less otherwise  provided  for  at  the  time  of  sale,  merchantable  and  de- 
liverable cotton  shall  be  guaranteed  by  the  seller;  compress  weights 
shall   be   guaranteed   by  the   seller." 

Clause  4;  Rule  2: 

"Rejections:  All  bales  rejected  shall  be  replaced  within  three  days 
by  merchantable  bales,  unless  mutually  agreed  otherwise." 

3.  The  Custom  of  the  Cotton  Trade  : 

I  quote  from  Doe's  letter  of  July  5th,  1916: 

"In  making  a  basis  Middling  sale  it  is  commonly  understood  that 
both  the  buyer  and  the  seller  have  the  right  to  reject  a  bale  when  the 
class  is  not  satisfactory.  For  instance,  when  delivering  a  list  of  cotton 
if  not  satisfied  with  the  class  on  certain  bales  I  have  the  right  to  reject 
such  bales  and  replace  with  others.  Also  the  buyer  has  the  right  to  re- 
ject such  bales  as  he  does  not  think  the  seller  had  classed  correctly, 
such  bales  to  be  replaced  by  other  cotton." 

The  above  is  my  own  understanding  of  the  trade,  and  is  cor- 
roborated by  the  largest  cotton  buyers  I  have  interviewed  in  Okla- 
homa, which  buyers  further  stated  when  discussing  this  question 
that  there  is  no  established  rule  governing  f.  o.  b.  or  such  sales  as 
those  under  consideration  which  could  be  construed  as  having  any 
bearing  on  the  question  of  when  title  passes. 

4.  Custom  of  Assured: 
See  Paragraph  11  following. 

5.  Custom  at  Linton,  Okla. 

There  is  no  Exchange  or  other  association  of  the  cotton  men  at 
Linton,  nor  any  recognized  custom  other  than  cited  above. 

6.  Vendor,  John  Doe : 

Lives  and  has  his  office  at  Linton,  Oklahoma,  which  is  some 
sixty  miles  by  rail  from  Graham,  Oklahoma,  where  the  cotton  in- 
volved was  located  and  burned.  Doe  is  a  local  cotton  buyer  doing 
a  comparatively  small  business. 

7.  Vendee,  Richard  Roe : 

Is  a  cotton  buyer  operating  on  a  large  scale  with  headquarters 
at  St.  Loui§,  Mo.,  from  which  office  all  his  purchases  are  made,  but 
he  has  an  agent  or  "Take-up  Man"  named  Harrison,  residing  at 
Oklahoma  City. 

8.  Vendee,  Frank  Brown : 

Frank  Brown  is  a  cotton  buyer  living  and  having  his  office  in 
Memphis,  Tennessee.     Me  maintains  no  office  in  Oklahoma,  but  was 

495 


in  Linton,  Oklahoma,  on  March  21st,  on  which  day  the  cotton  in- 
volved was  burned  at  Graham,  Oklahoma. 

9.     Sale  of  104  B/C  to  Richard  Roe. 

There  were  no  verbal  communications  between  Doe  and  Roe, 
and  no  written  communications  excepting  the  following  telegrams 
which  were  in  cipher  and  are  decoded  below : 

(a)  March  17,  1916.     John  Doe,  Linton,  Okla.,  to  Richard 

Roe,  St.  Louis,  Missouri : 

"Offer  hundred  four  bales  class  ten  points  on  Middling  eleven  three- 
quarters.     Answer  immediately." 

(b)  St.  Louis,  Mo.,  6 :10  March  17,  1916.    Roe  to  Doe : 

"Will  take  hundred  four  eleven  half  basis  Middling  subject  regular 
terms.     Take  up  by  Harrison.     Confirm   tonight.     Rising." 

(c)  St.  Louis,  Mo,  7:43  p.  m.,  March  17,  1916.    Roe  to  Doe: 

"We  accept  hundred  four  eleven  five-eighths  basis  Middling.  Con- 
firm  answer  by  wire." 

(d)  Linton,  Okla.,  March  17th.    Doe  to  Roe: 

"All  right.  Confirm  hundred  four  at  eleven  five-eighths  basis  Mid- 
dling." 

10.     Location  and  Ownership  of  the  104  B/C  Offered  Above-. 

'  On  March  17th,  1916,  when  the  above  sale  was  made.  Doe  had 
only  sixty  (60)  B/C  at  Graham,  Oklahoma,  viz: 

3  B/C  held  under  compress  receipts  Nos.  20121,  25447  and  25449, 
but  I  have  been  unable  to  determine  definitely  whether  Doe  actually 
owned  these  3  B/C  on  March  17th,  1916,  and  it  would  seem  that  these 
3  B/C  were  not  included  in  the  104  offered  to  Roe,  which — according 
to  Doe's  statement  and  records — were  made  up  as  follows: 

3  B/C  shipped  from  Cordele,  Okla.,  March  3,  1916,  by  Morristown 
gins  under  Frisco  B/L  D-89  O/N  B/L  M.  F.  These  were  received  and 
unloaded  at  compress  at  Graham   on  3/7/16. 

54  B/C  shipped  from  Cordele,  Okla.,  March  15,  1916,  by  W.  A. 
Wilson,  under  Frisco  B/L  O/N  John  Doe.  These  were  received  and 
unloaded  at  compress  at  Graham,  on  March  16th. 

The  remaining  47B/C  with  which  Doe  intended  to  fill  this  sale 
to  Roe  were  shipped  by  John  Hall  from  Cordele,  Okla.,  on  March 
15,  1916,  under  Frisco  B/L  D-97  O/N  John  Doe.  These  were  re- 
ceived and  unloaded  at  Graham  Compress  on  March  20,  1916. 

'  As  far  as  I  have  been  able  to  ascertain  the  only  other  cotton 
Doe  held  on  March  17th  was  a  few  bales  at  Linton,  Oklahoma. 

I  On  March  17th  the  bills  of  lading  with  drafts  attached,  drawn 
on  Doe  to  cover  the  purchase  price  of  the  54  B/C  and  47  B/C 
above  noted  were  in  transit  and  were  in  due  course  presented  to  the 
Bank  of  Linton,  by  whom  the  drafts  were  paid  and  carried  against 
Doe's  account  as  a  bill  of  exchange. 

496 


Cotton  Losses  and  Cotton  Salvage  Handling 

I  think  the  bank  also  held  the  B/L  covering  3  B/C  shipped  from 
Cordele  March  3rd,  but  I  am  not  sure  as  to  that  point. 

From  the  above  it  will  be  noted  that  on  March  17th  Doe  had 
only  60  bales  at  Graham. 

11.  Custom  or  Understanding  Between  Roe  and  Doe: 
There  was  no  memorandum  or  definite  understanding  between 

Roe  and  Doe  as  to  how  these  sales  should  be  handled,  but  the  usual 
procedure  was  as  follows : 

As  soon  as  Doe's  cotton  was  unloaded  at  compress  at  Graham, 
samples  were  drawn  by  the  compress  and  sent  to  his  Linton  office, 
and  when  received  there  Doe  would  notify  Mr.  Harrison  (Roe's 
take-up  man)  at  Oklahoma  City ;  then  Harrison  would  come  to  Lin- 
ton and  go  over  the  samples  with  Doe,  class  them,  figure  up  the 
weights,  (taking  same  from  the  compress  weight  sheets  sent  Doe 
with  the  samples),  and  price  of  the  cotton,  for  which  Harrison 
would  give  Doe  a  draft  on  Roe,  with  the  necessary  shipping  in- 
structions; Doe  would  then  give  shipping  order  to  compress  and 
when  cotton  was  loaded  and  consigned  as  per  shipping  orders  given 
by  Harrison,  Doe  would  obtain  the  B/L,  attach  the  draft  to  same, 
and  deposit  for  collection  in  the  usual  course.  The  invoices  were 
made  out  on  Roe's  forms  at  the  time  Harrison  and  Jones  classed 
the  samples. 

12.  Roe  Reported  Purchase  to  His  Underwriters : 

On  their  insurance  report  No.  707,  mailed  on  the  evening  of 
March  17th,  Roe  reported  the  purchase  of  176  B/C  bought  at  in- 
terior points'  since  the  previous  report,  and  stated  this  104  B/C  were 
included  therein. 

13.  No  Confirmation  of  Sale  Given: 

It  is  customary  for  the  purchaser  to  make  out  a  confirmation 
of  all  purchases,  mailing  original  and  duplicate  to  the  seller,  such 
confirmation  being  in  the  following  general  form: 

"Dear  Sir:  We  hereby  confirm  having  this  day  purchased  from 
you  by  'phone  50  B/C  @  12c  per  lb.  basis  Middling,  White,  other 
grades  at  differences  stated  below.  Cotton  to  be  ready  for  delivery 
within  ten  days  unless  otherwise  understood  and  noted  hereon.  This 
contract  to  be  governed  by  the  rules  of  the  Oklahoma  State  Cotton  Ex- 
change. Please  confirm  this  transaction  by  signing  attached  counter- 
part which  please  detach  and  mail  to  us  immediately." 

We  cannot  say  it  is  the  invariable  custom  to  exchange  these 
confirmations,  especially  where  the  sale  is  made  by  wire,  and  in  this 
case  no  such  confirmation  was  sent. 

497 


14.     Conclusions'. 

It  would  appear  from  the  above  that  there  is  nothing  in  the 
telegrams  passed  between  the  buyer  and  seller  to  so  designate  the 
104  bales  purchased  that  the  purchaser  could  enforce  delivery  or 
obtain  possession  of  the  104  bales  at  Graham  if  Doe  had  died  or  be- 
come bankrupt.  Roe  states  he  did  not  know  where  this  cotton  was 
located,  until  March  22nd,  when  Mr.  Harrison  went  to  Linton  for 
the  purpose  of  taking  it  up. 

This  cotton  was  certainly  not  in  deliverable  condition.  It  was 
not  separated  or  segregated  from  other  cotton,  and  it  would  there- 
fore appear — under  a  strict  interpretation  of  the  law — that  the  prop- 
erty had  not  passed  from  seller  to  buyer.  It  was  therefore  at  Doe's 
risk  and  his  underwriters  are  liable  for  the  loss. 

15.     Sale  of  50  Bales  to  Frank  Brozvn: 

(a)  On  the  morning  of  March  21st,  1916,  the  day  on  which 
the  cotton  involved  was  burned  at  Graham,  Frank  Brown  called  at 
Doc's  office  in  Linton  and  was  there  shown  the  samples  of  50  B/C 
which  Doe  offered  to  sell  him. 

(b)  Brown  went  over  the  samples  and  agreed  to  buy  the  50 
B/C  at  a  round  figure  of  9.5c  per  pound. 

(c)  Brown  took  one  of  his  business  cards  and  wrote  thereon: 
"50  @  9^  fob 

Ship   Frisco 

Patch  2  lb.  per  bale," 

and  handed  same  to  Doe,  who  immediately  made  out  the  necessary 
invoices  showing  compress  tag  numbers  and  weights  which  he  ob- 
tained from  the  compress  weight  sheets  that  had  been  sent  him  with 
the  samples.  Brown  gave  him  verbal  shipping  instructions  and  said 
how  the  bales  should  be  patched  and  marked. 

(d)  Brown  handed  him  a  bank  draft,  that  is,  blank  with  the 
exception  that  it  had  the  name  of  the  drawee  stamped  thereon, 
"Frank  Brown,  Memphis,  Tennessee,"  and  instructed  Doe  to  con- 
sign the  cotton  as  per  orders,  fill  out  the  draft  for  the  amount  of  in- 
voice and  attach  B/Ls  to  same.  Brown  left  the  office  and  Doe  im- 
mediately p:  oceeded  to  make  out  the  necessary  shipping  orders  and 
had  completed  both  drafts  and  made  out  shipping  order  for  one  lot 
of  25  B/C  when  he  was  informed  the  compress  at  Graham  was  burn- 
ing. 

(e)  On  leaving  Doe's  office,  and  before  he  learned  of  the  fire, 
Brown  wired  his  Memphis  office,  the  message  being  filed  at  Linton, 
Oklahoma,  1 :45  p.  m.,  March  21st,  1916,  reading  as  follows: 
"Frank   Brown,   Memphis,  Tenn. 

498 


Cotton  Losses  and  Cotton  Salvage  Handling 

"Bought  from  Smith  here  forty  two  nine  three  eights  Doe  fifty  at 
half  Morrison  Altus  one  forty  nine  at  quarter.  Will  reach  home  after 
dinner  Wednesday  evening.  Frank  Brown — 223   PM." 

(f)  As  the  fire  at  Graham,  Oklahoma,  occurred  at  12:30  p. 
m.,  there  is  little  doubt  that  neither  Brown  nor  Doe  had  learned  of 

the  fire  when  this  message  was  sent. 

(g)  Brown's  Memphis  Office  reported  to  their  Underwriters 
the  purchase  of  50  B/C  in  their  daily  report  No.  58  mailed  their 
brokers  Messrs.  Harding  &  Company,  on  March  21st. 

(h)  After  learning  of  the  fire.  Brown  returned  to  Doe's  office 
and  there  was  some  conversation  as  to  who  owned  the  cotton  at  the 
time  it  burned  and  as  to  whose  Underwriters  should  pay  for  it,  and 
both  Doe  and  Brown  reported  the  loss  to  their  respective  Under- 
writers. 

(i)  Under  date  of  March  22nd,  1916,  Brown  wrote  Doe,  Lin- 
ton, Okla.,  as  follows : 

"Memphis,  Tenn.,  March  22,  1916. 
"Mr.  John  Doe,  Linton,  Okla. 

"Dear  Sir:  We  confirm  having  purchased  from  you  50  bales  at  9^c 
round  on  the  21st  instant,  and  having  later  canceled  the  purchase  with 
you  on  account  of  the  probability  of  the  cotton  having  been  destroyed 
in  the   Graham  fire. 

"Concerning  the  matter  of  insurance  on  this  50  bales,  we  have 
wired  you  today  that  our  policy  provides  that  invoice  showing  the  tag 
numbers  or  other  specific  "identification  must  be  in  our  hands  or  must 
be  mailed  to  us  prior  to  the  occurrence  of  fire  in  order  for  the  cotton 
to  come  under  our  insurance.  In  view  of  the  fact  that  we  did  not  pay 
for  the  cotton  and  invoice  was  not  in  our  hands  and  had  not  been  mailed 
to  us,  this  50  bales  was  not  at  our  risk  when  destroyed. 

Yours  very  truly,  (Signed)   Frank  Brown." 

16.     Memorandum  of  Purchase  Made  by  Brown : 
In  my  original  report  I  stated  that  Brown  had  not  initialed  or 
subscribed  any  memorandum  of  this  purchase  as  required  by  the 
Oklahoma   statutes,   which   statement   I   made   on  the   strength   of 
Brown's  having  answered  my  interrogatory  as  follows : 

Did  you  sign  or  initial  or  subscribe  in  any  manner  any  invoice, 
memoranda  or  other  writing  concerning  this  purchase  before   the   fire? 

To  which  he  answered :    ''No." 

Subsequent  to  making  that  report,  the  following  interrogatory 

was  put  to  John  Doe : 

Did  Brown  attach  his  signature,  initial  or  in  any  way  "subscribe" 
any  invoice,  memoranda  or  documents   concerning  this   sale?" 

To  which  he  ansvv^ered: 

Brown  handed  me  his  business  card  with  a  notation  of  number  of 
bales  and  prices.  I  think  1  gave  this  card  to  Mr.  Mason,  but  it  may 
be  somewhere  in  my  files. 

499 


The  Fire  Insurance  Contract 

Doe's  answer  did  not  reach  me  until  the  IGth  of  July,  and  I 
then  asked  him  to  make  search  for  the  card,  and  he  subsequently 
sent  same  to  me,  (see  para.  15  above)  stating  he  had  found  it  in 
the  pocket  of  an  old  coat  he  was  wearing  at  the  time. 

17.  Docjiments  Covering  50  B/C  Sold  Brown : 

.25  B/C  were  shipped  from  Cordele,  Okla.,  March  13,  1916, 
Morrispn  Gins  under  Frisco  B/L  D-93  O/N  Doe,  Graham,  Okla- 
homa, and  were  received  and  unloaded  at  compress  on  March  20, 
1916.  The  Interstate  Compress  Company  had  issued  their  compress 
receipts  Nos.  31717-31741  and  handed  same  to  the  Frisco  Agent  for 
delivery  to  Doe  upon  surrender  of  the  B/L.  Compress  Company 
had,  following  their  usual  custom,  sampled  and  weighed  the  cotton 
as  unloaded  and  sent  the  samples  and  weight  sheets  to  Doe  at  Lin- 
ton. The  cotton  was  unloaded  under  the  supervision  of  the  West- 
ern Weighing  &  Inspection  Bureau,  received  and  sampled  by  the 
compress  as  agent  for  Doe,  which  I  am  inclined  to  believe  relieves 
the  carrier  from  liability  irrespective  of  the  bills  of  lading  not  hav- 
ing been  surrendered  and  the  cotton  having  burned  within  forty- 
eight  hours  of  arrival. 

25  B/C  were  shipped  from  Dill  City,  Okla.,  March  14th,  1916, 
under  Rock  Island  B/L  D-9  by  J.  T.  Hall,  consigned  to  J.  T.  Hall, 
Graham,  Oklahoma,  John  Doe.  This  cotton  was  received  and  un- 
loaded at  compress  on  March  18,  1916,  on  the  same  conditions  as 
above,  sampled,  weighed,  and  samples  and  weight  sheets  mailed  to 
Doe  at  Linton.  Compress  Company  issued  its  receipts  Nos.  31497 
to  31521  and  handed  same  to  the  Rock  Island  Agent  for  delivery  to 
Doe  on  surrender  of  B/L. 

On  March  21,  1916,  these  B/Ls,  with  the  drafts  attached,  were 
held  by  the  Bank  of  Linton  who  had  paid  the  drafts  for  account  of 
John  Doe  and  were  holding  them  in  the  usual  manner  as  bills  of 
exchange.  The  banks  hold  them  under  that  designation  so  as  not 
to  show  the  enormous  overdrafts  that  would  otherwise  appear  in 
these  cotton  accounts. 

18.  Conclusions  as  to  Frank  Brown's  Purchase : 

In  this  case,  the  purchaser  'had  examined  samples  from  the 
specific  bales  offered  for  sale,  and  had  contracted  to  buy  same  at 
the  agreed  price  of  9.5c.  The  invoices  had  been  made  out,  desig- 
nating the  cotton  sold  by  marks  and  numbers,  and  nothing  remained 
for  the  vendor  to  do  to  complete  the  sale  or  delivery,  his  giving  the 

500 


Cotton  Losses  and  Cotton  Salvage  Handling 

necessary  shipping  instructions  to  the  compress  being  merely  an  act 
of  courtesy  extended  by  the  vendor  to  the  vendee.  Both  the  vendor 
and  vendee  had  performed  all  the  acts  required  of  them  to  complete 
the  sale  if  we  construe  the  memorandum  made  by  Frank  Brown 
on  one  of  his  business  cards  as  being  such  note  or  memorandum  in 
writing  as  must  be  subscribed  by  the  purchaser.  Personally,  I  am 
inclined  to  think  the  Courts  would  so  construe  it  and  thus  hold 
title  had  passed  to  Frank  Brown  before  the  cotton  was  destroyed.  I 
therefore  consider  these  50  B/C  were  at  Frank  Brown's  risk  and  his 
Underwriters  are  liable  therefor. 

There  is  a  question  in  this  last  case  as  to  whether  vendor  had 
complied  with  clause  2,  Form  300,  which  requires  ''its  location  with 
its  specific  marks  and  numbers  be  stated  in  contract  of  purchase,  oi 
in  confirmation  thereof  furnished  to  the  purchaser  immediately 
thereafter  and  before  known  or  supposed  loss".  It  may  be  claimed 
this  calls  for  a  written  statement  giving  location  and  marks  or  num- 
bers, but  it  does  not  so  read  and  as  the  poHcy  states  it  is  to  "cover 
during  the  whole  time  cotton  is  at  risk  of  assured"  and  that  liability 
is  to  "commence  from  the  moment  cotton  has  become  the  property 
and  absolutely  at  his  risk",  I  think  the  Court  would  hold  it  under 
cover  of  Brown's  policy  as  the  property  right  undoubtedly  passed  to 
him,  and  it  became  at  his  risk  when  he  agreed  on  the  price  and 
handed  Doe  his  card  with  the  memorandum  thereon  confirming  the 
purchase.  If  Doe  had  brought  action  against  Brown  in  Oklahoma 
he  would  undoubtedly  have  obtained  verdict  for  the  agreed  pur- 
chase price. 

POLICY  FORMS  (See  Appendix  as  Numbered  Below)  ^ 
Let  us  first  consider  the  "Specific  Forms"  i.  e.  the  forms  at- 
tached to  the  Standard  Fire  Policies  issued  for  such  amounts  as 
may  be  given  in  the  policy  for  the  premium  therein  stated. 

Form  No.  8-C,  "General  Floater."  This  form  is  designed  to 
cover  the  Assured's  cotton  (and  that  coming  under  the  Commis- 
sion Clause)  wherever  it  may  be  located  in  the  designated  city  or 
town  exempting  only  in  such  buildings  as  may  be  specifically  ex- 
cluded in  the  form. 

Form  No.  9-C,  ''Limited  Floater."  This  form  is  designed  to 
cover  as  above  only  in  such  buildings  as  are  specifically  described 
and  while  in  transit  through  streets  between  same. 

These  two  floater  forms  carry  the  full  Co-Insurance  Clauses 
and  have  been  the  cause  of  many  controversies  and  some  litigation 

501 

17 


The  Fire  Insurance  Contract 

through  local  or  special  agents  who  did  not  fully  understand  their 
construction,  and  who  gave  the  Assured  an  erroneous  explanation 
of  their  application.  This  feature  will  no  doubt  be  fully  covered  in 
lectures  on  the  Co-Insurance  and  Average  Clause  and  therefore  it 
is  not  necessary  to  give  examples  here.  But  I  will  take  the  liberty 
of  saying  that  in  my  judgment  the  Average  Clause  should  be  sub- 
stituted for  the  Co-Insurance  Clause  in  all  those  forms. 

Another  clause  which  I  think  should  be  amended  is  the  one 
referring  to  cotton  under  bills  of  lading,  for  the  Standard  Bill  of 
Lading  contains  this  clause: 

"Section  10.  Any  carrier  or  party  liable  on  account  of  any  loss  or 
damage  to  any  of  said  property  shall  have  the  full  benefit  of  any  insur- 
ance that  may  have  been  effected  upon  or  on  account  of  said  property, 
so  far  as  this  shall  not  avoid  the  policies  or  contracts  of  insurance." 

Form  No.  \0-B,  "Open  Warehouse  and/or  Compress,"  is  de- 
signed for  insuring  cotton  in  open  warehouses  and  warrants  that  no 
cotton  shall  be  left  in  court  at  night  or  Sunday,  and  that  a  clear 
space  of  eight  feet  shall  at  all  times  be  maintained  between  the  over- 
hanging roof  or  apron  of  warehouse  building  and  the  cotton  in  open 
court. 

Form  No.  10-C,  ''Close  Warehouse  and^or  Compress/'  is  de- 
signed for  insuring  cotton  in  ''close"  warehouses. 

All  the  above  forms  are  designed  to  cover  cotton  in  the  one 
building  or  one  location  specified  in  the  form,  in  which  particular 
they  differ  from  the  following  "Floater  Forms" : 

In  considering  the  above  forms,  10-B  and  10-C,  it  is  well  to  ex- 
plain the  meaning  of  "Open"  and  "Close"  warehouses. 

A  "Close"  warehouse  is  a  building  with  walls  on  all  sides  and 
no  openings  that  are  not  closed  with  doors  or  windows  in  the  usual 
manner. 

An  "Open"  warehouse  is  a  building  with  open  arches,  or  other 
unclosed  openings  in  its  walls.  Often  these  open  warehouses  are 
built  around  two  or  more  sides  of  an  open  court  with  open  arches 
facing  the  court. 

Form  No.  ll-B,  ''Baled  Cotton,  Seed  Cotton  and  Cotton  Seed  on 
Ginnery  Premises/'  is,  as  the  form  shows,  intended  only  for  insur- 
ing cotton  in  the  gins.  This  form  carries  the  full  Co-Insurance 
Clause  on  the  first  item  and  the  80%  Clause  on  the  second  item. 

Form  No.  12,  "Cotton  Form  for  Sprinklered  Cotton  Ware- 
houses/' is  designated  for  insuring  cotton  in  sprinklered  warehouses 
specified  in  the  form. 

502 


Cotton  Losses  and  Cotton  Salvage  Hat^dltng 

This  form  warrants  that  not  more  than  a  stated  number  of 
bales  shall  be  stored  in  any  one  compartment,  and  that  it  shall  not 
be  piled  over  a  stated  number  of  bales  deep  on  sides,  i.  e.,  that  the 
bales  shall  not  be  tiered  above  a  given  height. 

The  form  also  warrants  that  no  cotton  shall  be  left  in  yards  or 
courts  adjoining  warehouse  between  8  p.  m.  and  6  a.  m.  It  should 
be  noted  that  this  form  does  not  cover  cotton  in  yards  or  courts  or 
any  where  outside  of  the  building  described. 

Form  No.  12-A,  "Cotton  Form  for  Sprinklered  Cotton  Ware- 
houses  (In  Connection  with  Platforms,  Courts  and  Yards)'\  is  de- 
signed for  insuring  cotton  on  platforms  and  in  courts  and  yards 
adjacent  to  sprinklered  warehouses  described  in  Form  No.  12  (next 
above).  It  covers  only  between,  the  hours  of  6  a.  m.  and  8  p.  m.; 
which  limitation  is  necessitated  by  the  fact  that  both  forms  require 
the  courts  and  yards  to  be  clear  of  cotton  between  8  p.  m  and  6  a.  m 

Form  No.  12-5,  ''Cotton  in  Bales  on  Plantation  or  in  Country 
{With  One  Hundred  Feet  Clear  Space  Clause),"  is  for  use  in  insur- 
ing baled  cotton  on  the  plantation  or  in  the  country,  as  at  the  gin- 
nery, etc.  It  carries  the  One  Hundred  Feet  Clear  Space  Clause,  re- 
quiring a  100  foot  clear  space  to  be  maintained  between  the  insured 
cotton  and  any  gin  or  other  special  hazard.  This  form  also  carries 
the  Sample  and  Weight  Clause,  requiring  Assured  to  keep  and  pro- 
duce a  sample  of  the  cotton  from,  and  a  record  of  the  weight  of, 
each  bale  insured. 

This  form  also  contains  a  Loss  Payable  Clause,  but  unlike  Form 
No.  13- A  it  does  not  permit  the  Assured  to  make  the  loss  payable  to 
the  Assured's  order  by  his  own  endorsement  without  the  Insurer's 
consent. 

Form  No.  13-A,  ''Cotton  Forms — Marks  and  Numbers  {Form 

for  Insuring  by  Marks,  Numbers  and  Amount  Per  Bale),''  is  tha 

most  restricted  or  specific  cover,  and  does  not  carry  or  require  the 

Co-Insurance  Clause,  as  it  covers  the  stated  amount  on  each  of  the 

specified  bales  and  cannot  be  extended  to  cover  on  any  cotton  other 

than  the  bales  therein  specified  by  marks  and  numbers.    This  form 

carries  a  Loss  Payable  Clause  as  follows : 

"The  property  covered  by  this  policy  may  be  pledged  without  notice 
as  collateral  security  for  loans  or  advances,  but  loss,  if  any,  under  this 
policy  shall  be  adjusted  with  the  Assured,  and  is  payable  only  to  the 
Assured  or  their  order  endorsed  on  or  attached  to  this  policy." 

Before  paying  loss  under  such  policy  it  should  be  carefully  ex- 
amined to  ascertain  whether  there  are  any  pledges  or  collateral  in- 

503 


The  Fire  Insurance  Contract 

terest  endorsed  thereon,  and  if  such  is  the  case,  drafts  in  payment 
should  be  drawn  to  order  of  all  parties  at  interest,  as  shown  by  such 
endorsements. 

Most  of  the  cotton  in  this  country  is  insured  under  what  are 
known  as  open  reporting  policies.  This  method  of  writing  insurance 
is  not  by  any  means  a  new  idea.  I  have  seen  such  policies  that  were 
written  a  hundred  years  ago  and  have  adjusted  losses  under  one 
policy  issued  in  1868  which,  owing  to  a  change  in  the  firm,  was  writ- 
ten in  place  of  one  issued  by  the  same  Underwriters  through  the 
same  brokers  to  the  same  Assured  in  1835,  and  I  have  yet  to  see  an 
improvement  on  that  old  form.  Similar  policies  are  now  coming 
into  general  use  on  other  classes  of  merchandise,  many  of  them 
evidently  prepared  by  men  who  have  had  little  or  no  experience 
with  this  class  of  business,  otherwise  they  would  follow  the  word- 
ing of  the  older  English  forms  instead  of  producing  some  of  the 
more  lengthy  though  ludicrously  ambiguous  documents  I  have  seen 
during  the  last  few  years. 

It  has  never  been  my  misfortune  to  come  in  contact  with  any 
line  of  insurance  that  requires  such  a  general  knowledge  of  the 
banking,  transportation  and  warehouse  business  and  the  laws  and 
customs  bearing  on  the  selling  of  merchandise  as  is  necessary  to 
adjust  intelligently  losses  under  these  policies. 

For  the  last  fifteen  or  twenty  years  I  have  worked  harder  and 
spent  more  time  studying  it  than  I  have  ever  devoted  to  any  other 
branch  of  the  business,  yet  have  never  felt  that  I  have  mastered 
it  and  am  always  finding  new  problems;  and  the  laws,  customs  and 
methods  change  so  frequently  that  I  am  forced  to  continue  studying 
it  in  order  to  keep  abreast  of  the  times.  It  is  the  only  branch  of  the 
business  that  requires  the  adjuster  to  be  thoroughly  familiar  with 
various  and  complicated  methods  of  computing  the  premiums  to 
ascertain  whether  the  Assured  has  properly  reported  previous  pur- 
chases made  under  the  same  conditions  as  the  property  on  which 
claim  is  made. 

When  I  am  working  on  these  cotton  losses,  the  Assured  often 
ask  me  if  I  cannot  find  someone  who  can  handle  their  financial  state- 
ments, confirmations,  and  daily  report  work,  for  which  they  offer 
salaries  of  from  $2,500  up.  I  know  of  at  least  one  lady  w^ho  is  draw- 
ing more  than  three  times  that  salary,  and  several  who  are  drawing 
over  $2,500.  The  demand  always  exceeds  the  supply,  so  for  a  young 
man  or  woman  with  the  necessary  ability  and  education,  who  is 

504 


Cotton  Losses  and  Cotton  Salvage  Handling 

studiously  inclined  and  not  afraid  of  work — for  it  requires  many 
months  of  arduous  study  to  master  the  necessary  details — this 
branch  of  the  business  offers  greater  inducements  and  better  finan- 
cial returns  than  any  that  I  know  of. 

"Per  Bale"  or  "Buyer's  Transit  Forms  of  Open  Reporting 
Policies.  Form  300,  "Buyers  Transit/'  is  the  one  in  current  use  by 
the  Cotton  Insurance  Association  and  is  attached  to  the  Standard 
Fire  Insurance  Policy,  being  subject  to  all  its  conditions  that  are 
not  modified  or  abrogated  by  the  conditions  of  the  form  itself. 

"Form  M"  is  the  "Cotton  Rider"  in  general  use  by  the  Marine 
Underwriters  and  is  attached  to  the  Marine  "Cargo  Policy." 

Both  these  are  reporting  forms  of  open  policies  and,  although 
there  is  some  slight  difference  in  the  wording,  both  cover  on  cotton 
in  bales,  that  is,  purchased  by  the  Assured  or  for  their  account,  at- 
taching from  the  moment  the  cotton  becomes  the  property  of  the 
Assured  or  legally  at  their  risk.  Both  provide  in  effect  that  no  cot- 
ton shall  be  covered  prior  to  actual  delivery  to  Assured,  unless 
(Form  300)  "its  location  with  its  specific  marks  and  numbers  be 
stated  in  the  contract  of  purchase,  or  in  a  confirmation  thereof 
furnished  to  the  purchaser  immediately  thereafter  and  before  known 
or  supposed  loss,  or  unless  cotton  is  reported  to  this  Company  at 
the  time  of  the  contract  to  purchase,"  or  unless  (Form  M)  "specifi- 
cally indentified  by  marks  or  numbers  or  other  designation  in  pos- 
session of  Assured  or  mailed  to  the  Assured  prior  to  loss." 

Form  M  does  not  say  that  no  cotton  shall  be  covered  unless  re- 
ported to  the  company  at  time  of  purchase,  but  in  Clause  16  the 
Assured  warrants  that  all  purchases  shall  be  reported  daily,  which 
would  have  much  the  same  effect.  The  wording  "or  for  their  ac- 
count' following  the  words  "purchased  by  the  Assured"  in  both 
forms,  and  the  wording  "other  designation"  in  Form  M,  is  very 
broad  and  often  covers  a  multitude  of  sins.  If  this  wording  were 
omitted  the  adjuster's  lot  would  be  a  much  happier  one,  as  we  shall 
explain  later  on.  Both  forms  require  the  Assured  to  keep  a  record 
of  purchases,  sales,  and  shipments,  and  to  make  daily  reports  of  all 
cotton  purchased,  sold  or  shipped.  The  premiums  on  these  policies 
are  computed  from  the  Daily  Reports  on  an  agreed  schedule  of 
rates.  As  a  matter  of  fact,  the  Assured  is  required  to  report  all 
cotton  purchased  and  subsequently  to  report  it  as  it  is  received, 
sold  and  shipped.  There  is  a  distinct  difference  between  cotton  pur- 
chased and  cotton  received  which  will  be  readily  understood  by  re- 

505 


The  Fire  Insurance  Contract 

ferring  to  the  Daily  Report  Form  E,  the  first  section  of  which  re- 
quires the  Assured  to  report  all  cotton  purchased  "for  immediate  or 
future  delivery."  For  example,  if  the  Assured  on  September  5th 
purchases  1,000  B/C  to  be  delivered  between  October  5th  and  Octo- 
ber 10th,  he  is  required  to  report  that  purchase  in  the  first  section 
of  his  Daily  Report  for  September  5th,  but  the  cotton  does  not 
come  at  his  risk,  and  he  is  not  charged  any  premium  thereon,  until 
delivery  is  made  and  he  reports  it  as  being  received  in  Column  4 
of  the  second  section  of  his  report.  It  would  simplify  matters  if 
the  Assured  were  only  required  to  report  the  cotton  as  it  was  re- 
ceived or  otherwise  came  at  his  risk,  instead  of  being  also  required 
to  report  it  as  soon  as  he  agrees  to  purchase  it;  but  the  latter  re- 
quirement gives  an  additional  check  or  proof  on' the  reports. 

Both  forms  contain  cla'uses  excluding  liability  for  cotton  in 
possession  of  any  carrier  or  other  bailee  who  may  be  liable  for  loss 
thereto,  and  clauses  warranting  the  Assured  will  not  relieve  any  car- 
rier or  other  bailee  from  any  statutory  or  common  law  liability  or 
duty.  The  Underwriters  agree  (usually  evidenced  by  letter  from 
insuring  company  to  Assured)  that  where  they  deny  liability  under 
the  above  clause  for  loss  on  cotton  in  possession  of  carrier  or  other 
bailee  for  which  they  would  otherwise  be  liable,  they  will  advance 
the  amount  of  claim  to  Assured  as  a  loan  without  interest,  the  re- 
payment thereof  to  be  conditional  upon,  and  only  to  the  extent  of, 
any  recovery  from  the  carrier  or  bailee,  the  Underwriters  agree- 
ing to  assume  all  costs  and  expenses  of  making  the  recovery.  Both 
forms  authorize  the  Assured  to  issue  and  countersign  certificates 
insuring  shipments  to  final  destination,  the  cover  under  Form  300, 
however,  excluding  liability  on  waterbourne  cotton,  limits  these 
certificates  to  railroad  shipments  within  the  United  States.  The 
marine  form  contains  no  such  limitations  and  covers  the  perils  of 
the  sea  and  the  "risk  of  damage  or  destruction  by  fire,  tidal  waves, 
or  overflowing  rivers,  while  the  cotton  is  in  process  of  and/or  await- 
ing shipment  or  sale     .     .     .     .     in  the  United  States." 

These  certificates  are  negotiable  and  when  properly  endorsed 
and  delivered  have  all  the  effect  of  separate  valued  policies  pay- 
able to  the  holder  on  satisfactory  proof  of  loss.  They  are  usually 
issued  for  invoice  value  of  the  cotton  (i.  e.  the  amount  for  which  it 
is  sold)  plus  ten  percent,  plus  freight  and  the  premium  on  the 
amount  of  the  certificate.  This  you  will  note  is  an  exceptionally 
liberal  contract  and  the  power  to  issue  and  countersign  it  confers 

506 


Cotton  Losses  and  Cotton  Salvage  Handling 

an  unusual  authority  on  the  Assured.  The  value  stated  in  the  cer~ 
tificates  cannot  be  questioned  by  the  Underwriters  except  on  the 
ground  of  fraud. 

Both  forms  provide  that  all  losses  arising  before  certificates 
are  issued,  shall  be  payable  to  banks,  banker,  or  other  parties,  as 
interest  may  appear,  provided  the  Underwriters  receive  written 
notice  of  such  interest  within  ten  days  after  loss.  On  the  Assured's 
request  the  Underwriters  will  issue  letters  to  such  banks  as  the  As- 
sured designates,  certifying  they  have  issued  their  policy  covering 
all  purchases  of  cotton  made  by  the  Assured  and  citing  the  above 
clause.  Under  these  open  policy  forms  it  is  customary  to  advance 
the  Assured  from  seventy-five  to  ninety  percent  of  the  loss  as  soon 
as  the  approximate  amount  of  the  loss  is  ascertained,  and,  as  these 
advances  are  generally  made  within  the  ten  day  limitation,  the  Un- 
derwriters require  the  written  guarantee  of  some  responsible  bank 
(to  whom  the  money  will  be  paid),  guaranteeing  them  against  all 
claims  of  other  parties  alleging  any  interest  in  the  specified  cotton. 
A  copy  of  this  form  is  given  in  the  appendix  under  "Bank  Guar- 
antee." The  marine  form  also  covers  the  risk  of  ''country  damage," 
but  as  that  is  not  a  fire  hazard  it  will  not  be  treated  in  this  paper. 

Both  forms  provide  (See  Clause  15,  Form  300  and  Clause  12, 
Form  M)  that  when  loss  occurs  before  certificates  have  been  issued 
the  basis  of  settlement  shall  be  (Form  300)  the  actual  cash  value 
and  (Form  M)  the  actual  market  value,  at  time  and  place  of  loss. 

Form  300  carries  the  full  average  clause  (see  Clause  10)  and 
gives  permission  for  other  insurance.  Form  M  (See  Clause  10) 
prohibits  the  Assured  excluding  any  cotton  purchased  from  cover  oi 
the  policy  or  insuring  same  elsewhere. 

Form  300  under  Clause  11  and  Form  M  under  Clause  19  place 
a  limit  on  their  liability  for  loss  by  any  one  fire,  but  these  limits  are 
usually  placed  at  such  a  high  figure,  from  $100,000  to  $500,000,  that 
I  have  never  known  them  to  effect  the  settlement;  in  fact,  some 
marine  policies  are  issued  without  any  such  limit. 

If  the  Underwriters  insisted  on  "Daily  Reports"  being  made 
every  day  including  all  the  details  called  for,  it  would  be  a  compara- 
tively easy  matter  to  check  up  the  Assured's  records  and  determine 
if  he  had  been  reporting  all  cotton  that  actually  came  under  cover 
of  his  policy,  because  he  could  not  make  such  reports  without  keep- 
ing some  permanent  record  in  his  own  office,  but  unfortunately  that 
detail  is  not  insisted  on.    Many  reports  show  only  total  daily  receipts 

507 


The  Fire  Insurance  Contract 

and  shipments,  or  possibly  are  divided  as  to  location  between  those 
points  where  the  Assured  maintains  a  branch  office,  each  branch 
office  probably  buying  in  a  dozen  different  towns.  Some  Companies 
permit  Assured  to  make  weekly  reports  and  some  even  accept 
monthly  reports.  Originally  these  per  bale  policies  were  issued  only 
to  the  larger,  long  established  exporting  firms  of  recognized  respon- 
sibility and  integrity,  but  modern  competitive  methods  of  obtaining 
business  are  placing  them  in  the  hands  of  men  of  a  very  different 
stamp. 

Many  adjusters  take  the  position  that  it  is  no  part  of  their  duty 
to  check  up  the  Assured's  records  under  these  per  bale  policies  to 
ascertain  whether  or  not  he  has  reported  and  paid  premium  on  all 
cotton  for  which  he  is  making"  claim.  They  assume  that  if  the  as- 
sured does  not  claim  to  have  had  a  larger  number  of  bales  on  hand 
than  is  shown  by  his  last  daily  report,  they  are  warranted  in  accept- 
ing his  statement  that  all  cotton  for  which  he  produces  receipts  was 
at  his  risk  at  time  of  fire,  and  paying  him  therefor.  I  have  always 
inclined  to  the  opposite  view,  believing  that  as  the  reporting  of  all 
cotton  is  an  essential  condition  of  the  policy  contract,  the  adjuster 
should  make  such  investigation  as  may  be  necessary  to  determine 
whether  or  not  the  contract  has  been  violated  by  non-compliance 
with  that  requirement.  Furthermore  such  an  audit  is  necessary  in 
many  cases  to  determine  whether  or  not  the  cotton  for  which  claim 
is  made  was  actually  at  the  Assured's  risk  at  time  of  loss.  I  am 
seldom  willing  to  accept  the  mere  production  of  warehouse  receipts 
as  satisfactory  or  conclusive  evidence  of  ownership.  This  some- 
times requires  a  complete  audit  of  the  Assured's  books  and  records 
from  commencement  of  the  season  to  the  date  of  loss,  and  as  a  rule 
the  fewer  the  records  kept  by  the  Assured  the  greater  difficulty  and 
time  required  in  making  the  audit.  Those  who  have  not  come  into 
intimate  contact  with  this  work  will  find  it  difficult  to  understand 
how  loosely  some  cotton  buyers  run  their  business,  or  believe  even 
that  it  is  possible  for  a  man  to  handle  5,000  bales  of  cotton  a  month, 
borrowing  the  full  market  value  of  that  cotton  from  the  banks,  and 
yet  have  no  records  in  his  office  showing  when,  where  or  from  whom 
he  bought  each  specific  lot  of  cotton  and  when  and  to  whom  he  sold 
it;  but  I  have  known  of  many  such  cases. 

The  Assured's  integrity  may  be  above  all  question  and  his  ac- 
counting system  and  records  such  as  will  enable  you  to  check  up  his 
daily  reports  and  obtain  a  satisfactory  verification  of  same  with  very 
little  work  and  without  going  to  outside  sources,  but  unfortunately 

508 


Cotton  Losses  and.  Cotton  Salvage  Handling 

we  encounter  some  Assureds  with  whom,  such  is  not  the  case.  I  have 
found  claimants  whose  memory  was  so  poor  that  they  forgot  to 
disclose  bank  accounts  through  which  they  had  handled  hundreds 
of  bales  of  unreported  cotton  and  upon  which  they  would  never 
have  paid  any  premiums  if  we  had  not  discovered  such  accounts  by 
inquiries  made  outside  of  the  Assured's  and  Agent's  offices. 

This  failure  to  check  the  Assured's  records  further  than  to 
count  and  examine  the  Warehouse  Receipts  covering  cotton  he 
claims  to  have  lost  has  undoubtedly  cost  Insurers  many  thousands, 
for  when  the  Assured  has  any  friends  among  the  local  merchants  or 
planters  who  n^ay  have  lost  cotton  upon  which  they  had  no  insur- 
ance, he  can  very  easily  include  their  Warehouse  Receipts  with  his 
own  and  thus  collect  from  his  Insurers  for  cotton  upon  which  no 
premium  had  or  ever  would  have  been  paid.  The  same  fraud  is 
often  perpetrated  under  specific  policies,  where,  for  instance,  John 
Doe  has  more  insurance  than  cotton  and  Richard  Roe  more  cotton 
than  insurance.  Roe  merely  turns  over  some  of  his  receipts  to  Doe, 
who  presents  them  to  the  adjuster  as  his  own,  collects,  and  then  pays 
his  friend  Roe. 

It  is  sometimes  impossible  to  discover  or  prevent  these  frauds 
even  when  we  know  they  are  being  perpetrated.  I  had  one  very 
amusing  case,  where  there  was  an  honest  old  man  running  a  cotton 
warehouse  from  which  he  was  issuing  what  we  term  ''Insured"  and 
"Uninsured"  receipts;  that  is,  he  was  agreeing,  where  the  owners 
paid  certain  charges,  to  insure  the  cotton  for  them,  in  such  cases 
issuing  receipts  stamped  ''Insured."  He  was  carrying  $10,000  in- 
surance in  his  own  name,  with  the  usual  Commission  Clause,  to 
cover  cotton  under  such  "Insured"  receipts.  At  time  of  fire  there 
were  approximately  2,000  B/C  in  the  warehouse,  most  of  which  was 
insured  by  the  owners,  there  being  less  than  $5,000  worth  of  cotton 
under  the  "Insured"  receipts  that  was  covered  by  the  warehouse- 
man's $10,000  policy.  There  were,  however,  several  planters  and 
small  merchants  having  cotton  stored  in  the  warehouse,  upon  which 
they  had  no  insurance.  One  of  these  men  who  had  refused  to  pay 
the  difference  between  the  "Insured"  and  "Uninsured"  charges,  and 
who,  therefore,  held  receipts  that  were  not  stamped  "Insured,"  learn- 
ing that  the  warehouseman  had  sufficient  insurance  to  cover  all  the 
uninsured  cotton,  took  his  ten  receipts  to  him  requesting  that  they 
be  stamped  "Insured,"  explaining  that  such  would  merely  be  a 
friendly  act  on  the  warehouseman's  part  and  would  enable  the  mer- 
chant to  recover  for  this  cotton,  which  otherwise  would  be  a  total 

509 


The  Fire  Insurance  Contract 

loss  to  him.  The  warehouseman  could  have  complied  with  this 
request  without  any  fear  of  detection,  as  there  was  nothing  in  the 
warehouse  records  to  indicate  which  or  when  receipts  were  stamped 
'Insured,"  but,  being  honest,  he  refused  to  be  a  party  to  such  fraud; 
and  the  merchant  went  around  town  bemoaning  his  loss  and  criti- 
cising the  warehouseman  for  refusing  to  protect  him.  A  day  or 
two  later  someone  asked  this  same  merchant  how  much  cotton  he 
had  lost  and  whether  it  was  insured,  to  which  he  replied  that  he  had 
ten  bales  in  the  warehouse  which  he  had  not  insured,  but  had  later 
arranged  to  have  it  taken  care  of,  so  that  he  would  not  lose  any- 
thing. 

The  above  facts  being  reported  to  me  before  any  of  the  losses 
were  closed,  I  required  every  claimant  to  produce  all  available  rec- 
ords, which  I  checked  up  most  carefully,  but  I  was  unable  to  locate 
this  particular  merchant's  cotton.  I  then  submitted  affidavits  to 
every  claimant  which  required  them  to  state  on  oath  that  at  time 
of  fire  they  held  all  the  receipts  they  had  presented  and  that  the 
cotton  covered  thereby  was  solely  at  their  risk.  Not  a  single  claim- 
ant hesitated  to  execute  these  affidavits.  My  suspicions  narrowed 
down  to  two  or  three  claimants,  but  I  was  unable  to  obtain  evidence 
warranting  my  refusing  to  pay  any  of  the  claims,  and  finally  gave 
up  the  fight,  though  I  am  still  satisfied  that  we  paid  someone  for 
these  ten  bales  of  uninsured  cotton. 

I  recall  one  fire  where  an  Assured,  who  had  500  odd  bales 
destroyed,  was  buying  and  handling  cotton  in  eight  or  ten  different 
towns.  His  last  daily  report  mailed  prior  to  fire  showed  that,  in- 
cluding cotton  at  all  points,  he  had  only  250  B/C  on  hand.  A  report 
mailed  the  day  of  the  fire  (presumably  after  the  fire  occurred)  in- 
creased the  cotton  on  hand  to  650  B/C.  On  my  asking  him  where 
he  obtained  the  data  from  which  he  made  up  this  last  daily  report, 
he  replied  that  he  only  kept  a  pencil  memorandum  of  the  cotton 
bought  and  sold  from  day  to  day,  destroying  same  as  soon  as  the 
report  was  made,  and  he  insisted  that  he  had  no  books  or  records 
in  the  office  from  which  a  statement  could  be  made  up  showing  the 
total  number  of  bales  he  had  handled  that  season.  After  two  or 
three  hours'  controversy  he  commenced  a  search  of  the  office,  in 
which  I  assisted.  This  resulted  in  our  finding  some  invoices,  etc., 
from  which  I  made  up  a  rough  statement  showing  he  had  something 
like  1,100  B/C  on  hand  at  different  points  on  day  of  the  fire,  at 
which  time  his  daily  reports  showed  he  had  only  250  bales. 

In  answer  to  a  request  for  his  bank  books  he  handed  us  two, 

510 


Cotton  Losses  and  Cotton  Salvage  Handling 

but  I  subsequently  discovered  he  had  another  bank  account;  and 
he  was  finally  forced  to  pay  premiums  on  something  over  2,000  B/C 
which  he  had  not  reported. 

Where  conditions  are  found  to  be  such  as  to  make  an  audit  of 
the  accounts  seem  expedient  my  own  method  of  procedure  is  as  fol- 
lows: 

I  first  endeavor  to  ascertain  from  the  Assured  how  many  bales 
he  had  on  hand  and  where  same  were  located  at  the  commencement 
of  the  season.    This  part  of  the  Assured's  statement  can  usually  be 
verified  by  checking  the  records  of  the  various  compresses  and  ware- 
houses.   I  then  ascertain  with  what  banks  or  merchants  he  has  kept 
any  accounts  or  with,  or  through,  whom  he  has  handled  any  of  his 
cotton  business,  and  obtain  all  his  cancelled  checks,  stub  books  and 
bank  statements  and  likewise  all  original  purchase  invoices  he  has 
in  his  possession  and  all  possible  details  of  his  sales  and  copies  of 
bills  of  lading  I  can  find  among  his  records.     I  make  him  give  me 
an  order  on  the  banks  (usually  having  same  addressed  to  any  bank 
or  banker)  with  whom  he  admits  having  had  an  account,  request- 
ing them  to  permit  me  to  examine  and  audit  all  transactions  recorded 
on  their  books  in  which  he  had  any  interest.     Then  I  call  on  the 
banks  and  make  a  transcript  of  the  Assured's  account  as  it  stands  on 
the  bank's  books,  and  if  the  bank  is  interested  to  any  large  amount 
in  comparison  to  the  Assured's  known  financial  resources,  I  verify 
the  entries  by  checking  them  through  to  the  controlling  accounts 
pn  the  bank's  books.    When  I  have  secured  all  obtainable  details  I 
make  up  a  statement  by  first  listing,  by  marks  or  numbers,  the  bales 
on  hand  August   1st  or  September  1st,  according  to  the  time  the 
Assured  commences  his  season,  which  is  usually   September   1st; 
then,  using  specially  prepared  "cut  leaf"  sheets  that  can  be  extended 
for  as  many  columns  as  may  be  required  as  the  work  progresses, 
I  continue  the  statement  from  day  to  day,  showing  the  number  of 
bales  (with  marks  or  numbers)  received,  that  is,  coming  at  the  risk 
of  Assured,  at  each  warehouse  or  place,  and  the  same  information 
covering  sales  and  shipments,  giving  marks  or  numbers  to  identify 
each  bale.    I  also  number  the  purchase  and  sales  invoices  and  drafts 
^and  bills  of  lading  and  so  indicate  them  on  the  statement  that  the 
movement  of  any  bale  can  be  traced  to  either  document,  thus  the 
controlling  columns  of  the  statement  show  the  number  of  bales  on 
hand  at  each  location  at  the  beginning  of  each  day,  the  number  re- 
ceived and  shipped,  and  on  hand  at  close  of  day,  as  the  Daily  Report 
Form  provides,  with  the  added  detail  as  to  marks  or  numbers  of 

511 


The  Fire  Insurance  Contract 

each  bale  identified  by  number  to  its  invoice,  bill  of  lading  and 
drafts.  The  identical  bales  for  which  claim  is  made  can  readily  be 
checked  to  this  completed  statement  to  ascertain  if  they  were  at  the 
risk  of  the  Assured  and  had  been  duly  reported  as  the  policy  re- 
quires. If  the  completed  statement  checks  out  all  the  deposits  and 
payments  shown  by  the  bank  records  we  may  assume  it  is  correct, 
if  not  it  may  be  necessary  to  examine  the  railroad  company's  records 
to  get  a  further  check  on  shipments.  I  recall  two  or  three  instances 
when  we  found  through  checking  up  the  railroad's  records  that 
some  carloads  of  cotton  had  been  shipped  out  weeks  before  the  fire, 
yet  the  banks  held  the  warehouse  receipts  covering  this  same  cotton, 
which  was  also  shown  to  be  on  hand  at  time  of  fire  by  both  the  As- 
sured's  and  warehouseman's  records.  It  requires  specially  trained 
men  for  this  auditing  work,  at  which  the  ordinary  bookkeeper  or 
accountant  is  of  very  little  use  without  competent  supervision,  so  it 
is  often  an  expensive  procedure.  But  I  have  found  that  when  intel- 
ligently done  it  has  always  resulted  in  a  saving  to  the  underwriters 
of  many  times  the  cost  of  the  work,  either  by  reduction  of  loss  or 
by  collection  of  additional  premium  on  unreported  cotton. 

Until  a  few  years  ago  the  Underwriters  had  no  systematic 
method  of  auditing  these  accounts  to  determine  whether  they  were 
receiving  premiums  on  all  cotton  that  came  under  cover  of  their 
reporting  policies,  but  after  their  attention, was  called  to  some  fla- 
grant cases  where  thousands  of  bales  of  cotton  had  not  been  re- 
ported a  regular  system  of  auditing  was  provided  which  has  resulted 
in  their  collecting  hundreds  of  thousands  of  dollars  in  premiums 
which  under  the  old  method  they  would  not  have  received.  I  feel 
sure  that  some  of  our  friends  who  are  insuring  other  classes  of  mer- 
chandise under  similar  policies  will  eventually  have  to  adopt  some 
such  system. 

OWNERSHIP  AND  LIABILITY  UNDER  VARIOUS  CONDI- 
TIONS AND  METHOD  OF  ADJUSTING  A  TYPICAL 
COTTON  LOSS. 

As  a  fair  example  of  the  average  large  cotton  loss,  I  will  cite 
that  of  a  compress  in  one  of  the  Southern  States  in  which  the  fol- 
lowing facts  developed: 

The  building  was  approximately  250x1200  ft.,  divided  by  a 
brick  fire-wall  into  three  sections.  Fire  originated  in  and  destroyed 
one  warehouse  section  and  cotton  therein,  but  was  stopped  by  the 

512 


Cotton  Losses  and  Cotton  Salvage  Handling 

fire-wall,  and  there  was  no  damage  to  the  other  warehouse  section 
or  to  the  section  containing  the  boilers  and  compress  machinery,  or 
to  the  cotton  therein. 

The  compress  records  showed  there  were  approximately  20,000 
bales  in  the  three  sections,  but  carried  no  data  showing  how  many, 
or  which  of  the  20,000  were  in  the  burned  section.  We  found  by 
rough  count  that  there  were  approximately  12,000  bales  saved  un- 
damaged, therefore  approximately  8,000  bales  had  been  destroyed. 
The  buildings  and  machinery  were  insured  specifically  for  $75,000. 
The  cotton  was  worth  on  an  average  of  $80  per  bale,  giving  a  total 
value  of  $1,600,000  for  the  20,000  bales  involved. 

It  was  alleged  by  some  interested  parties  that  fire  was  caused 
by  sparks  thrown  from  locomotive  operated  by  a  railroad  V\rhich 
carried  spark  hazard  insurance  in  an  Association  that  also  insured 
about  half  a  million  dollars  worth  of  the  burned  cotton  for  diiTererit 
owners. 

The  insurance  involved,  other  than  the  $75,000  on  buildings  and 
machinery,  was  approximately  as  follows : 

(a)  The  railroad,  alleged  to  have  caused  the  fire,  carried  approxi- 
mately $500,000  spark  hazard  insurance,  or  more  strictly  speaking,  50 
percent  of  its  liability  up  to  $575,000  for  any  one  fire;  that  is,  insuring 
it  against  loss  through   its  liability  for  negligently  caused   fires. 

(b)  The  Compress  Company  carried  Specific  Fire  Policies  aggre- 
gating $50,000,  covering  on  cotton  with  the  usual  Commissioi.  Clause, 
the  purpose  being  to   cover  such  cotton   as   they  had  agreed   to  insure. 

All  receipts,  however,  carried  the  usual  lecend:  "Risk  of  fire  excepted" 

there  was  no  difference  in  the  wording  of  receipts  for  cotton  they  had 
agreed  io  insure  and  receipts  for  cotton  they  had  not  agreed  to  insure— 
and  in  most  cases  they  had  only  a  verbal  agreement  with  such  cus- 
tomers as   they  had  agreed  to  insure. 

(c)  There  were  three  factors  who  held  Specific  Fire  Policies  ag- 
gregating $50,000,  $100,000,  and  $215,000,   respectively. 

(d)  Three  planters  held  specific  Fire  Policies  of  $3,000  $2  000 
and  $12,000.  ' 

(e)  There  were  16  buyers  holding  Open  Reporting  Policies  with 
limits  of  from  $10,000  to  $400,000,  for  loss  by  any  one  fire,  besides  which 
one  buyer  held  specific  Fire  Policies  for  $50,000,  his  Marine  Policy  car- 
rying an  endorsement  making  it  cover  only  on  the  excess  of  value  in 
any  one  location  above  the  specific  insurance  thereon. 

(f)  Three  different  railroads  had  side  tracks  at  the  press,  each  car- 
rying policies  covering  their  "common  carriers'  liability"  for  loss  on 
cotton  in  their  custody. 

(g)  One  bank  had  taken  out  Specific  Fire  Insurance  in  the  name 
of  the  owner  of  some  cotton,  warehouse  receipts  for  which  were  held 
by  the  bank  as  collateral  to  a  loan  it  had  made  to  another  bank.  The 
owner  of  this  cotton,  when  he  placed  it  on  storage  with  the  Compress 
Company,  had  arranged  for  the  Compress  Company  to  bring  it  under 
cover  of  their  policies.  He  subsequently  borrowed  some  money  from  his 
local   bank,   hypothecating   the   warehouse   receipts   as   collateral,    which 

513 


The  Fire  Insurance  Contract 

bank  in  turn  used  these  receipts  as  collateral  to  a  loan  they  obtained 
from  another  bank,  and  this  last  bank,  without  any  authority  and  with- 
out conferring  with  the  owner  of  the  cotton,  took  out  insurance  in  the 
owner's  name,  with  loss,  if  any,  payable  to  it.  The  Compress  Com- 
pany duly  made  claim  against  their  insurers  for  this  cotton,  and  the 
first  information  they  or  the  owner  had  of  the  bank's  action  in  insuring 
same  was  when  they  were  so  advised  by  the  adjuster.  He  promptly 
denied  liability  under  the  policies  issued  to  the  bank. 

Some  of  the  cotton  involved  had  been  sold  to  New  England 
Mills,  f.  o.  b.  Compress,  pressed,  loaded,  and  B/Ls  issued,  and  was 
therefore  at  the  buyers'  risk,  and  they  would  make  claims  under 
their  B/Ls  against  the  Railroad  Company,  who  were  liable  as  car- 
riers, the  railroad  in  turn  passing  same  on  to  their  Insurers. 

Some  of  this  cotton  had  been  sold  f.  o.  b.  New  York,  had  been 
pressed,  loaded,  B/Ls  secured,  and  specific  insurance  certificates 
written  thereon  for  the  face  of  invoice,  plus  10  percent.  In  these 
cases  the  Insurers  advanced  the  face  of  the  certificates  and  in- 
structed the  Assured  to  make  claim  against  the  railroad  under  its 
B/Ls,  the  railroad,  in  due  course,  passing  the  claim  on  to  their  In- 
surers. 

Some  cotton  was  in  transit,  that  is,  it  had  been  shipped  from 
some  point,  say,  to  New  England,  under  through  B/Ls  and  under 
the  carrier's  orders  had  imloaded  at  compress  to  be  "compressed"  in 
transit.  The  railroad  under  whose  B/Ls  this  cotton  was  moving  was 
Hable  for  the  loss. 

Some  of  the  cotton  had  been  consigned  from  other  points  to 
local  buyers,  and  the  cars  had  only  been  partially  unloaded  at  the 
time  of  fire. 

Some  of  it  had  been  sold  before  the  fire  and  receipts  surren- 
dered to  the  compress  with  Turn  Out  Order,  but  the  buyer  had  not 
sampled  or  accepted  the  purchase,  thus  raising  the  question  of  de- 
livery and  the  fact  of  whether  it  was  at  the  buyer's  or  seller's  risk 
when  destroyed. 

Most  of  the  cotton  was  what  is  known  as  Long  Staple,  for 
which  no  Exchange  quotations  are  published,  and  such  quotations  as 
one  can  find  are  of  little  assistance  to  the  adjuster  in  determining 
prices.  One  adjuster  represented  a  large  majority  of  the  insurance 
involved,  but  nevertheless  there  were  ten  or  twelve  Special  Agents 
engaged  on  the  loss. 

What  was  the  proper  course  to  pursue  in  making  this  adjust- 
ment? With  all  humility  and  much  more  timidity  than  may  be  ap- 
parent to  the  casual  observer,  I  suggest  the  following : 

514 


Cotton  Losses  and  Cotton  Salvage  Handling 

1st.  See  that  some  responsible  man  of  known  ability  and  expe- 
rience in  extinguishing  cotton  fires  is  placed  in  charge  of  the  salvage 
to  handle  same  ''For  Account  of  Whom  It  May  Concern,"  with 
instructions  to  extinguish  the  fire  and  do  all  that  may  be  necessary 
to  protect  the  salvage,  but  not  to  sell  same  until  specifically  ordered 
to  do  so.  Experience  has  taught  us  that  it  is  seldom  there  is  any 
intelligent  eflfort  made  to  extinguish  the  fire  or  protect  the  salvage 
before  the  adjusters  or  their  representatives  reach  the  ground.  If 
the  fire  occurs  in  a  town  having  a  fire  department,  after  the  depart- 
ment has  extinguished  the  burning  buildings,  they  usually  play  water 
on  the  burning  cotton  until  no  fire  is  visible,  then  they  take  no  fur- 
ther interest  in  the  matter.  It  is  almost  impossible  to  extinguish  the 
fire  in  a  bale  of  cotton  by  simply  pouring  water  on  it.  There  are  au- 
thenticated cases  where  a  burning  bale  has  been  thrown  into  the 
water  and  kept  immersed  for  a  week,  after  which  it  has  been  taken 
out,  left  on  the  deck,  and  48  hours  afterwards  found  to  be  on  fire 
again  in  such  a  manner  as  to  make  it  evident  the  original  fire  was 
not  extinguished.  We  can  recall  many  fires  where  a  delay  of  24 
hours  in  handling  the  salvage  has  resulted  in  increasing  the  loss 
many  thousands  of  dollars ;  in  some  instances  over  $50,000.  A  few 
hours'  delay  in  placing  a  competent  man  in  charge  of  the  damaged 
cotton  may  prove  so  costly  that  the  adjuster  cannot  aflPord  to  wait 
until  he  hears  from  all  companies,  so  as  soon  as.  he  is  warranted  in 
assuming  he  will  have  a  reasonable  representation  he  should  wire 
the  nearest  available  man  to  proceed  immediately  to  the  scene  of 
the  loss  and  ofifer  his  services  as  a  representative  of  the  underwrit- 
ers, to  the  compress  manager,  to  assist  (really  to  take  charge)  in 
extinguishing  the  fire  and  protecting  the  salvage. 

2nd.  When  the  adjuster  arrives  he  should  immediately  inter- 
view the  compress  officials,  obtaining  the  names  of  the  managers, 
superintejident  and  his  assistants.  Make  memo  of  the  watch  clock 
and  fire  protection  records. 

3rd.  Investigate  the  cause  of  fire.  If  there  is  a  probability  of 
its  having  been  caused  by  sparks  from  locomotive,  put  some  expe- 
rienced investigator  at  work  immediately  with  instructions  to  secure 
affidavits  from  all  available  witnesses.  Obtain  details  of  all  passing 
trains  from  which  sparks  may  have  been  thrown;  that  is,  train 
number;  type  and  number  of  engine;  names  of  crews;  number  of 
cars,  loaded  and  empty;  exact  time  of  passing;  obtain  copies  of 
reports  made  by  conductor  of  train,  roadmaster,  section  foreman, 
and  railroad  agent.     This,  of  course,  requires  some  secret  service 

515 


The  Fire  Insurance  Contract 

vvcrk,  but  the  man  who  knows  how  can  usually  get  it.  Ascertain 
the  railroad's  rules  covering  inspection  of  locomotives  and  spark 
arresters,  and  at  what  shops  and  under  whose  supervision  said  in- 
spections are  made,  and  what  record  is  kept  of  same.  All  of  this 
requires  a  thorough  knowledge  of  railroad  methods  and  routine. 
Arrangements  should  be  made  to  obtain  plats  of  the  scene  of  fire, 
showing  all  railroad  tracks  with  their  grades,  curves,  and  crossings. 
The  investigator  should  drive  up  and  down  the  tracks  for  twenty 
or  thirty  miles,  each  side  of  the  town,  interviewing  residents  to 
ascertain  if  the  railroad  has  set  other  fires  in  the  vicinity,  either  to 
grass  on  the  right-of-way  or  other  property,  and  if  so,  obtain  de- 
tails, in  the  form  of  affidavits  if  possible. 

4th.  Have  an  inventory  made  of  the  undamaged  cotton.  This 
should  be  made  by  two  sets  of  men,  one  representing  the  Insurers 
and  the  other  the  warehouseman.  They  should  check  against  one 
another,  and  thus  prove  their  work  as  they  proceed.  Incidentally, 
this  is  not  so  easy  a  matter  as  one  might  think.  Few  adjusters  who 
have  had  no  training  or  practice  in  inventorying  or  tallying  work 
can  go  down  to  a  dock  or  open  platform  containing  1,000  or  more 
bales  of  cotton,  sacks  of  grain,  or  cases  of  merchandise,  and  count 
them  with  any  reasonable  accuracy;  that  is  to  say,  if  they  count  it 
three  times  there  will  be  an  average  difference  of  10  to  25  units 
between  the  three  counts.  Any  one  who  doubts  this  statement  can 
easily  put  himself  to  the  test.  This  inventory  of  the  saved  cotton 
must  of  course  show  the  Compress  Tag  number  of  each  bale,  which 
number  will  correspond  with  the  receipt  originally  issued  to  the 
owner  when  the  bale  was  received  at  the  compress.  It  should  also 
show  the  Owner's  Tag  number,  if  it  is  tagged.  This  inventory  as 
taken  will  not  show  these  numbers  in  the  numerical  order  into  which 
they  must  afterwards  be  thrown  by  making  a  second  list  for  the 
purpose  of  accurate  and  rapid  checking  to  the  individual  accounts. 
The  compress  should  not  permit  any  cotton  to  be  shipped  or  removed 
until  this  inventory  is  completed. 

5th.  Make  such  audit  of  the  compress  records  as  may  be  nec- 
essary to  obtain  these  figures:  (A)  Total  bales  on  hand  at  the  be- 
ginning of  the  season.  (B)  Total  subsequently  received  by  rail. 
(C)  Total  subsequently  received  by  wagon.  (The  sum  of  A,  B,  and 
C  gives  you  D — Total  Receipts.)  (E)  Total  shipments  by  rail. 
(F)  Total  deliveries  by  wagon  (the  sum  of  E  and  F  gives  G — Total 
Shipments).  D  minus  G  gives  H — total  bales  on  hand  at  the  time 
of  fire.    The  accuracy  of  all  these  figures  except  the  wagon  receipts 

516 


Cotton  Losses  and  Cotton  Salvage  Handling 

and  deliveries  should  be  subsequently  verified  by  checking  and  prov- 
ing same  to  the  Railroad  Company's  records.  This  may  necessitate 
making  up  a  statement  showing  receipts  and  shipments  for  each  day 
from  the  beginning  of  the  season,  and  is  no  easy  task ;  but  remem- 
ber we  are  dealing  with  units  worth  from  $60  up.  I  have  had  sev- 
eral cases  when  our  checking  the  Railroad  Company's  records  to 
prove  receipts  and  shipments  by  compress  resulted  in  our  finding 
some  cotton  (usually  carload  lots)  had  been  shipped  before  the  fire 
which  was  shown  by  the  compress  records  as  being  on  hand  and  for 
which  the  Assured  made  claim,  producing  the  compress  receipts  to 
support  it.  Some  of  these  cases  were  due  to  errors  made  by  incom- 
petent or  careless  clerks  with  no  intention  to  defraud,  and  some  of 
them  due  to  what  we  will  call  convenient  oversights. 

6th.  Make  a  transcript  of  all  open  entries  in  the  compress  bale 
book,  or  such  other  record  as  the  compress  keeps ;  the  sum  of  these 
open  entries  should  equal  H,  the  Total  Bales  on  Hand,  as  shown 
by  the  method  followed  in  paragraph  5.  This  transcript  should  carry 
all  the  information  shown  on  the  records,  such  as  receipt  number, 
date  of  issue,  and  to  whom  issued. 

7th.  A  transcript  of  all  Clearances  or  Shipping  Orders  in 
process  of  execution  at  the  time  of  fire,  with  the  receipt  numbers 
and  bale  marks;  and  transcript  of  all  loading  notices  and  receipts 
for  outbound  cars  on  track. 

8th.  Copy  of  all  incoming  and  outgoing  B/Ls  covering  cotton 
on  hand  under  B/L  at  time  of  fire. 

9th.  List  of  all  bales  which  the  Compress  Company  or  ware- 
houseman had  agreed  to  insure,  giving  the  receipt  number,  date  of 
issue,  to  whom  issued,  when,  with  whom,  and  how  agreement  to  in- 
sure was  made,  and  the  charge  to  be  made  therefor.  All  this  data 
can  be  shown  on  the  transcript  of  the  Bale  Book  (see  Paragraph  6) 
if  you  use  paper  with  the  requisite  number  of  columns. 

10th.  Copy  of  contracts,  or  the  important  clauses  of  same,  be- 
tween the  Compress  Company  and  the  railroads  or  the  customers. 

11th.  Under  the  reporting  forms  of  policies  it  is  customary  to 
advance  the  Assured  from  seventy-five  to  ninety  percent  of  their 
losses  within  three  or  four  days  of  the  fire,  and  as  it  may  take  three 
or  four  weeks  to  complete  and  recheck  all  the  inventories  and  tran- 
scripts called  for  in  paragraphs  4,  5,  6,  7,  8  and  9,  the  adjuster  can- 
not postpone  taking  up  the  individual  claims  until  all  that  work  is 
finished.    As  soon  as  he  has  made  a  preliminary  investigation  of  the 

517 


The  Fire  Insuraj>jce  Contract 

lire,  salvage  and  compress  records  and  arranged  to  have  the  neces- 
sary inventories  and  transcripts  made,  the  adjuster  should  call  on 
all  the  Assureds  having  representatives  in  town  and  examine  their 
receipts  or  other  documents,  which  should  be  counted  but  not  listed 
in  detail,  as  that  requires  too  much  time.  The  adjuster  will  find  in 
many  instances  the  receipts  are  held  by  local  banks  and  must  be  ex- 
amined there.  The  object  of  this  preliminary  examination  is  to  pre- 
vent fraud  on  the  Underwriters  by  uninsured  holders  switching  re- 
ceipts to  those  having  ample  insurance,  and  to  that  end  I  first  call 
on  the  Assureds  whom  I  may  have  reason  to  suspect  of  being  willing 
to  perpetuate  such  fraud.  If  the  adjuster  is  an  experienced  man  he 
soon  learns  what  firms  he  can  trust.  I  usually  explain  to  the  bank 
or  the  Assured  that  it  is  necessary  to  list  and  check  their  collateral 
to  the  compress  records,  for  which  purpose  I  desire  to  take  them 
to  my  own  office,  to  which  they  seldom  raise  any  objection.  I  then 
give  the  bank  a  statement  over  my  signature  as  adjuster  to  the  effect 
that  I  have  taken  collateral  covering  so  many  bales  for  listing  and 
verification.  This  preliminary  checking  can  usually  be  done  in  one 
day,  and  by  that  time  the  adjuster  should  have  an  approximate, 
though  probably  not  an  accurate  or  re-checked,  inventory  of  the 
cotton  saved,  from  which  he  can  determine  about  how  many  of  the 
Assured's  bales  were  burned.  He  can  then  figure  out  the  approxi- 
mate value  of  the  burned  cotton,  allowing  himself  a  margin  of 
safety  to  cover  all  possible  errors  of  valuation  or  ownership  of  from 
10  to  25  percent,  as  the  case  may  warrant,  and  advise  the  Assured 
how  much  he  is  willing  to  advance.  Have  the  Assured  obtain  a  let- 
ter to  the  Underwriters  from  some  reliable  bank  guaranteeing  them 
against  other  claimants  under  the  Ten-Day  Clause  (see  Appendix, 
Bank  Guarantee)  and,  if  they  are  not  already  in  his  possession,  take 
up  the  receipts  or  other  collateral  covering  the  burned  cotton.  Wire 
the  Underwriters  saying  the  Assured  has  lost  approximately  so 
many  bales  valued  at  approximately  so  much,  for  which  you  hold  all 
necessary  collateral  and  guarantee  from  stated  bank,  and  recom- 
mend immediate  advance  of  so  much,  saying  how  the  advance  is  to 
be  made,  either  by  your  giving  the  Assured  draft  on  the  Under- 
writers or  having  the  Underwriters  deposit  the  amount  in  some  New 
York  bank  as  the  assured  may  prefer. 

In  making  these  advances  it  is  not  so  important  to  determine  the 
actual  number  of  bales  burned,  for  if  you  do  happen  to  advance  on 
a  bale  that  has  not  been  burned  you  are  protected  by  holding  col- 
lateral on  which  you  could  obtain  the  bale  itself  if  the  Assured  re- 

518 


Cotton  Losses  and  Cotton  Salvage  Handling 

fuse  to  rectify  the  error,  which,  however,  is  a  condition  I  hav«r  never 
encountered.  But,  before  making  any  advance,  the  adjuster  must 
satisfy  himself  that  the  Assured  actually  owned  the  cotton  covered 
by  the  receipts  surrendered  or  be  sure  he  is  keeping  the  margin  of 
safety  high  enough  to  cover  all  contingencies  as  to  ownership.  Re- 
member these  advances  are  made  solely  on  the  adjuster's  recommen- 
dation, and  he  will  find  himself  in  a  very  embarrassing  position  if 
through  his  recommendation  the  Underwriters  advanced  90  percent 
on  a  large  number  of  bales  which  were  subsequently  found  to  be  the 
property  of  some  uninsured  owner,  and  the  Assured  had  no  other 
property  from  which  the  U.aderwriters  could  recover.  Of  course  if 
the  adjuster  accepts  possession  of  receipts  or  other  collateral  as  sat- 
isfactory and  conclusive  evidence  of  ownership,  both  the  adjuster 
and  the  interested  Underwriters  will  be  relieved  from  all  embarrass- 
ment through  such  errors,  as  there  is  then  little  probability  of  the 
frauds  being  discovered. 

12th.  We  now  come  to  a  point  \>%-3re  there  is  much  difference 
of  opinion  as  to  the  proper  course  to  be  pursued.  I  have  always  con- 
tended that  in  order  to  protect  the  Underwriters  from  loss  by  fraud 
or  unintentional  errors  in  adjusting  the  large  warehouse  or  com- 
press losses  it  is  necessary  to  audit  or  examine  the  compress  or 
warehouse  books  and  possibly  the  railroad  records  in  order  to  deter- 
mine how  many  bales  of  cotton  were  actually  on  hand  at  time  of 
casualty,  and  also  to  examine  the  individual  claimant's  records  as 
previously  explained.  This  is  a  difficult  and  expensive  undertaking, 
for  in  a  large  loss  it  may  consume  three  or  four  weeks  or  more  of 
the  time  of  the  adjuster  and  two  or  three  assistants,  all  of  which 
is  avoided  if,  as  I  have  repeatedly  stated,  we  are  willing  to  accept 
possession  of  receipts  or  other  documents  as  satisfactory  evidence 
that  cotton  was  held  at  the  point  named  at  time  of  casualty  and  at 
the  risk  of  the  parties  producing  the  documents,  but  I  cannot  recall 
a  single  large  loss  where  there  were  many  interests  involved  where 
a  thorough  audit  of  the  accounts  has  not  resulted  in  a  saving  many 
times  the  cost  of  the  work.  The  method  followed  in  making  these 
audits  must  necessarily  be  adapted  to  the  records  available  in  each 
individual  case,  but  the  object  is  to  obtain  a  list  of  all  the  open 
entries;  that  is,  of  all  the  bales  designated  by  numbers  or  marks, 
as  the  case  may  be,  that  are  on  hand  at  time  of  casualty.  In  order 
to  verify  this  list  it  may  be  necessary  to  check  all  receipts  and  ship- 
ments from  the  beginning  of  the  season  to  date  of  casualty  and 
further  verify  shipments  by  checking  the  railroad  records.     If  the 

519 


The  Fire  Insurance  Contract 

numerical  system  is  used,  that  is  to  say,  if  each  individual  bale  is 
given  a  number,  this  list  should  be  made  up  in  numerical  order  (as 
explained  in  paragraph  6)  and  in  a  book  or  on  paper  carrying  six 
or  seven  blank  columns. 

13th.  The  adjuster  should  next  proceed  to  make  a  separate 
list  of  the  cotton  covered  by  receipts  or  other  collateral  produced 
by  each  claimant.  These  should  show  receipt  number  (listed  in 
numerical  order),  date  of  issue,  to  whom  issued,  marks,  grade  and 
staple  and  weight.  Also  make  a  list  of  all  bills  of  lading  and  other 
documents  produced.  I  find  much  time  is  saved  by  using  paper 
printed  for  this  special  purpose  and  making  two  carbons  of  each  list. 
By  the  time  these  individual  lists  are  made  all  the  other  inventories 
and  transcripts  should  have  been  computed. 

14th.  The  adjuster  now  has  all  the  required  information  in 
form  for  ready  reference  and  can  take  the  claimant's  list  say,  iden- 
tified by  letter  A,  and  compare  the  receipt  numbers  with  the  numer- 
ical transcript  of  the  compress  records  (see  Par.  6  above),  checking 
said  transcript  with  the  letter  A  opposite  each  receipt  number  found 
on  the  claimant's  list,  and  checking  the  numbers  on  said  list  to  indi- 
cate they  are  shown  by  the  compress  records  as  being  on  hand  at 
time  of  casualty.  Then  make  a  similar  check  to  the  salvage  inven- 
tory. If  all  check  out  with  compress  records,  there  is  fairly  conclu- 
sive evidence  that  the  bales  which  do  not  appear  on  the  salvage  in- 
ventory have  been  burned. 

15th.  The  next  question  is,  did  the  Assured  own  the  specified 
bales  for  which  claim  is  made,  and/or  were  they  at  his  risk  and  had 
they  been  duly  reported  under  cover  of  his  Policy  before  the  fire 
occurred?  To  answer  this  last  question  requires,  as  I  have  already 
explained,  an  audit  of  the  Assured's  books  and  records  and  liis  Daily 
Reports  to  his  Insurers,  if  he  carries  a  Per  Bale  Policy.  If  this  check 
of  the  Assured's  records  is  satisfactory,  we  may  admit  the  cotton 
claimed  for  was  actually  burned  while  at  the  Assured's  risk,  that  it 
had  been  duly  reported  under  cover  of  the  policy,  and  the  luLairers 
were  therefore  liable  for  its  market  value,  the  determination  of  said 
VLlue  being  as  stated — the  last  of  the  adjuster's  difficulties. 

16th.  The  grade  of  the  specific  cotton  under  discussion  may  be 
ascertained  in  several  ways.  The  Assured  has  probably  had  the 
cotton  classed  by  his  own  men.  and  can  furnish  a  record  of  same 
showing  grade  and  staple  of  each  bale.  This  can  be  checked  to  the 
original  purchase  invoices,  which  should  virtually  substantiate  llie 

520 


Cotton  Losses  and  Cotton  Salvage  Handling 

grade.  If  the  adjuster  is  not  satisfied  with  this  check,  he  may  re- 
quire the  Assured  to  produce  samples,  which  are  usually  kept  at 
least  until  the  cotton  has  been  sold.  The  adjuster  can  examine  these 
himself,  or  have  them  classed  by  some  expert  whose  decision  the 
Assured  will  probably  accept,  and  thus  determine  the  grade  and 
staple,  leaving  only  the  question  of  market  value  to  be  settled,  which 
should  be  ascertained  as  explained  in  the  previous  chapter  on  Prices 
and  Quotations. 

Cotton  that  is  under  B/L  or  other  documents  must  of  course 
be  treated  separately,  and  the  question  of  liability  decided  by  the 
documents  in  each  case. 

It  is  evident  that  if  the  above  method  is  followed  with  all  claim- 
ants, when  all  the  lists  have  been  checked,  we  should  find  our  tran- 
script of  compress  records  and  salvage  inventory  has  been  checked 
out  and  proved,  it  will  show  by  the  identifying  letters  or  numbers 
the  ownership  of  each  bale  on  both  lists,  and  thus  furnish  a  balance 
sheet  and  proof  of  the  compress  and  railroad  records  and  all  the 
individual  accounts.  That  condition,  alas,  is  a  pleasant  dream  in 
which  we  occasionally  indulge  but  seldom  see  realized  in  actual 
practice,  for  we  usually  find  some  Special  Agent  or  adjusters  on  the 
ground,  representing  minor  interests,  who  merely  take  the  ware- 
house receipts  handed  them  by  their  claimant,  accept  same  as  evi- 
dence of  ownership  aad  loss  and  without  any  further  investigation 
take  Proofs  and  get  out  of  town,  leaving  no  details  of  their  settle- 
ment or  giving  any  one  a  copy  of  their  statements,  or  an  opportunity 
to  check  same  to  the  records,  and  with  one  such  statement  missing 
your  balance  is  naturally  out  and  the  proof  fails.  Many  Special 
Agents,  and — I  regret  to  say — some  Company  officials,  will  say  that 
such  system  of  checking  as  I  have  suggested  following  is  an  unnec- 
essary trouble  and  expense,  but  let  us  consider  that  point. 

Remember  that  in  ascertaining  the  number  of  bales  on  hand  or 
destroyed  you  are  dealing  with  units  having  an  established  market 
value,  and  not  with  mere  book  values.  Then  remember  what  these 
units  are  worth,  and  you  must  admit  that  the  saving  resulting  from 
finding  a  few  errors  will  more  than  pay  for  the  cost  of  the  work.  In 
fact  I  have  never  seen  such  a  check  attempted  where  it  has  not 
saved  the  Insurers  in  a  direct  reduction  of  the  loss  many  times  the 
cost  of  making  it,  entirely  aside  from  the  indirect  benefit  of  the 
moral  effect  such  system  has  on  discouraging  unscrupulous  claim- 
ants making  dishonest  claims  and  unscrupulous  holders  of  per  bale 
policies  not  reporting  and  paying  premiums  on  all  cotton  they  handle 

521 


The  Fire  Insurance  Contract 

or  of  taking  care  of  some  of  their  uninsured  friends  whose  ware- 
house receipts  they  can  include  with  their  own.  Let  me  cite  two  or 
three  examples : 

In  a  recent  loss  one  prominent  buyer  of  good  financial  standing, 
a  director  in  the  compress  company,  local  banks  and  other  institu- 
tions, submitted  a  list  of  his  cotton  on  hand  at  the  time  of  fire.  This 
was  checked  to  the  bale  book  entries  (see  paragraph  6)  and  to  the 
salvage  inventory,  and  showed  that  approximately  500  bales  of  his 
cotton  had  been  burned.  The  receipts  for  these  burned  bales  had 
all  been  hypothecated  with  the  bank  as  security  for  a  loan  of  $70  per 
bale.  We  had  advanced  $65  per  B/C  on  the  500  B/C  before  we 
completed  our  examination  of  the  railroads'  records.  These  receipts 
were  listed  by  the  adjusters  and  checked  back  to  the  compress  rec- 
ords all  right,  but  on  checking  the  railroad  records  We  found  that 
57  of  the  bales  shown  by  the  lists  to  have  been  on  hand  had  in  reality 
been  shipped  out  some  ten  days  before  the  fire.  We  then  called  on 
the  Assured  for  a  copy  of  his  invoices  covering  all  sales  made  during 
that  season,  which  he  willingly  produced,  and  among  which  we 
identified  an  invoice  covering  these  57  bales.  We  called  the  atten- 
tion of  both  the  Assured  and  the  compress  management  to  this  dis- 
crepancy, and  both  insisted  it  was  impossible  for  any  such  error  to 
have  been  made,  the  Assured  priding  himself  on  his  accounting  sys- 
tem and  the  fact  that  his  employees  were  far  beyond  the  average  in 
intelligence  and  ability,  all  of  which  we  willingly  admitted.  We  ad- 
vised the  Assured  that  paying  out  the  Companies'  money  had  long 
ceased  to  cause  us  any  pain,  and  we  would  cheerfully  pay  him  for 
any  57  bales  he  had  lost,  but  he  must  show  us  what  bales  he  had 
lost,  for  we  would  not  pay  him  for  57  bales  that  were  apparently 
pn  the  Atlantic  Ocean  when  this  fire  occurred  west  of  the  Missis- 
sippi. The  bank,  of  course,  was  loath  to  admit  that  they  were  car- 
rying this  lean  on  cotton  which  had  been  sold  and  paid  for,  and  they 
insisted  on  a  check  of  all  the  cancelled  receipts  in  possession  of  the 
Compress  Company,  of  which  there  were  some  200,000,  so  the 
Assured  and  the  adjuster  each  put  men  at  that  work,  the  result  being 
that  he  finally  admitted  our  figures  were  correct,  and  thus  the  In- 
surers— by  the  expenditure  of  $200  or  $300 — were  saved  approxi- 
mately $4,000,  for  had  we  paid  for  these  57  bales  the  error  would 
never  have  been  subsequently  discovered.  This  Assured  had  no 
indention  of  defrauding-  the  insurers  and  we  know  how  the  error 
was  made,  but  that  is  anotTiet  -otc.*'y 

By  the  same  fire  one  planter  lost  over  50  bales  which  were  not 

522 


Cotton  Losses  and  Cotton  Salvage  Handling 

insured.  Although  the  Compress  Company  had  sufficient  insurance 
to  cover  this  cotton,  they  wilHngly  admitted  they  had  never  made 
any  agreement  to  insure  same.  The  planter  did  not  even  allege  he 
had  instructed  the  compress  to  insure  his  cotton  nor  attempt  to  make 
claim  under  the  Commission  Clause  of  the  Compress  Company's 
policies,  though  he  could  have  undoubtedly  done  so. 

In  this  same  fire  a  great  deal  of  Long  Staple  Cotton  was  lost, 
and  the  services  of  a  competent  classer  were  secured  to  class  the 
samples  of  the  burned  cotton  which  were  on  hand.  This  resulted  in 
reducing  values  of  the  burned  cotton  some  $51,000,  at  an  expense 
of  less  than  $1,500,  yet  there  was  no  intent  to  deceive  or  defraud 
on  the  part  of  any  claimant.  There  is  of  course  always  the  usual 
tendency  for  every  one  to  think  their  own  cotton  is  a  little  better 
than  the  average,  but  we  must  always  remember  that  examining 
and  having  samples  classed  is  not  of  much  avail  against  the  unscru- 
pulous or  dishonest  claimant.  As  an  instance  I  recall  one  fire  where 
a  certain  cotton  buyer  openly  stated  he  had  on  hand  a  thousand 
samples  of  ''Strict  Middling  1  3/16"  Staple,  which  was  an  exception- 
ally high  grade  cotton  for  that  year  and  district,  which  samples  he 
was  ready  to  sell  for  $1  each.  Any  unscrupulous  claimant  could 
easily  have  bought  a  few  of  these  samples,  and  substituting  them  for 
those  of  his  own  cotton  of  lower  grade,  produced  them  for  the 
adjuster's  or  classer's  examination  to  verify  the  grades  for  which 
he  was  claiming.  The  buyer's  sample  room  usually  contains  sam- 
ples of  many  bales  not  involved  in  the  fire,  and  if  he  wishes  to  be 
dishonest  it  is  an  easy  matter  to  effect  the  necessary  substitution, 
therefore  always  check  your  purchase  invoices  to  verify  grades,  if 
they  show  an  average  below  Middling  and  the  Assured  claims  his 
burned  cotton  averaged  better  than  Middling,  and  produces  samples 
that  grade  an  average  Strict  Middling,  tell  him  that  the  age  of 
miracles  is  past. 

HANDLING  SALVAGE. 

As  soon  as  the  fire  is  extinguished  arrangements  should  be 
made  to  dispose  of  the  Salvage  for  account  of  whom  it  may  concern. 
The  warehouseman,  as  custodian  or  bailee  of  the  cotton,  has  the 
power,  in  fact  it  is  his  duty,  to  arrange  for  its  disposal  in  such  man- 
ner as  in  his  judgment  will  best  protect  the  owner's  interest;  and 
he  will  usually  agree  to  let  the  Underwriters'  representatives  handle 
it  in  any  manner  they  suggest. 

In  the  majority  of  cotton  losses  there  will  be  more  ojr  less  Sal- 
vage that  cannot  be  identified  as  having  come  from  any  specific  b^^' 

523 


The  Fire  Insurance  Contract 

or  bales.  Hence  it  is  impossible  to  determine  its  ownership.  All 
such  unidentified  Salvage  must  be  sold  and  the  proceeds  divided 
between  the  various  losers,  in  the  proportion  that  each  individual's 
loss  bears  of  the  total  value  of  all  the  cotton  lost. 

When  the  ownership  of  any  damaged  bale  or  lot  of  damaged 
cotton  can  be  satisfactorily  determined,  the  salvage  therefrom  should 
be  handled  and  sold  as  a  separate  and  distinct  lot,  and  the  proceeds 
revert  to  the  owners  or  their  insurers. 

Damaged  cotton,  like  any  other  commodity,  can  be  sold  as  it 
lays  or  it  can  be  sorted,  picked,  conditioned  and  rebaled  before  being 
sold.  This  work  can  be  done  at  the  scene  of  fire,  or  it  can  be 
shipped  to  some  pickery  for  that  purpose. 

If  the  market  conditions  are  favorable,  it  is  usually  better  to 
sell  it  as  it  lays  rather  than  pick  and  recondition  it ;  but  if  it  is  sold 
*'as  is"  the  sale  must  be  made  without  delay ;  and  we  sometimes  find 
the  Salvage  buyers,  through  forming  a  secret  pool,  will  refrain  from 
offering  any  reasonable  price  for  it  where  it  lays,  in  which  event 
the  adjusters  must  arrange  to  have  it  reconditioned.  Whether  this 
work  can  best  be  done  on  the  spot  or  by  shipping  it  to  some  pickery 
will  be  governed  by  local  labor  and  market  conditions,  freight  rates, 
etc. 

In  order  to  protect  the  Underwriters'  interests,  the  Adjuster 
must  be  capable  of  determining  what  the  SiJvage  should  sell  for 
as  it  lays,  the  cost  of  reconditioning  it  and  what  it  should  turn  out 
and  sell  for  when  conditioned.  Such  knowledge  can  only  be  gained 
by  actual  experience  (for  which  the  Underwriters  pay  dearly)  in 
closely  following  up  and  analyzing  returns  from  various  sales,  to  see 
how  close  the  Adjusters'  estimates  were  to  actual  results. 

There  are  several  methods  of  estimating  Salvage  value :  First, 
there  is  the  gambler's  method  of  taking  a  look  at  the  Salvage  as 
a  whole  and  guessing  at  what  it  is  worth  without  making  any  com- 
putation of  the  number  of  pounds  of  White  Cotton,  Pickings,  etc., 
it  should  turn  out.  I  know  of  one  small  lot  of  cotton  which  was 
sold  by  Adjusters  following  this  method  for  $600,  and  subsequently 
resold  by  the  buyer  as  it  lay  for  $4,500  to  a  man  who  told  me  confi- 
dentially that  he  netted  $6,000  profit  from  the  transaction. 

I  think  the  better  method  is  to  examine  carefully  every  bale  or 
lot  of  loose  cotton  and  estimate  the  number  of  pounds  of  White 
cotton.  Stained  cotton  and  Burned  Pickings  that  should  be  recovered 
from  it.    ';fhis  will  give  the  number  of  bales  of  White  cotton.  Stained 

524 


Cotton  Losses  and  Cotton  Salvage  Handling 

and  Burned  Picking  which  the  reconditioned  cotton  should  turn  out. 
From  this  the  gross  returns  can  readily  be  figured,  and  the  cost  of 
reconditioning  can  be  estimated  with  reasonable  certainty,  as  it  is 
usually  done  under  contract.  Thus  the  Adjuster  can  tell  what  the 
net  returns  should  be  and  thereby  determine  what  price  he  should 
get  for  the  cotton  as  it  lays.  As  an  example,  we  will  give  you  a 
synopsis  of  the  actual  figures  made  in  estimating  the  Salvage  re- 
maining from  a  fire  which  destroyed  some  7,000  B/C,  when  Mid- 
dling Cotton  was  selling  for  13c.  In  this  case  there  were  21  piles 
of  broken  bales  and  loose  cotton,  each  of  which  was  measured  and 
the  number  of  pounds  estimated  on  the  basis  of  so  many  pounds 
per  cubic  foot,  according  to  the  density  of  the  individual  pile.  This 
gave  us  a  total  of  121,000  pounds  estimated  "turn  out"  from  the  21 
piles.  There  were  the  remains  of  169  Flat  bales  running  from  50  to 
400  pounds  each;  and  the  remains  of  271  Compressed  bales,  all  of 
which  were  estimated  separately,  giving  the  following  results : 

SALVAGE  ESTIMATES 

Loose  Cotton  Est.    (242   B/C   No.    500) 

60,000  Burned  pickings   ®    .06 $  3,600.00 

38.000   Loose    @    .091/2 3,610.00 

5,000  Loose    (g)    .05      300.00  , 

18,000  Loose    @    .10      1,800.00 

121,000—242    B/C    ?   9,310.00 

Less  expenses   and  freight   @    2c  per  lb $2,420.00      $   6.890.00 

Uncompressed   169    B/C   Est. 

38,002  White    (g)   .11      $4,180.22 

10,150   Stains    @    .09% 938.87 

10,850   Burnt     (g).07iA 786.62 

59.002  5,905.71 

Less  expenses  and  freight  @   2c  per  lb...  $1,180.04  4,725.67 

Comoressed — 271  B/C 

90,350  White    @    AIV2 $10,390.25 

13,550   Stains    @    .O914 1,253.37 

13,550   Burnt     Qa)    .O714 982.37 

2,000  Loose     #.091/2 190.00 

119,450  $12,815.99 

Less   expenses   and    freight $1,650.00     $11,165.99 

Estimated    gross    returns,    $28,031.70. 
Less   estimated   expenses     $5,250.04. 
Estimated    net    returns,    $22,781.66. 

This  cotton  was  advertised  for  sale  under  sealed  bids,  subject 
to  previous  sale  or  withdrawal  and  the  privilege  of  rejecting  any  or 
all  bids.  Five  bids  were  submitted,  ranging  from  $16,500  to  $22,750, 
one  bid  for  $22,500  being  put  in  at  the  suggestion  of  the  adjusters. 
The  adjuster  decided  to  reject  all  bids  and  shortly  afterwards  sold 
all  the  cotton  at  private  sale  for  $23,500  to  the  parties  making  the 
$22,750  bid. 

APPENDIX. 
Form   No.  8C — (Revised  1-1-16.) 

GENERAL    FLOATER. 
$ On  Cotton  in  bales,  owned  or  held  by  the  assured  in  trust,  or  on  com- 
mission, or  on  joint  account  with  others,   or  sold  but  not  delivered,  in 
all  or  any  of  the  Stores.   Presses,  Warehouses,   Sheds,  Yards,  Railroad 

525 


The  Fire  Insurance  Contract 

Yards  and  Wharves  ( excepted) , 

or  while  in  transit  in  or  while  on  any  of  the  streets  in 

This  insurance  is  effected  subject  to  the  following  conditions,  which  are 
hereby  made  warranties  by  the  assured,  and  are  accepted  as  parts  of  this  con- 
tract: 

A.  It  is  understood  and  agreed  to  be  a  condition  of  this  insurance  that  this 

policy  shall  cover  cotton  at  any  of  the  Presses  ( excepted) . 

the  fact  of  bills  of  lading  having:  been  signed  for  the  same  notwithstanding. 

B.  Cotton  Co- Insurance  Clause — It  is  understood  and  agreed  that  the  as- 
sured shall  at  all  times  maintain  insurance  on  the  property  insured  by  this  pol- 
icy equal  to  the  actual  cash  value  thereof,  and  that  failing  so  to  do,  the  assured 
shall  be  an  insurer  to  the  extent  of  such  deficit,  and  in  that  event  shall  bear 
his,  her  or  their  proportion  of  any  loss  on  such  property,  and  this  Company 
shall  be  liable  for  not  exceeding  such  proportion  of  the  loss  or  damage  as  the 
amount  insured  by  this  policy  shall  bear  to  the  actual  cash  value  of  such  prop-- 
erty  in  all  localities  covered  by  this  policy  at  the  time  of  the  fire. 

C.  Standard  Time  Clause — It  is  understood  and  agreed  that  the  word 
"noon"  as  used  herein,  in  designating  the  beginning  and  ending  of  the  term  of 
insurance,  refers  to  Standard  Time  at  the  place  where  the  property  is  located. 

D.  Other  insurance,  warranted  concurrent  herewith,  permitted  without  no- 
tice until  required. 

E.  Attached  to  and  forming  part  of  Policy  No.. ....  .of  the 

Insurance   Conipany,   of    

Agent. 

Note — Agents  will  sign  and  paste  one  on  Policy,  one  on  Daily  Report,  and 
one  on  Register. 

Form  No.  9C. 

LIMITED    FLOATER, 

$ On  Cotton  in  bales,  owned  or  held  by  the  assured  in  trust,  or  on  com- 
mission, or  on  joint  account  with  others,  or  sold  but  not  delivered,  con- 
tained in  the  following  specifically  described  Warehouses,  Compresses 
and  Wharves,  including  sidewalks,  platforms  and  streets  adjacent  there- 
to;   also    while    in    transit    through    streets    between    localities    named 

herein,    namely:    all    situated 

in  the   city  of    

This  insurance  is  effected  subject  to  the  following  conditions,  which  are 
hereby  made  warranties  by  the  assured,  and  are  accepted  as  parts  of  this  con- 
tract: 

It  is  understood  and  agreed  that  Cotton  is  not  covered  by  this  policy  if  left 
on  sidewalks,  platforms,  and/or  streets  on  nights  or  on  Sundays  and  holidays. 
This  form  also  carries  clauses  A,  B,  C,  and  D  as  given  above  in  Form  No.  8C. 

Form  No.  10B — (Revised  1-1-16.) 

OPEN  WAREHOUSE  and/or  COMPRESS. 
I On  Cotton  in  bales,  owned  or  held  by  the  assured  in  trust,  or  on  com- 
mission, or  on  account  with  others,  or  sold  but  not  delivered,  only  wh.le 

contained    in    the story building, 

with roof,  situated  No on  tiie 

side  of Street,  Block  No known  as 

Warehouse  and/or  Compress  in 

This  insurance  is  effected  subject  to  the  following  conditions,  which  are 
hereby  made  warranties  by  the  assured,  and  are  accepted  as  parts  of  this 
contract: 

Warranted  by  the  assured  that  no  cotton  will  be  left  outside  of  sheds  or  be- 
yond the  apron  of  roof  in  the  court  at  night  or  on  Sundays  and  holidays.  And 
at  all  times,  while  cotton  is  being  kept  or  handled  in  open,  court,  a  clear  space 
of  not  less  than  eight  feet  shall  be  mamtained  between  the  cotton  in  open 
court  and  apron  of  roof. 

This  form  also  carries  clauses  B.  C.  D,  and  E  as  given  above  on  Form 
No.  8C. 

Form    No.   10C.— (Revised   1-1-16.) 

CLOSE   WAREHOUSE  and   OP  COMPRESS. 
I On  Cotton  in  bales,  owned  or  held  by  the  assured  in  trust,  or  on  com- 
mission, or  on  joint  account  with  others,  or  soid  but  not  delivered,  only 

while   contained   in   the story building, 

with roof,   situated   No on  the 

side  of Street,  Block  No ,  known  as 

W  arehouse  and/or  Compress,  in 

This  insurance  is  efiiected  subject  to  the  following  conditions,  which  are 
hereby  made  warranties  by  the  assured,  and  are  accepted  as  parts  of  this 
contract: 

See  clauses  B.  C.   D,  and  E  on  Form  80  above. 
/ 

526 


Cotton  Losses  and  Cotton  Salvage  Handling 

Form   No.  11  E.— 10-20-14. 

BALED    COTTON,    SEED    COTTON    /&  N  D    COTTON    SEED    ON    GINNERY 

PREMISES. 

$ On    Cotton    Ginned    and    Unginned.    Baled    and    Un baled,    Seed    Cotton, 

Cotton  Seed,  including  sacks  or  packages  containing  same,  and  Bagg-ing 
pnd  Ties,  only  while  contained  in  Cotton  Houses  or  Sheds,  Seed 
Houses  or  Sheds  and  while  passing  through  the  Cotton  Ginnery  and 
while  in  wagons  on  premises,  or  on  the  Ginnery  Yard  or  premises;  also 
in  or  on  cars  within  two  hundred  feet  of  Gin  premises.  This  insurance 
attaches  on  cars  only  when  Bill  of  Lading  has  not  been  signed.  Their 
own  or  held  by  them  in  trust  or  on  commission,  or  sold  but  not  deliv- 
ered, or  being  ginned  or  handled  for  assured's  own  account,  or  for  the 
account  of  others  and  for  which  the  assured  may  be  liable. 

$ On    Cotton    Seed,    including   sacks    or    packages    containing    same,    only 

while  contained  in  the  Seed  Houses  or  Sheds  and  while  in  wagons  on 
premises,  or  on  Ginnery  Yard  or  premises;  also  in  or  on  cars  within 
two  hundred  feet  of  Gin  premises.  This  insurance  attaches  on  cars 
only  when  Bill  of  Lading!  has  not  been  signed.  Their  own  or  held  by 
them  in  trust  or  on  commission  or  sold  but  not  delivered,  or  being 
ginned    or   handled   for   assured's   own    account,    or   for   the    account   of 

others  and  for  which  the  assured  may  be  liable 

All  of  the  above  described  property  being  located  on  the  premises  known  as 

Ginnery  in  the  town  of County  of 

State  of 

Right  to  Replace — Notice  is  hereby  given  that  in  the  event  of  loss  imder 
this  policy  this  Company  has  the  right  to  replace  with  cotton  of  like  kind  and 
quality  the  cotton  that  may  be  damaged  or  destroyed  by  fire  as  provided  for 
tinder  the  printed  conditions  of  the  policy. 

Eighty   Per   Cent.    Co-Insurance   Clause    (applicable  to    Item    No.    2) It   is  a 

part  of  the  consideration  of  this  policy,  and  the  basis  upon  which  the  rate  of 
premium  is  fixed,  that  it  is  expressly  stipulated  and  made  a  condition  of  the 
contract  that,  in  event  of  loss,  this  Company  shall  be  liable  for  no  greater  pro- 
portion thereof  than  the  amount  hereby  insured  bears  to  eighty  per  cent,  of  the 
actual  value  of  the  property  described  herein  at  the  time  when  such  loss  shall 
happen,  nor  for  more  than  the  proportion  which  this  policy  bears  to  the  total 
hisurance  thereon.  If  this  policy  be  divided  into  two  or  more  items,  the  fore- 
going conditions  shall  apply  to  each  item  separately. 

This  form  also  carries  clauses  B  (applicable  to  Item  No.  1),  C,  D  and  E 
as  given  on  Form  No.  8C  above,  and  likewise  the  Lightning  Clause. 

Form    No.    12— (Revised    9-22-15.) 

COTTON    FORM     FOR    SPRINKLERED    COTTON     WAREHOUSES. 
$ On  Cotton  in  bales?  owned  or  held  by  the  assured  in  trust,  or  on  com- 
mission, or  on  joint  account  with  others,  or  sold  but  not  delivered    only 

while  contained   in   the story building 

with roof,    situated   No on    the 

side  of Street,  Block  No ,  known  as.. ......'..     " 

"Warehouse,  in 

This  insurance  is  effected  subject  to  the  following  conditions,  which  are 
hereby  made  warranties  by  the  assured,  and  are  accepted  as  parts  of  this 
contract: 

Cotton  Storage  Warranty— It  is  hereby  agreed  and  understood  to  be  a 
condition  of  this  insurance  and  warranty  on  the  part  of  the  assured  that  for 
and   in  consideration   of- a   reduction    in    the   rate   of  premium  given   by   reason 

hereof,    that    not   more    than bales    should    be    stored    in    any    one 

compartment  of  the  within  described  building  at  any  one  time  and  that  cotlon 

should  not  be   stored   over .bales   deep   on   sides.      It   being   further 

agreed  and  understood  that  if  more  than  the  above  named  number  of  bales 
be  stored  in  the  within  described  premises  at  time  of  fire,  this  policy  shall 
thereby  become  absolutely  void. 

Warranted  by  the  assured  that  no  cotton  shall  be  left  on  the  platforms  or 
in  yards  or  in  courts  adjoining  the  above  warehouse  between  the  hours  of  8 
p.  m.  and  6  a.   m. 

It  is  understood  and  agreed  this  policy  covers  only  the  cotton  contained  in 
the which  are  equipped  with  automatic  sprinklers. 

Sprinkler  and  Fire  Protection  Clause — In  consideration  of  the  reduced  rate 
at  which  this  policy  is  written,  it  is  understood,  agreed  and  made  a  part  of  this 
contract  that  in  so  far  as  the  sprinkler  system  and  the  water  supplies  for  same 
and  any  of  the  private  fire  protection  for  which  credit  is  given,  are  under  the 
control  of  the  assured,  due  diligence  shall  be  used  by  the  assured  to  maintain 
them  in  complete  workmg  order,  and  that  no  change  shall  be  made  in  the 
sprinkler  system  or  in  the  water  supplies  for  same  without  the  consent  of  this 
Company  in  writing. 

Cotton  (Prohibition  of  Smoking)— Warranted  by  the  assured  that  no  smok 
ing  will  be  allowed  in  the  warehouse,   compress,  platform  or  yard  described  in 
the  within  policy.  .  „    ^    ^         ^  ^ 

This  form  also  carries  clauses  B,  C,  D,  and  E  as  given  on  Form  8C  above. 

'     ^  527 


The  Fire  Insurance  Contract 

Form    No.    12A 10-20-14. 

COTTON    FORM    FOR    SPRINKLERED    COTTON    WAREHOUSES. 
(In  Connection  with   Platforms,   Courts  and  Yards.) 
^ On  Cotton  in  bales,  owned  or  held  by  the  assured  in  trust  or  on  com- 
mission, or  on  joint  account  with  others,  or  sold  but  not  delivered,  while 
being-    received    or    delivered    on    the    platforms,    yards    or    courts    ad- 
joining-  

Warranted  by  the  assured  that  no  cotton  shall  be  left  on  the  platforms  or  in 
yards  or  in  courts  between  the  hours  of  8  p.  m.  and  6  a.  m.,  this  policy  not 
covering-  during  such  hours. 

This  form  also  carries  clauses  B,  C,  D,  and  E  (see  Form  No.  8C  above),  and 
the  Right  to  Replace  Clause  (see  Form  No.  HE). 

Form    No.   12B 10-20-14. 

COTTON    IN    BALES  ON   PLANTATION   OR   IN    COUNTRY. 
(With  One   Hundred   Feet  Clear  Space   Clause.) 
$ On  Cotton  in  bales,  owned  or  held  by  the  assured  in  trust,   or  on  com- 
mission, or  on  joint  account  with  others,  or  sold  but  not  delivered,  con- 
tained in,  and/or  on  premises  of 

situate 

One  Hundred  Feet  Clear  Space  Clause — Warranted  by  assured  that  a  clear 
space  of  not  less  than  100  feet;  will  at  all  times  be  maintained  between  cotton 
insured  hereunder  and  any  Gin  House  or  other  special  hazard. 

Sample  and  Weight  Clause — (Warranty  to  sample  and  weight  each  bale  of 
cotton,  and  to  produce  such  sample  and  record  of  weight  in  case  of  loss) — 
The  following  covenant  and  warranty  is  hereby  made  a  part  of  this  policy: 

1st.  The  assured  will  take  sample  of,  and  record  the  weight  of,  each  bale 
of  cotton  insured  under  this  policy,  and  unless  such  sample  has  been  taken, 
and  weight  recorded,  this  policy  shall  not  be  in  effect,  but  shall  be  null  and 
void  until  such  sample  has  been  taken  and  weight  recorded. 

2d.  The  assured  will  keep  such  samples  and  record  of  weights  in  some  place 
not  exposed  to  a  fire  which  would  destroy  the  cotton  insured. 

In  the  event  of  failure  to  produce  such  samples  and  record  of  weights  for 
the  inspection  of  this  Company,  this  policy  shall  become  null  and  void,  and  such 
failure  shall  constitute  a  perpetual  bar  to  any  recovery  thereon. 

This  form  carries  also  clauses  B,  C.  D,  and  E  (see  Form  No.  8C),  and  like- 
wise the  Right  to  Replace  Clause  (see  Form  No.  HE)  and  the  Lightning  Clause. 

Form    No.  13A 9-14. 

COTTON    FORMS— MARKS    AND  -NUMBERS. 
(Form   For   Insuring    By   Marks,   Numbers  and   Amount   Per   Bale.) 

On bales  of  Cotton,  being  a  specific  insurance  of  not  ex- 
ceeding $ on  each  bale,   marked  and  numbered  as  follows: 

owned  or  held  by  assured   in  trust,   or 

on  commission,  or  on  joint  account  with  others,  or  sold  biat  not  delivered,  or 
upon  which  advances  have  been  made,  all  while  contained  in 

Total  insurance,  concurrent  herewith,  permitted,  including  this  policy,  not 
to   exceed   $ per   bale. 

Warranty  Against  Substitution  of  Cotton— It  is  a  condition  of  this  contract 
that  this  insurance  shall  cover  only  the  identical  bales  of  cotton  bearing  the 
marks  and  numbers  designated  in  this  policy,  and  situated  at  the  location 
described  herein  at  the  time  said  policy  is  issued;  and  the  assured  hereby  war- 
rants that  other  bales  of  cotton  will  not  be  substituted  for  those  originally  desig- 
nated, and  that  it  will  not  be  claimed  that  this  policy  protects  any  other  bales 
of  cotton  identically  marked  and  numbered  which  may  be  placed  at  the  locality 
described  hereTn  after  the  issuance  of  this  policy;  and  any  violation  of  this  war- 
ranty sha'll  render  this  policy  null  and  void. 

Loss  Payable  Clause — The  property  covered  by  this  policy  may  be  pledged 
without  notice  as  collateral  security  for  loans  or  advances,  but  loss,  if  any, 
under  this  policy  shall  be  adjusted  with  the  assured,  and  is  payable  only  to  the 
assured  or  their  order  endorsed  on  or  attached  to  this  policy. 

This  form  carries  also  the  Right  to  Replace  Clause  (see  Form  No.  HE 
above). 

Form   300 — (Season  1916-1917.) 

BUYER'S  TRANSIT. 
1.  On  cotton  in  bales,  their  own  or  purchased  for  their  account  by  their 
agents,  employees  and  correspondents,  in  the  United  States  of  America  in  the 
manner  hereinafter  stated,  to  cover  during  the  whole  time  cotton  is  at  the  risk 
of  the  assured,  including  cotton  in  bales  shipped  under  local  bill-of-lading  to 
places  (other  than  ports)  in  the  United  States  for  concentration  and  re-shipping 
under  the  same  or  different  marks,  and  also  cotton  in  bales  shipped  under 
through  bill-of-lading  by  all-rail  route  to  final  destination,  but  only  when  cer- 
tificates have  been  issued  thereon  as  hereinafter  provided  for. 

528 


Cotton  Losses  and  Cotton  Salvage  Handling 

2.  The  liability  under  this  policy  to  commence  from  the  moment  the  cotton 
has  become  the  property  of  the  assured  and  absolutely  at  his  or  their  risk, 
provided,  however,  no  cotton  under  contract  of  purchase  by  the  assured  shall 
be  deemed  at  risk  hereunder,  unl*-=s  its  location  with  its  specific  marks  and 
numbers  be  stated  in  the  contract  of  purchase,  or  in  a  confirmation  thereof 
furnished  to  the  purchaser  immediately  thereafter  and  before  known  or  sup- 
posed loss,  nor  unless  such  cotton  is  reported  to  this  Company  at  the  time  of 
the  contract  to  purchase. 

S.  Warranted  by  the  assured  to  report  all  cotton  purchased  and/or  at  the 
risk  of  the  assured^  in  any  way  during  the  life  of  this  policy  and  in  the  event 
of  failure  to  report  any  such  cotton  this  policy  shall  not  be  liable  for  a  greater 
proportion  of  any  loss  than  the  amount  of  cotton  reported  to  this  Company 
bears  to  the  total  amount  purchased  and/or  in  any  way  at  the  assured's  risk 
during-  the  term  of  this  insurance. 

4.  Wherever  cotton  to  be  covered  as  above,  is  located  in  a  State  or  States 
other  than  that  in  which  this  policy  is  issued,  the  same  will  be  covered  by  a 
certificate  adopting  all  the  terms  and  conditions  of  said  policy,  issued  by  a 
Resident  Agent  of  said  other  State  or  States  in  accordance  with  the  laws  there- 
of, which  certificate  will  be  furnished  the  assured  and  to  take  effect  from  the 
time  such  cotton  is  purchased  by  the  assured. 

5.  Cotton  located  within  100  feet  of  the  gin  house  in  which  it  was  baled  is 
not  covered  under  this  policy. 

G.  Under  no  condition  does  this  policy  cover  cotton  after  it  has  become 
waterbourne  or  cotton  on  river  steamers,  boats  or  barges. 

7.  Cotton  sold  prior  to  shipment  or  sold  free  on  board  cars  at  point  of  ship- 
ment is  to  be  covered  only  until  it  ceases  to  be  at  the  risk  of  the  assured. 

8.  Cotton  sold  free  on  board  cars  at  final  destination  is  covered  only  until 
the  issue  of  the  Carrier's  Bill  of  Lading  to  such  destination,  unless  insured  un- 
der certificate  as  provided  for  in  this  policy. 

9.  Shipments  insured  to  final  destination  by  all- rail  routes  are  held  covered 
until  delivered  to  warehouse  or  mill,  but  not  in  any  case  to  exceed  five  days 
after  arrival  at  destination.  Such  risk  to  warehouse  or  mill  to  terminate,  how- 
ever, if  delivery  is  stopped  or  delayed  by  order  of  the  assured. 

10.  It  is  agreed  that  this  Company  shall  not  be  liable  for  more  than  such 
proportion  of  any  loss  as  the  limit  of  liabililfr  mentioned  below  appl?^ing  at  the 
place  where  any  loss  or  damage  shall  occur  bears  to  the  total  value  of  the  cot- 
ton at  such  location  at  the  time  of  any  loss  or  damage. 

11.  Unless  specifically  stated  to  the  contrary  in  an  endorsement  attached 
to  this  policy  it  is  agreed  that  the  limit  for  loss  by  any  one  fire  shall  not  exceed 

Dollars.    ($ ) 

12.  It  is  understood  and  agreed,  however,  that  this  limit  does  not  apply  on 
any  cotton  which  has  been  delivered  to  the  railroad  or  other  carrier  for  ship- 
ment and  has  passed  beyond  the  control  of  the  assured,  and  which  is  covered 
by  certificates  (is.sued  prior  to  known  loss  or  exposure  thereto)  such  shipments 
being  fully  covered  for  the  amount  stated  in  such  certificates  without  regard  to 
said  limit. 

13 Agents  of  this  Company  at 

are  authorized  by  this  policy  to  issue  certificates  and  countersign  the  same, 
covering  shipments  insured  hereunder  to  final  destination,  but  only  under  the 
terms  and  conditions  of  this  policy,  making  the  loss,  if  any,  payable  to  the 
holder  thereof.  And  it  is  hereby  declared  and  agreed  that  the  amounts  and 
values  as  stated  in  such  certificates  shall  be  the  amounts  and  values  applicable 
to  this  policy,  and  said  certificates  shall  represent  and  take  the  place  of  the 
original  policy,  and  convey  all  the  rights  of  the  assured  (for  the  purpose  of  col- 
lecting loss  or  claim)  as  fully  as  if  the  property  was  covered  by  a  special 
policy  direct  to  the  holders  of  the  certificates,  but  the  holders  of  such  certi- 
ficates, other  than  the  assured,  shall  not  be  held  liable  for  unpaid  premium. 

14.  In  case  of  loss  hereunder  arising  before  certificates  of  insurance  are 
issued,  such  sum  or  sums  as  this  Company  shall  be  obligated  to  pay  or  advance, 
if  any,  shall  be  payable  to  banks,  bankers  or  other  parties  having  made  advance 
against  said  cotton,  so  far  as  their  interest  may  appear,  provided  this,  company 
received  notice  of  such  interest  within  ten  days  after  the  loss.  In  the  absence 
of  such  notice  loss  is  payable  to  the  assured. 

15.  This  Company  shall  not  be  liable  for  more  than  the  actual  cash  value  of 
the  cotton  at  the  time  of  the  loss  and  place  of  fire  happening  prior  to  the 
issue  of  all  certificates  of  insurance,  and  shall  in  no  event  exceed  what  it  would 
then  and  there  cost  to  replace  same,  plus  all  customary  shipping  charges,  with 
cotton  of  like  kind  and  quality. 

16.  When  this  policy  becomes  effective  the  assured  agrees  to  report  to 
this  Company  through  its  Agent  as  named  herein,  all  cotton  in  his  or  their 
possession  and  thereafter  to  REPORT  DAILY,  SUNDAYS  AND  HOLIDAYS 
EXCEPTED,  all  purchases,  sales  and/or  shipments  of  cotton  made  by  him  or 
them,  including  in  this  report  the  value  of  all  such  sales  and/or  shipments. 

17.  It  is  further  understood  and  agreed  that  all  cotton  the  property  of  the 
assured  under  local  bills  of  lading  shall  be  declared  and  kept  under  report  for 
premium  just  as  though  it  was  solely  at  the  assured's  risk. 

529 


The  Fire  Insurance  Contract 

18.  The  assured  agrees  to  pay  to  this  Company  on  the  fifteenth  (15)  day 
of  each  month  the  agreed  premium  for  the  preceding  month.  In  case  of  default 
of  such  payment  this  policy  may  be  cancelled  by  this  Company  upon  twenty- 
four  hours  written  or  telegraphic  notice  to  the  assured,  and  at  the  expiration 
of  such  notice  all  risk  hereunder  shall  cease  and  terminate  except  as  to  ship- 
ments covered  under  certificates  issued  prior  to  receipt  of  such  notice,  but  this 
Company  shall  nevertheJess  be  entitled  to  receive  premium  upon  all  cotton  on 
hand  at  the  time  of  such  cancellation  in  payment  for  all  risk  previously  covered 
hereunder. 

19.  The  assured  under  this  policy  hereby  covenants  and  agrees  to  keep  a 
get  of  books,  showing  a  complete  daily  record  of  all  cotton  handled,  showing 
among  other  things  the  weight  and  classification  of  each  bale,  and  all  pur- 
chases, sales  and/or  shipments  with  the  identity  of  each  bale  and  its  location 
and  removal  from  yards  or  compresses  to  other  locations,  and  in  case  of  loss 
to  produce  such  books  to  this  Company  or  this  policy  shall  be  void. 

20.  The  assured  agrees  that  this  Company,  by  a  properly  authorized  repre- 
sentative, shall  be  permitted  to  examine  the  books  of  the  assured  and  any 
(or  all)  of  their  agents,  employees  and  correspondents  at  least  once  every  month 
for  the  purpose  of  verifying  the  accuracy  of  the  returns  made  under  this  policy. 

21.  It  is  stipulated  that  this  Company  shall  not  be  liable  for  any  loss  here- 
under for  which  any  carrier  or  other  bailee  may  be  liable,  but  shall  only  be 
liable  in  the  event  of  failure  to  collect  the  same  from  such  carrier  or  bailee. 

22.  The  assured  warrants  that  this  insurance  shall  not  inure  directly  or  in- 
directly to  the  benefit  of  any  carrier,  or  other  bailee  by  stipulation  In  bill  of 
lading  or  otherwise;  and  that  this  policy  shall  be  null  and  void  to  the  extent 
of  any  amount  paid  by  or  recoverable  from  any  carrier  and'/or  bailee,  and 
that  any  risk  against  fire  granted  herein  shall  not  cover  where  any  carrier  or 
other  bailee  has  insurance  which  would  attach  if  this  policy  had  not  been 
issued. 

23.  The  assured  warrants  not  to  release  any  carrier,  compress  company, 
or  other  bailee,  who  may  be  liable  for  cotton  in  his  or  their  custody,  from  any 
liability  whatsoever  which  law  or  custom  may  impose. 

24.  This  Company  in  addition  to  the  right  reserved  elsewhere  to  cancel 
this  entire  policy  reserves  the  right  to  cancel  on  five  days  notice  to  the  as- 
sured, all  liability  hereunder  on  cotton  on  the  premises  of  any  compress  and/or 
warehouse  and/or  terminal  company  which  may  refuse  to  adopt  such  recommen- 
dation,5  as  may  be  made  by  this  Company  for  the  protection  of  such  cotton. 

25.  In  the  event  of  loss  and  upon  receipt  of  advice  thereof  by  the  assured 
immediate  notice  shall  be  given  to  this  Company  and  this  Company  shall  bo  at 
liberty  to  investigate  the  circumstances  attending  same  and  ascertain  the 
amoxmt  of  loss  without  such  action  operating  to  waive  any  forfeiture  or  admit 
any  liability,  but  all  claims  to  be  payable  after  the  expiration  of  fifteen  days 
from  receipt  of  such  notice,  provided  satisfactory  proofs  have  been  filed. 

26.  Other  insurance  permitted  without  notice  until  required.  Other  insur- 
ance, if  any,  shall  be  deemed  concurrent  with  this  insurance  and  shall  con- 
tribute pro  rata  in  the  payment  of  any  loss. 

Attached   to   and   forming   part    of   Policy    No 

of  the 


This  Policy  expires  on  the  first  day  of  September,  191 

Agent 

Form  M.  • 

Schedule  attached  to  Policy  No in   name  of 

On  cotton,   in  bales,   to  be  declared   and  valued  as  hereinafter  provided. 

1.  To  cover  all  cotton  in  the  United  States  purchased  by  the  assured  or 
for  their  account,  attaching  from  the  moment  the  cotton  becomes  the  property 
of  the  assured  or  legally  at  their  risk,  provided,  however,  that  no  cotton  shall  be 
covered  hereunder  prior  to  actual  delivery  to  the  assured  or  their  agents,  unless 
specifically  identified  by  marks  and  numbers  or  other  designation  in  possession 
of  the  assured  or  mailed  to  the  assured  prior  to  loss. 

2.  Per  railroad  and/or  steamer  or  steamers  and/or  connecting  conveyances, 
including  barges  from  Houston  to  Galveston  and  held  covered  while  on  board 
of  craft  and/or  lighter  to  and  from  the  vessel  (each  craft  and/or  lighter  being 
deemed  a  separate  insurance),  but  excluding  all  risk  by  river  steamers  or 
barges  or  by  conveyances  on  the  Great  Lakes.  Cotton  laden  on  steamers  cov- 
ered under  deck  only  unless  otherwise  agreed.  This  policy  does  not  cover  ship- 
ments by  sailing  vessels. 

3.  This  Company  reserves  the  right  to  exclude  from  this  policy  shipments 
by  steRmers  whose  nationality  has  been  changed  after  the  commencement  of 
hostilities. 

4.  Held  covered,  at  a  premium  to  be  arranged,  in  case  of  deviation  or 
change  of  voyage  or  transfer  to  other  steamers,  provided  notice  be  given  to 
the  assurers  as  soon  as  known  to  the  assured. 

5.  The  presence  of  the  negligence  clause  and/or  latent  defect  clause  and/or 
liberties  in  the  Bills  of  Lading  and/or  Charter  Party  and/or  Contract  of  Af- 
freightment, shall  not  prejudice  this  insurance. 


530 


Cotton  Losses  and  Cotton  Salvage  Handling 

6.  At  and  from  ports  or  places  in  the  United  States  of  America  to  por+s  or 
places  in  the  United  States  or  Canada  or  to  port  or  ports  in  the  United  King- 
dom or  on  the  Continent  of  Europe,  or  in  Mexico,  China,  Japan,  India  or  Manila, 
or  to  such  other  port  or  ports  as  may  be  agreed,  direct  or  indirect,  including  the 
risk  of  transhipment.  Shipments  to  Germany,  Russia,  Austria  or  Turkey  not 
covered  unless  by  special  agreement. 

7.  Including  the  risk  of  damage  or  destruction  by  fire,  tidal  waves,  or  over- 
flowing rivers,  while  the  cotton  is  in  process  of  and/or  awaiting  shipment  or 
sale,  in  warehovises,  compresses,  yards  and/or  on  wharves,  levees  or  elsewhere 
on  land,  in  the  United  States. 

8.  To  pay  particular  average  on  each  ten  bales  as  if  separately  insured,  if 
amounting  to  three  per  cent.,  unless  otherwise  agreed,  and  on  shipments  to 
Europe  to  pay  sea  damage  pickings  claims  without  reference  to  series  or 
amount.  General  Average  and  Salvage  Charges  payable  according  to  Foreign 
Statement  or  per  York-Antwerp  Rules,  if  in  accordance  with  the  Contract  of 
Affreightment. 

9.  This  policy  also  covers  the  risk  of  country  damage  on  shipments  insured 
hereunder  to  Europe,  Japan,  China,  India  or  Manila,  subject  to  settlement  at 
destination  named  in  certificate  or  declaration  in  accordance  with  customs  and 
usages  of  the  port  of  destination,  vmless  otherwise  specified  in  certificate,  but  no 
claim  for  loss  of  or  damage  to  cotton  picked  or  reconditioned  in  the  United 
States  nor  for  any  cost  or  expense  in  respect  of  such  picking  or  reconditioning 
shall  be  recoverable  hereunder.  Country  damage  is  not  covered  on  Cost  and 
Freight  shipments  and  Local  Sales,  nor  on  shipments  to  points  in  the  United 
States  or  Canada  or  Mexico. 

10.  Unless  otherwise  mutually  agreed,  the  assured  are  not  at  liberty  to 
exclude,  cancel  or  insure  elsewhere,  any  risk  applicable  to  this  policy. 

11.  The  assured  are  authorized  to  Issue  certificates  in  duplicate  and  coun- 
tersign the  same,  covering  shipments  insured  hereunder,  subject  to  the  terms 
and  conditions  of  this  policy,  and  making  loss,  if  any,  payable  to  the  holder 
thereof,  provided,  however,  that  memoranda  of  such  certificates  shall  be  mailed 
to  this  Company  on  the  day  of  issue,  and  it  is  hereby  agreed  that  the  amounts 
and  values  stated  in  such  certificates  shall  be  the  amounts  and  values  applicable 
to  this  policy,  and  that  said  certificates  shall  represent  and  take  the  place  of  the 
original  policy  and  convey  all  the  rights  of  the  Assured  (for  the  purpose  of  col- 
lecting any  loss  or  claim)  as  fully  as  if  the  property  were  covered  by  a  special 
policy  direct  to  the  holder  of  the  certificate. 

12.  In  case  of  loss  or  claim  before  such  certificates  have  been  issued  and 
negotiated  and  reported  to  this  Company  as  above  provided,  the  amount  applic- 
able to  this  policy  shall  be  the  actual  market  value  of  the  cotton  at  the  time 
and  place  of  loss,  provided,  however,  that  the  assurers  shall  always  have  the 
right,  in  lieu  of  cash  payment,  to  replace  any  lost  or  damaged  cotton  with  other 
cotton  equivalent  in  value  and  as  nearly  as  practicable  of  the  same  grade  and 
staple.  Such  loss  shall  be  payable  to  banks,  bankers,  or  other  parties,  as  inter- 
est may  appear,  provided  this  Company  receives  written  notice  of  such  interest 
within  ten  days  after  loss,  but  otherwise  shall  be  payable  to  the  assured  or 
order. 

13.  Additional  amounts  to  cover  advances  in  market  value  of  the  cotton  held 
covered  hereunder  at  rates  to  be  agreed  (whether  the  original  insurance  has 
been  effected  under  this  policy  or  elsewhere),  provided  applications  therefor  are 
mailed  to  the  assurers  prior  to  loss  or  casualty  being  known  to  either  party  or 
the  vessels  being  overdue. 

14.  Foreign  shipments  held  covered  until  delivery  to  warebouse  or  railway 
station  at  port  of  discharge  or  (by  railway  or  other  land  conveyance)  until 
delivery  at  mills  or  other  interior  destination  when  so  specified  in  certificate. 
Shipments  to  mills  or  other  destination  in  United  States  or  Canada  held  covered 
until  delivery  into  the  consignees'  warehouse  or  mill.  In  case  delivery  to  ware- 
house or  mill  is  stopped  or  delayed  by  order  of  the  assured,  the  risk  hereunder 
shall  thereupon  terminate. 

15.  Cotton  resold  prior  to  shipment,  or  sold  for  shipment  on  "Cost  and 
Freight"  terms,  or  for  delivery  at  a  seaport  in  the  United  States,  to  be  covered 
until  it  ceases  to  be  at  the  risk  of  the  assured  (but  not  after  delivery  on  board 
the  seagoing  vessels  and/or  steamers). 

16.  Warranted  by  the  assured  as  a  condition  of  this  insurance  that  all 
purchases  and  sales  and/or  shipments  of  cotton  insured  hereunder  shall  be 
reported  daily  (Sundays  and  holidays  excluded)  to  this  Company,  and  that  an 
accurate  record  shall  be  kept  by  the  assured  of  all  such  purchases,  sales  and/or 
shipments,  showing  the  dates  of  all  such  transactions  and  (Tther  particulars 
affecting  this  insurance — which  record  shall  be  open  to  the  inspection  of  an 
authorized  representative  of  this  Com.pany  on  request. 

17.  Warranted  by  the  Assured  free  from  any  liability  for  merchandise  in 
the  possession  of  any  carrier  or  other  bailee  who  may  be  liable  for  any  loss  or 
damage  thereto;  and  free  from  any  liability  for  merchandise  shipped  under  a 
bill  of  lading  containing  a  stipulation  that  the  carrier  may  have  the  benefit  of 
any  insurance  thereon;  and  that  any  assurance  against  fire  granted  herein 
shall  be  null  and  void  to  the  extent  of  any  fire  inMurance  which  the  assured  or 
any  carrier  or  other  bailee  has,  at  the  time  of  the  fire,  and  which  would  attach 
if  this  policy  had  not  been  issued. 

531 


The  Fire  Insurance  Contract 

18.  It  is  warranted  by  the  assured  that  they  will  not  relieve  any  carrier  or 
other  bailee  from  any  statutory  or  common  law  liability  or  duty. 

19.  The   liability   hereunder  for   loss  by  any   one   fire   prior  to   shipment   to 

final  destination  is  limited  to Dollars.     It  is  understood 

and  agreed,  however,  that  this  limit  does  not  apply  on  any  cotton  which  has 
been  delivered,  to  the  railroad  or  other  carrier  for  shipment  and  has  passed 
beyond  the  control  of  the  assured,  and  which  is  covered  by  certificates  (issued 
prior  to  known  or  supposed  loss)  such  shipments  being-  fully  covered  for  the 
amount  stated  in  such  certificates  without  regard  to  said  $ limit. 

20.  Warranted  by  the  assured  free  from  loss  or  expense  arising  from  cap- 
ture, seizure,  restraint,  detention  or  destruction,  and  the  consequences  thereof, 
or  of  any  attempt  thereat  and  also  from  all  consequences  of  riots,  civil  commo- 
tions, insurrections,  hostilities  or  warlike  operations,  whether  before  or  after 
declaration  of  war;  and  whether  lawful  or  unlawful  and  whether  by  the  act  of 
any  belligerent  nations,  or  by  governments  of  seceding  or  revolting  states,  or  by 
unauthorized  or  lawless  persons  therein,  or  otherwise;  and  whether  occurring 
in  a  port  of  distress  or  otherwise.  Also  warranted  not  to  abandon  in  case  of 
blockade,  and  free  from  any  expense  in  consequence  thereof,  but  in  the  event 
of  blockade  to  be  at  liberty  to  proceed  to  any  open  port  and  there  end  the 
voj'age.  It  is  also  agreed  that  the  property  be  warranted  by  the  assured  free 
from  any  charge,  damage  or  loss,  which  may  arise  in  consequence  of  a  seizure 
or  detention  for,  or  on  account  of,  any  illicit  or  prohibited  trade,  or  any  trade 
in  articles  contraband  of  war,  or  the  violation  of  any  port  regulation. 

21.  This  policy  to  be  continuous  and  cover  as  above  until 

Inclusive,  unless  sooner  cancelled  by  either  party  giving  30  days'  notice  in  writ- 
ing, and  to  be  null  and  void  thereafter,  excepting  as  to  the  risks  then  pending 
on  cotton  which  has  been  actually  delivered  to  the  carrier  for  shipment  to  final 
destination.  This  Company  reserves  the  right,  however,  to  cancel  on  five  (5) 
days'  notice  to  the  assured,  all  liability  hereunder  on  cotton  on  the  premises 
of  any  compress  and/or  warehouse  company  which  may  refuse  to  adopt  such 
recommendations  as  may  be  made  by  this  company  for  the  protection  of  such 
cotton. 

22.  Premiums  payable  on  demand  in  New  York  Exchange.  In  case  of  de- 
fault in  such  payment,  this  policy  may  be  cancelled  by  the  assurers  upon  24 
hours'  written  or  telegraphic  notice  to  the  assured,  and  at  the  expiiation  of  such 
notice  all  risk  herounder  shall  cease  and  terminate  except  as  to  shipments  cov- 
ered under  certifidtes  ipsued  prior  to  receipt  of  such  notice,  but  the  assurers 
shall  nevertheless  be  entitled  to  receive  premium  upon  all  cotton  on  hand  at 
the  time  of  such  cancellation  in  payment  for  the  risk  previously  covered 
hereunder. 

STANDARD  MARINE  INSURANCE  CO.,  LTD. 

New   York 19 

United  States  Manager  and  Attorney. 

DAILY    REPORTS    UNDER    PER    BALE    POLICIES. 

1.  The  daily  reports  required  by  these  policies  are  usually  made  up  in  the 
following  form: 

NOTE. — Every  bale  of  cotton  purchased,  whether  at  risk  under  this  policy  or 
not,  should  be  entered  on  the  report  under  the  head  of  "Total  Pur- 
chases and  Sales"  and  accounted  for  subsequently.  In  case  of  any 
cotton  on  which  no  risk  is  subsequently  covered  under  this  policy,  par- 
ticulars are  to  be  shown  in  column  8  in  due  course. 

DAILY  REPORT  No Date 19 

To  the Insurance  Co.  of 

With  reference  to  the  warranty  in  our  open  policy  No reading: 

"Warranted  by  the  assured  as  a  condition  of  this  insurance  that  all  pur- 
chases and  sales  and/or  shipments  of  cotton  insured  hereunder  shall  be  reported 
d-i.ily  (Sundays  and  holidays  excluded)  to  this  Company,  and  that  an  accurate 
record  shall  be  kept  by  the  assured  of  all  such  purchases,  sales  and/or  ship- 
ments, showing  the  d-^t' s  of  all  such  transactions  and  other  particulars  affect- 
ing this  insurance — which  record  shall  be  open  to  the  inspection  of  an  authorized 
representative  of  this  Company  on  request." 
We  hereby  report  as  follows: 

TOTAL  PURCHASES  AND  SALES. 

B^les 

Purchased  today   (for  immediate  or  future  delivery)  

Previously    purchased    this    season  

Total  purchased  this  season  to  date  

Total  sales  and/or  shipments  reported  to  date  (totals  of  columns 

5,   7  and  8)  

Balance  to  be  accounted  for  

PARTICULARS  OF  COTTON  IN   COMPRESSES,  WAREHOUSES   OR  YARDS. 
(Note. — Each  compress,  warehouse  or  yard  where  cotton  is  held  in  process 
of,   or  awaiting  shipment   should  be  listed   separately.) 


53 


Cotton  Losses  and  Cotton  Salvage  Handling 


AT  RISK  UNDER  POLICY 


1             1             1             2            |3|4|5I6|7|8 

Name  of 
Compress, 
Warehouse 
or  Yard 

O 

CO 

Shipments  or 
local    sales 
since  last 
report 

Ships,  with 
no  risk  prior 
to  issue  of 
B/L   to   final 
destination 

Sales   and/or 
Ships,    never 
at  risk  of  the 
Assured* 

1 



. 

TOTAL  1 

1 

♦This   information   is   to   reconcile   bales   at    risk   with    "Total    Purchases    & 
Sales." 


Form   13 

PARTICULARS  OF  SHIPMENTS   OR  SALES  MADE  IN  MANNER 
INDICATED   BELOW. 

Of  the  shipments  above  reported Bales  were  injured  to  destination 

under  certificates 

rfrom  class  A  compresses B/C 

,T  ,  i   V.     .  .XI-      from  class  B  compresses B/C 

No as  per  copies  or  stubs  herewith,  ^  -  ^        r-,  t^  v-i 

I  from  class  C  compresses B/C 

Lfrom  class  D  compresses B/C 

BALES  INSURED   TO   DESTINATION— NO   CERTIFICATES   ISSUED. 

NOTE. — Please  indicate  in  remarks  column: — (1)  Whether  shipments  exclude 
all  wharf  and/or  terminal  risk  at  Southern  ports.  (2)  Show  Southern  trans- 
shipping port  on  shipments  to  Northern  ports. 


1 

e 

0) 

> 

Conveyances 

Class  of  Com- 
press from 
which  cotton 
shipped 

03 

4) 

W 

1 

S 

1 

Total 





1 1 

SHIPPED   COST    and    FREIGHT    or    SOLD   LOCALLY. 


Risk  terminating  upon  issue  of  B/L  in  the  interior. 

Local  sales  at  seaports,  excluding  wharf  risk. 
Shore  Risk  attaching  at  seaports  including  wharf 
risk  or  covering  until  laden  on  board  steamer. 

Local  Sales  at  interior  points. 

Shore  Risk  attaching  at  interior  points  and  cover- 
ing until  laden  on  board  steamer. 

Shore  Risk  attaching  at  interior  points  upon  issue 
of  B/L  to  final  destination  and  covering  until 
laden  on  board  steamer. 


hi 


I  M 


Total  Cost  and  Freight.     |. 


Signature  of  Assured. 
533 


18 


The  Fire  Insurance  Contract 

Form   302. 

COMPRESS    LIABILITY    FOR   TRANSPORTATION    LINES. 

1.  On  their  legal  liability  for  loss  or  damage  by  fire  to  cotton  in  bales, 
to  be  declared  by  classes  as  hereinafter  provided. 

2.  For  the  account  of  the  assured  this  insurance  covers  the  legal  liability 
as  common  carriers  or  warehousemen  of  the  hereinafter  named  transportation 
line  or  lines,  for  loss  or  damage  by  flre  to  the  classes  of  cotton  herein  de- 
scribed as  "A,"  "B,"  'C"  and  "D,"  while  in  the  custody  of  the  assured  for  the 
account  of  such  transportation  line  or  lines;  all  while  contained  in  the  com- 
press or  compresses,  sheds,  platforms  and/or  yards  on  their  premises,  and  on 
the  grounds  immediately  adjacent  thereto  and  in  or  on  ears  on  the  switch 
tracks  of   the   said  Compress   Company   situate   at: 

3.  A.  On  Outbound  Cotton  in  bales  originating  at  the  point  of  com- 
pression for  transportation  by  the  transportation  line  or  lines  herein  named, 
while  in  the  custody  of  the  assured,  for  which  bills  of  lading  have  been  signed 
by  duly  authorized  agents  of  the  transportation  line  or  lines  herein  named,  or 
compress  receipts  exchangeable  by  their  terms  for  bills  of  lading  have  been 
issued. 

4.  B.  On  Outbound  Cotton  under  shipping  instructions  tendered  the 
transportation  line  or  lines  herein  named,  while  in  the  custody  of  the  assured, 
loaded  and/or  being  loaded  for  which  cotton  no  bill  of  lading,  or  compress 
receipt,   exchangeable  by   its  terms  for  a  bill  of  lading,   has  been  issued. 

5.  C.  On  Inbound  Cotton  under  "Shippers  Order"  bills  of  lading,  while 
in  the  custody  of  the  assured  for  the  account  of  the  transportation  line  or 
lines  herein  named  ui:itil  the  suri^ender  of  the  bill   of  lading. 

6.  D.  On  Transit  Cotton  stopped  for  the  purpose  of  compression,  while 
in  the  custody  of  the  assured  for  the  account  of  the  transportation  line  or 
lines  herein  named,  to-wit:  cotton  carried  by  the  railway  company  under 
through  bills  of  lading  originating  at  some  place  other  than  the  compress  of 
this  assured  and  consigned  to  destination  beyond  the  compress  of  this  assured 
and  unloaded  while  in  transit  for  the  purpose  of  coinpression. 

7.  It  is  understood  and  agreed  by  this  Company  that  unintentional  omissions 
and/or  errors  on  the  part  of  the  assured  in  reporting  cotton  in  accordance 
with  the  requirements  of  this  policy,  as  hereinafter  provided,  do  not  vitiate  this 
insurance,  and  the  assured  agrees  to  pay  premium  at  the  rates  agreed  on  all 
cotton  not  reported  through  such  omission  and/or  errors;  it  is  specifically  un- 
derstood and  agreed,  however,  that  the  intentional  omission  to  report  any 
cotton  which  should  be  included  in  any  one  or  several  of  the  classes  of  cotton 
herein  described  as  "A,"  "B,"  "C"  and  "D,"  for  the  account  of  any  of  the 
transportation  line  or  lines,  shall  render  null  and  void  the  insurance  herein 
granted  on  the  particular  class  or  classes  from  which  said  cotton  was  purposely 
omitted  for  the  account  of  such  transportation  line  or  lines. 

8.  This   company   shall    not   be   liable   for   more    than Dollars 

by  any  one  flre  at  any  one  compress. 

9.  Loss,  if  any,  payable  to  the  transportation  line  or  lines  named  herein, 
as  interest  may  appear,  subject  nevertheless  to  all  the  conditions  of  this  policy. 

10.  It  is  agreed  that  this  company  waives  any  and  all  right  to  subrogation 
which  it  might  otherwise  have  under  this  policy,  as  against  the  transportation 
line  or  lines  whose  interests  are  covered  hereunder. 

11.  The  assured  agrees  to  report  the  number  of  bales  on  hand  in  their 
custody  for  the  transportation  line  or  lines  herein  named,  when  this  policy 
takes  effect  and  thereafter  to  report  daily  to 

(1)  The  number  of  such  bales  on  hand  at  last  report. 

(2)  The  number  of  such  bales  received  during  the  day. 

(3)  The  number  of  such  bales  shipped  out  during  the  day. 

(4)  The   number   of   such    bales   remaining  on   hand. 

12.  The  assured  agrees  within  15  days  after  the  close  of  each  month  to 
pay  to  this  company  the  agreed  premium  for  this  insurance  for  the  preceding 
month. 

13.  It  is  agreed  that  the  insurers,  by  a  properly  authorized  representative, 
shall  be  permitted  to  examine  the  books  of  the  assured  and  (or)  any  and 
all  of  their  agents  and  employees,  at  least  once  every  month  for  the  purpose 
of  verifying  the  accuracy  of  the  returns  made  under  this  policy. 

14.  This  company  shall  not  be  liable  for  more  than  the  actual  cash  value 
of  the  cotton  at  the  time  of  the  loss  and  at  the  place  of  the  fire,  which  cash 
value  shall  in  no  event  exceed  what  it  would  then  cost  to  replace  same,  plus 
all  customary  shipping  charges,  with  cotton  of  like  kind  and  quality. 

15.  It  is  agreed  that  the  liability  of  this  company  for  any  loss  under  this 
policy  is  limited  to  the  percentage  of  the  value  of  any  one  bale  which  the 
amount  of  this  policy  bears  to  the  total  insurance  at  the  time  of  the  fire,  and 
the  assured  agrees  to  maintain  insurance  to  the  full  value  of  each  and  every 
bale,  or  be  a  co-insurer  for  the  deficiency. 

534 


Cotton  Losses  and  Cotton  Salvage  Handling 

16.  In  the  event  of  loss  and  upon  receipt  of  advice  thereof  by  the  assured 
immediate  notice  shall  be  given  to  this  company,  and  this  company  shall  be  at 
liberty  to  investigate  the  circumstances  attending  same  and  ascertain  the 
amount  of  loss  without  such  action  operating  to  waive  any  forfeiture  or  admit 
any  liability,  but  all  claims  to  be  payable  after  the  expiration  of  fifteen  days 
from  receipt  of  such  notice,  provided  satisfactory  proofs  have  been  filed. 

17.  It  is  agreed  that  this  company  shall  have  the  right  at  all  reasonable 
times  to  inspect  the  compresses  specified  herein  and  the  assured  will  use  their 
best  efforts  to  have  carried  out  necessary  improvements  for  protecting  any  com- 
press against  fire,  and  to  supply  any  deficiencies  in  the  same,  which  this  com- 
pany may  deem  essential. 

18.  Other  insurance  permitted  without  notice  until  required.  Other  insur- 
ance, if  any,  shall  be  deemed  concurrent  with  this  insurance  and  shall  con- 
tribute pro  rata  in  the  payment  of  any  loss. 

Attached  to  and  forming  part  of  Policy  No of  the 

This  policy  expires   on   the  first   day  of   September,   191 

Agent. 

Form   304. 

TRANSPORTATION     LINES    LIABILITY    IN    COMPRESSES. 

1.  On  their  legal  liability  for  loss  or  damage  by  fire  to  cotton  in  bales, 
to  be  declared  by  classes  as  hereinafter  provided. 

2.  This  insurance  covers  the  legal  liability  of  the  assured  as  Common 
Carriers  or  AVarehousemen,  for  loss  or  damage  by  fire  to  the  classes  of  cotton 
herein  described  as  "A,"  "B,"  "C"  and  "D,"  while  in  the  custody  of  the  here- 
inafter named  compress  company  or  companies;  all  while  contained  in  any  of 
the  compresses,  sheds,  platforms,  and/or  yards  on  their  premises  and  on  grounds 
immediately  adjacent  thereto  and  in  or  on  cars  on  switch  tracks  of  said  com- 
press company  or  companies   situate  at  and  known  as: 

3.  A.  On  Outbound  Cotton  in  bales  originating  at  the  point  of  compression, 
for  transportation  by  the  assured,  while  in  the  custody  of  any  of  said  compress 
companies  for  the  account  of  the  assured,  for  which  bills  of  lading  have  been 
signed  by  their  duly  authorized  Agents  or  compress  receipts  exchangeable  by 
their  terms  for  bills  of  lading  have  been  issued. 

4.  B.  On  Outbound  Cotton,  under  shipping  instructions  tendered  the  as- 
sured for  transportation,  while  in  the  custody  of  any  of  said  compress  companies 
for  account  of  the  assured,  loaded  and/or  being  loaded,  for  which  cotton  no  bill 
of  lading  or  compress  receipt,  ex^changeable  by  its  terms  for  a  bill  of  lading, 
has  been  issued. 

5.  C.  On  Inbound  Cotton,  carried  by  the  assured  on  local  bills  of  lading 
issued  by  it,  or  by  its  connections,  consigned  to  "Shipper's  Order"  and  held  in 
the  custody  of  any  of  said  compress  companies,  for  account  of  the  assured,  until 
surrender  of  bills  of  lading. 

6.  D.  On  Transit  Cotton  stopped  for  the  purpose  of  compression,  while  in 
the  custody  of  any  of  said  compress  companies  for  the  account  of  the  assured, 
to-wit — cotton  carried  by  the  Railway  Company  under  through  bills  of  lading 
and  unloaded  at  compress  for  compression,  for  which  bills  of  lading  of  the  as- 
sured or  its  connections  have  been  issued  at  some  point  other  than  the  point 
wjiere  the  cotton  is  stopped  for  compression  and  consigned  through  to  destina- 
tion beyond  such  compress  point. 

7.  It  is  understood  and  agreed  by  this  Company  that  unintentional  omis- 
sions and/or  errors  on  the  part  of  the  assured  in  reporting  cotton,  in  accordance 
with  the  requirements  of  this  policy,  as  hereinafter  provided,  do  not  vitiate 
this  insurance  and  the  assured  agrees  to  pay  premium,  at  the  rates  agreed,  on 
all  cotton  not  reported  through  such  omissions  and/or  errors:  it  is  specifically 
understood  and  agreed,  however,  that  the  intentional  omission  to  report  any  cot- 
ton which  should  be  included  in  any  one  or  several  of  the  classes  herein  de- 
scribed as  "A,"  "B,"  "C"  and  "D,"  at  any  one  or  more  compresses  shall  render 
null  and  void  the  insurance  herein  granted  on  the  particular  class  or  classes  from 
which  said  cotton  was  purposely  omitted  at  such  locations. 

8.  THIS  COMPANY  SHALL  NOT  BE  LIABLE  FOR  MORE  THAN 

DOLLARS  by  any  one  fire  at  any  one  compress. 


9.  It  is  hereby  agreed  that  the  existence  of  a  chattel  mortgage  coveririg 
the  cotton  itself  shall  not  constitute  an  avoidance  of  this  policy. 

10.  The  assured  agrees  to  report,  or  have  the  compress  company  or  com- 
panies named  herein  report,  the  number  of  bales  on  hand  for  the  account  of 
this  assured  when  this  pohcy  takes  effect  and  thereafter  report  daily  to 

(1)  The  number  of  such  bales  on  hand  at  last  report. 

(2)  The  number  of  sucA  bales  received  during  the  day. 

(3)  The  number  of  such  bales  shipped  out  during  the  day. 

(4)  The  number  of  such  bales  remaining  on  hand. 

12.  The  assured  agrees  within  15  days  after  the  close  of  each  month  to  pay 
to  this  company  the  agreed  premium  for  this  insurance  for  the  preceding  month. 

535 


The  Fire  Insurance  Contract 

13.  It  is  agreed  that  the  insurers,  by  a  properly  authorized  representative, 
shall  be  permitted  to  examine  the  books  of  the  assured  and/or  any  and  all  of 
their  agents  and  employees,  at  least  once  every  month  for  the  purpose  of  verify- 
ing the  accuracy  of  the  returns  made  under  this  policy. 

14.  This  company  shall  not  be  liable  for  more  than  the  actual  cash  value  of 
the  cotton  at  the  time  of  the  loss  and  at  the  place  of  the  fire,  which  cash  value 
shall  in  no  event  exceed  what  it  would  then  cost  to  replace  same,  plus  all  cus- 
tomary shipping  charges,  with  cotton  of  like  kind  and  quality. 

15.  It  is  agreed  that  the  liability  of  this  company  for  any  loss  under  this 
policy  is  limited  to  the  percentage  of  the  value  of  any  one  bale  which  the  amount 
of  this  policy  bears  to  the  total  insurance  at  the  time  of  the  fire,  and  the  assured 
agrees  to  maintain  insurance  to  the  full  value  of  each  and  every  bale,  or  be  a 
co-insurer  for  the  deficiency., 

16.  In  the  event  of  loss  and  upon  receipt  of  advice  thereof  by  the  assured 
immediate  notice  shall  be  given  to  this  company  and  this  company  shall  be  at 
liberty  to  investigate  the  circumstances  attending  same  and  ascertain  the 
amount  of  loss  without  such  action  operating  to  waive  any  forfeiture  or  admit 
any  liability,  but  all  claims  to  be  payable  after  the  expiration  of  fifteen  days 
from  receipt  of  such  notice,  provided  satisfactory  proofs  have  been  filed. 

17.  It  is  agreed  that  this  company  shall  have  the  right  at  all  reasonable 
times  to  inspect  the  compresses  specified  herein  and  the  assured  will  use  their 
best  efforts  to  have  carried  out  necessary  improvements  for  protecting  any  com- 
press against  fire,  and  to  supply  any  deflclencies  in  the  same,  which  this  Com- 
pany may  deem  essential. 

18.  Other  insurance  permitted  without  notice  until  required.  Other  insur- 
ance, if  any,  shall  be  deemed  concurrent  with  this  insurance  and  shall  contribute 
pro  rata  in  the  payment  of  any  loss. 

Attached  to  and  forming  part  of  Policy  No of  the 

This  policy  expires  on  the  first  day  of  September,  191 

Agent. 

RAILWAY    TRANSIT    COVER. 

On  cotton  in  bales  on  or  in  depots,  freight  houses,  platforms,  yards,  piers 
and  bulkheads  and/or  in  closed  cars  in  transit,  at  rest  or  in  motion,  while  In 
custody   of   the   asssured    .' 

as    common    carriers   of   forwarders. 

This  insurance  covers  the  legal  liability  of  the  assured  on  all  cotton  re- 
ceived by  them  for  transportation,  and  attaches  from  the  time  the  cotton 
comes  into  the  possession  of  the  assured  and  terminates  on  its  delivery  to  the 
consignee  and/or  to  the  succeeding  carrier. 

It  being  expressly  understood  and  agreed  that  this  insurance  does  not  at- 
tach to  cotton  while  in  Compresses,  or  while  in  the  custody  of  Compress  Comr- 
panies,  nor  on  or  in  open  cars  at  rest  or  in  motion,  and  that  this  Company 
shall  not  be  liable  under  this  policy  for  loss  at  any  one  fire  in  excess  of 
Dollars, 


In  consideration  whereof  the  assured  agree  to  deliver  to  this  company 
within  ten  days  after  the  close  of  each  month  a  sworn  statement  showing  the 
total   number   of  bales   received   by   them   during   the   month   preceding,    and   to 

pay   thereon   a    premium    of Cents    per    bale,    the    statement    for 

the  first  month  to  include  the  number  of  bales   in  their  possession  at  the  time 
of    the    issuance    of    this    policy,    viz : 

It  is  further  agreed  that  this  Company  slrall  at  all  reasonable  times  be 
permitted  by  its  authorized  representative  to  examine  the  books  of  the  assured 
at  their  chief  offices  or  elsewhere  for  the  purpose  of  verifying  the  correctness 
of  the  statements  rendered  from  month  to  month. 

536 


Cotton  Losses  and  Cotton  Salvage  Handling 

SPECIAL    CONDITIONS 

It  is  understood  that  this  entire  Policy  is  subject  to  the  following  special 
construction,  to-wit:  It  is  intended  to  indemnify  the  assured  under  this  Policy, 
against  all  loss  or  damage  by  fire,  including  loss  of  freight,  dues,  back  charges, 
charges,  advances,  liens  and  claims  upon  such  cotton,  Including  earned  freight 
charges  up  to  point  of  ocriurrence  of  loss,  their  own  or  against,  or  on  which 
the  assured,  may  have  any  claim  or  lien,  or  as  to  which  they  may  be  under  any 
legal  liability,  provided  however,  that  this  Company  shall  not  be  liable  for  ex- 
ceeding the  actual  cash  market  value  of  the  cotton  immediately  preceding  the 
fire,  which  cash  market  value  shall  in  no  case  exceed  what  it  would  then  and 
there  cost  to  replace   same  with   cotton  of  like   kind   and  quality. 

It  is  further  understood  and  agreed,  that  while  in  case  of  loss  hereunder, 
the  assured  shall  give  immediate  notice  thereof  to  this  Company,  the  time 
for  making  the  statements  required  in  the  Policy  is  hereby  extended  to  not 
exceeding  six  months  from  date  of  fire. 

In  case  of  claim  made  by  any  owner  against  the  assured,  for  loss  upon 
cotton  in  the  possession  of  the  latter,  such  claim,  together  with  the  facts 
concerning  same,  in  the  knowledge  of  the  assured,  shall  be  submitted  to  this 
Company,  which  shall  thereupon  elect  whether  to  admit  such  claim,  or  to  have 
same  contested  at  its  own  expense,  reserving  to  the  assured,  however,  the  riffht 
to  pay  any  claim  (for  which  the  assurer  does  not  admit  the  liability  of  the 
assured),  and  at  their  own  risk  to  attempt  to  recover  the  payment  of  the 
same  under  this  Policy  by  suit  at  law,  or  otherwise,   from  the  assurer. 

The  following  permissions  are  allowed  under  this  Policy,  viz: 

To  use  wood  and  coal  for  fuel  in  locomotives. 

To  alter,  enlarge,  repair  or  rebuild  any  building,  or  other  structures,  as 
the  interests  of  the  insured  may  require. 

Permission  is  hereby  granted  the  assured  to  effect  other  Insurance  with- 
out prejudice  to  this  insurance,  and  the  same  shall  be  held  contributory  with 
the  amounts  insured  hereunder,  provided,  however,  that  if  other  insurance 
shall  be  effected,  this  Company  shall  nevertheless  receive  the  full  premium 
named   above   for  each   bale   coming  under  the   protection  of  said  Policy. 

Permission  granted  to  handle  and  store  such  freight  and  merchandise,  to 
do  such  work  and  to  use  such  materials  as  may  be  necessary  and  incidental 
to  their  business,  to  use  oil,  gas  and  electricity  for  lieht  and  power. 

This  Policy  is  issued  upon  the  condition  that  no  claim  hereunder  for  loss 
or  damage  by  any  one  fire  .shall  be  payable,  unless  after  adjustment  in  accord- 
ance with  its  terms,  conditions,  and  limitations  such  loss  shall  amount  to  the 
sum  of  One  Hundred  Dollars  or  over  anything  contained  herein  to  the  contrary 
notwithstanding. 

Attached  to  and  forming  part  of  Policy  No of  the 

Insurance  Company  of 

Agent. 

SAMPLE  FORM  BANK!  GUAPvANTEE. 

New  Orleans,  La.,  Jan.   1,  1915. 
To  the  Cotton  Insurance  Company,  Ltd., 
100  South  William  Street, 
New  York  City. 

Dear  Sirs : 

As  collateral  for  advancement  made  to  John  Doe  &  Company  we  look  to 
your  Policy  No.  74562  which  purports  to  insure  the  said  John  Doe  &  Company 
against  loss  to  cotton  as  therein  specified,  and  whereas  said  policy  provides  that 
any  loss  thereunder  is  payable  to  the  Bank  or  Bankers,  or  other  parties  having 
made  advances  on  said  cotton,  so  far  as  their  interest  may  appear,  provided  you 
receive  written  notice  of  such  interest  within  ten  days  after  the  loss  occurs. 

537 


The  Fire  Insurance  Contract 

Now,  therefore,  in  consideration  of  your  making  an  advance  loan  within  said 
ten  days  of  ($20,000)  Twenty  Thousand  Dollars  to  the  said  John  Doe  &  Com- 
pany and  this  Bank  on  account  of  said  cotton  destroyed  or  damaged  by  fire 
occurring  on  May  1st  at  I.-  C.  R.  R.  Company's  Warehouse  No.  1  at  New  Orleans, 
Louisiana,  the  Marine  Bank  does  hereby  agree  to  protect  you  and  hold  you 
harmless  from  any  and  all  claims  made  against  you  by  any  other  Bank  or 
Bankers  or  other  parties  claiming  any  interest  in  the  said  cotton  by  reason  of 
said  Are  and  said  advance  payment  of  $20,000  on  the  400  Bales  of  Cotton  evi- 
denced by  the  receipts  issued  by  the  said  Illinois  Central  Railroad  Company 
and  other  documents  attached  to  draft  on  you  of  this  date  covering  payment  of 
said  $20,000  to  order  of  John  Doe  &  Company  and  the  Marine  Bank. 

Tours  very  truly, 


538 


XXVI 

FIRST  SECTION 
APPORTIONMENT  OF  LOSSES  UNDER  NON-CONCUR- 
RENT POLICIES 
W.  N.  Bament,  General  Adjuster  The  Home  Insurance 

Company 

This  subject  has  been  one  of  absorbing  and  ever  increasing 
interest  ever  since  the  contribution  clause  came  into  general  use 
as  a  policy  condition  and  even  before.  It  has  commanded  the  at- 
tention of  the  courts  as  well  as  that  of  the  best  legal  and  lay  minds 
in  the  fire  insurance  business  for  nearly  a  century,  and  although 
many  rules  have  been  devised  for  the  apportionment  of  losses  where 
policies  are  nonconcurrent,  no  rule  of  universal  or  even  general 
application  has  been  found  and  the  prospect  of  discovering  the 
philosopher's  stone  is  as  remote  as  ever. 

What  is^the  "whole  insurance"  upon  the  property  covered,  or 
on  the^tems  damageci^  wnen  Dotn  specmc  and  generaFpohcies  are 
involved  ?  Shall  the  blanket  policy  contribute  with  one  specific 
policy  and  in  remainder  with  another  and  so  on  all  down  the  line, 
or  shall  it  be  distributed  on  the  various  classes  in  the  ratio  of  value, 
the  ratio  of  loss,  or  in  some  other  manner?  What  effect  should 
the  .presence  of  a  co-insurance  or  average  clause  in  one  or  more 
nonconcurrent  policies  have  upon  the  apportionment?  No  satisfac- 
tory answer  to  these  questions  has  ever  been  given. 

All  the  courts  which  have  passed  upon  the  question  have  held 
that  the  first  requisite  of  any  method  of  apportionment  must  be  the 
insured's  protection  to  the  full  extent  of  his  rights  under  his  policies 
and  any  method,  which  in  a  given  case  fails  to  afford  him  this 
justmeasure_of  indemnity,  must  give  place  to  another  that  will. 

This  is  eminently  proper,  because  other  insurance  is  taken  out 
by  the  insured  for  his  own  benefit  and  not  for  the  benefit  of  co- 
insuring  companies.  He  pays  the  premium  and  consequently  it 
is  his  interest  which  should  be  the  prime  consideration.  The  bene- 
fit accruing  to  co-insuring  companies  is  and  should  be  regarded 
as  a  piece  of  good  fortune  and  merely  incidental ;  but  as  each  poHcy 
is  an  independent  contract,  it  should  be  construed  in  the  light  of 

rpnqnn    withoi^t   Hnincr  yjnlpnrp   tO   any  of-4tS  provisions. 

Almost  all  of  the  well  known  rules  of  apportionment  were 
devised  long  before  that  evolutionary  product  of  the  insurance  busi« 

539 


The  Fire  Insurance  Contract 

ness — co-insurance — made  its  appearance,  and  although  some  of 
them  served  reasonably  well  in  many  instances  as  means  to  an  end, 
the  question  has  been  so  affected  by  co-insurance  conditionb  that 
all  the  older  rules  have  in  a  large  measure  lost  what  merit  they 
possessed  as  practical  working  propositions. 

As  it  has  seemingly  been  impossible  to  find  any  rule  of  ap- 
portionment of  general  application,  it  follows  that  it  would  be 
equally  impossible  to  prepare  a  contribution  clause  which  would 
satisfactorily  meet  all  conditions,  hence  the  present  brief  form,  in 
view  of  the  general  inclination  of  the  courts  to  construe  it  along 
reasonable  and  equitable  lines,  is  probably  as  good  as  can  be  devised, 
except  that  possibly  some  amendment  might  be  made  in  order  to 
meet  situations  growing  out  of  co-insurance  or  reduced  rate  aver- 
age clause  conditions. 

Simple  Nonconcurrence 

In  cases  of  simple  nonconcurrence,  the  law  is  apparently  set- 
tled. Where  there  is  a  loss  on  one  item  only,  the  full  amount 
of  theblanket  or  general  policy  must  contribute  with  the  specific 
toward  the  payment  of  the  loss.  Page  Bros.  vs.  Sun.  Ins.  Office,  74 
Fed.  203,  2Trr7T.'A.  397.'  In  that  case  the  court  used  this  some- 
what striking  sentence,  "This  contract  is  too  plain  to  permit  con- 
struction, too  positive  to  allow  evasion,  and  to  clear  to  admit  of 
doubt." 

\  When  there  is  a  loss  on_two]tems,  one  of  which  is  covered 
by.  a  specific  policy,  and  there  is  also  a  blanket  policy  covering 
both^  the  latter  "must  first  pay  the  loss  on  the  extraneous  itejrn  and 
^^^ILSl^-^^i^t'^-^'^^Siainder  with  the  specific.  Cromie  vs.  Kentucky 
and  LouisTille"  Ins.  CoT,  15  B.  Mon.  432  (Ky.  1854). 

To  the  minds  of  some,  both  these  rules  place  too  great  a  burden 
upon  the  blanket  policy,  but  the  argument  of  the  court  in  the  Page 
Bros,  case  (supra)  in  support  of  the  first,  emphasized  as  it  is  by 
the  decision  of  the  Court  of  Appeals  of  New  York  in  the  case  of 
Farmers'  Feed  Company  vs.  Scottish  Union  &  National  Insurance 
Company,  173  N.  Y.  241,  and  the  Supreme  Court  of  Wisconsin 
in  the  case  of  Stephenson  vs.  Agricultural  Insurance  Company,  116 
Wis.  277,  93  N.  W.  19,  both  of  which  decisions,  singularly  enough 
were  rendered  the  same  day,  seems  to  be  unanswerable. 

The  second  rule  has  not  received  universal  endorsement.  If, 
say  its  critics,  it  be  admitted  that  there  must  be  some  division  of 

540 


Apportionment  Under  Non-Concurrent  Policies 

the  blanket  policy,  the  question  might  easily  arise  whether  that  divi> 
sion  should  be  made  by  setting  aside  as  covering  on  the  extraneous 
item  an  amount  just  sufficient  to  pay  the  loss  thereon,  and  apply 
the  remainder  to  contribute  with  the  specific  policy  as  in  the  Cromie 
case,  (supra)  or  whether  some  other  division  might  not  or  should 
not  be  made.  This  thought  seems  to  have  been  in  the  mind  of 
Chief  Justice  Marshall,  when  in  the  Cromie  case,  he  expressed 
grave  doubt  whether,  on  account  of  the  continuing  liability  of 
the  blanket  policy  on  the  undestroyed  property,  and  the  possi- 
bility of  a  later  loss  thereon,  the  Court  had  not  made  that 
policy  contribute  with  the  specific  for  too  great  an  arnount.  If 
he  could  have  anticipated  present-day  co-insurance  conditions,  he 
would,  through  his  seeming  solicitude  for  the  interest  of  the  insured, 
doubtless  have  discovered  another  reason  for  a  different  subdivision 
of  the  blanket  policy,  for,  while  the  Cromie  rule  points  an  absolutely 
sure  way  of  giving  the  insured  the  maximum  indemnity  to  which 
he  is  entitled  in  every  instance  in  the  absence  of  co-insurance,  yet 
it  has  exactly  the  opposite  effect  in  many  cases  when  co-insurance 
conditions  prevail. 

Although  it  is  conceivable  that  the  co-insurance  necessities  of 
the  insured  may  have  some  influence  upon  future  decisions  in  cases 
of  compound  non-concurrence,  good  arguments  can  be  advanced 
against  their  doing  so  in  cases  of  simple  non-concurrence. 

AcQqrding  to  the  plain  reading  of  the  contribution  clause,  the 
spedfic  insurer  is  entitled  to  contribution  from  the  full  face  of 
the^eneraL^qlicy.  The  courts,  hgwever^  declare  tl^at  full  contribu- 
tion will  not  be  accorded  if  there  be  a  loss  on  an  extraneous  item, 
and  hnlrl  tliaf-  fhp  ]q<;<;  thprpon  must  first  be  cared  for  by  the  general 
policy.  If,  therefore,  the  specific  insurer  consents  to  a  modification 
of  the  clear,  unambiguous  phraseology  of  the  clause  to  the  extent 
of  permitting  the  general  policy  to  first  pay  this  extraneous  loss, 
it  meets  the  situation  fairly,  and  cannot  be  deprived  of  contribution 
from  the  remainder,  without  doing  unreasonable  and  inexcusable 
violence  to  the  contribution  provision. 

When  there  is  no  loss  on  any  other  item,  there  is  nothing  to 
deduct  from  the  blanket  policy,  and  the  specific  is  consequently 
entitled  to  contribution  from  its  full  face. 

The  Page  Bros,  decision  (supra)  is  so  fundamentally  sound 
as  to  preclude  discussion.  The  Cromie  decision  has  stood  the  test 
for  over  sixty  years  and  its  underlying  principle  has  never  been 

541 


The  Fire  Insurance  Contract 

successfully  asa^siled  or  seriously  questioned;  hence,  it  is  entitled 
to  be  regarded  as  a  fixed  rule,  universally  applicable  in  cases  of 
simple  non-concurrence. 

If  these  two  decisions  are  fundamentally  sound^when  the  poli- 
cies do  not  contain  co-insurance  or  reduced  rate  average  conditions, 
they  'are__ec|uallv  sound  when  such  conditions  are  present.  These 
provisions  neither  increase  nor  diminish  the  amount_of  the  policies 
containing  them,  nor  in  any  way  affect  the  "whole  insurance"  on  the 
property ;  hence  they  should  not  be  permitted  to  have  any  influence 
whatever  upon  the  contribution  clause,  so  long  as  it  retains  its  pres^ 
ent  phraseology.  Apportionments,  however,  are  always  subject  to 
the  limit  of  liability  of  all  policies  under  their  respective  conditions 
of  co-insurance  or  average. 

Such  extraordinary  liberties,  however,  have  been  taken  with 
the  contribution  provision  from  the  time  of  its  birth,  and  it  has 
been  disfigured  by  the  experts  and  the  courts  in  such  a  variety  of 
ways,  as  to  leave  one  in  doubt  whether  there  is  any  limit  to  which 
they  will  not  go  in  that  direction,  in  order  to  meet  the  necessities  of 
the  insured.  But  when  all  is  said,  it  would  seem  that  the  argument 
advanced  by  the  Court  in  the  Farmers'  Feed  Co.  case  (supra)  that 
the  insured  should  stand  a  portion  of  the  loss  himself  in  a  certain 
contingency,  because  he  virtually  agrees  to  do  so — should  apply  to 
cases  of  simple  non-concurrence  as  well  as  to  those  where  the  poli- 
cies are  concurrent. 

Compound  Non-Concurrejnce; 

It  is  in  cases  of   compound  or  interlocking  non-concurrence 
where  two  or  more  subjects  which  are  covered  by  specific  policies 
are  also~^embifaced"  within  the  cover  of  blanket  policies,  or  where_ 
they  interlock,  that  the  principal  trouble  arises. 

Some  adjusters  entertain  the  view  that  in  cases  of  non-concur- 
rence, simple  or  compound,  when  it  is  found  that  the  sum  of  the 
co-insurance  or  average  clause  limits  of  the  various  insurers  is  less 
than  the  total  loss,  each  company  should  pay  the  amount  of  its 
limit,  and  that  no  attempt  at  an  apportionment  should  be  made. 
And  if  the  sum  of  the  co-insurance  or  average  clause  limits  exceeds 
the  total  loss,  as  they  frequently  do,  there  should  be  deducted 
fromeach  maximum  limit  its  pro  rata  proportion  of  the  excess 
loss  in  order  to  arrive  at  the  net  liability  of  each  group  of  pohcies. 

542 


Apportionment  Under  Non-Concurrent  Policies 

This  view  is  evidently  based  on  the  following  line  of  reason- 
ing: Rates  at  the  present  time  are  quite  generally  predicated  upon 
the  use  of  the  80,  90  or  100  percent  average  or  co-insurance  clause. 
The  insurers,  in  effect  if  not  in  fact,  say  to  the  insured:  "If  you 
will  carry  insurance  to  the  extent  of  80,  90  or  100  percent  of  the 
value  of  the  property,  as  the  case  may  be,  and  thus  give  us  the 
benefit  of  that  contribution  in  ftie  event  of  loss,  we  will  be  satis- 
fied, provided,  of  course,  you  are  not  overpaid."  In  cases  of  com- 
pound non-concurrence  where  all  policies  contain  the  average 
or  co-insurance  clause,  and  the  same  is  operative  in  all,  where  the 
aggregate  insurance  equals  or  exceeds  the  required  percentage  of 
the  aggregate  value,  the  insured  should  be  entitled  to  collect  his  loss 
up  to,  but  not  exceeding,  the  co-insurance  limit  of  each.  If  average 
or  co-insurance  conditions  are  complied  with,  the  insured  will  have 
done  all  that  was  contemplated  either  by  himself  or  the  insurers 
when  the  policies  were  issued,  and  each  company  should  be  content 
if  the  amount  apportioned  to  it  does  not  exceed  its  average  or  co- 
insurance limit. 

It  will  be  observed,  however,  that  the  theory  or  rule  above 
outlined  is  virtually  the  same  as  apportioning  the  total  loss  on  all 
items  on  the  basis  of  the  average  or  co-insurance  limits,  instead  of 
the  face  of  the  policies,  and  is  in  direct  conflict  with  the  principle  laid 
down  in  the  Farmers'  Feed  Company  and  Stephenson  cases,  (supra). 
In  considering  this  question,  we  must  take  the  insurance  contract, 
not  as  it  might,  could,  or  should  be,  but  as  it  is ;  and  the  contribution 
clause  therein,  although  it  has  been  distorted  almost  beyond  recog- 
nition, is  entitled  to  at  least  a  rational  construction.  ■-■':. 

In  the  case  of  Buse  vs.  National  Ben  Franklin  Insurance  Com- 
pany et  al.,  161  N.  Y.  Supp.  566  (1916)  the  Supreme  Court  of 
New  York,  Erie  County,  applied  the  above  principle  in  the  appor- 
tionment of  the  loss.  The  old  New  York  Standard  Policy  under 
which  this  loss  occurred,  lines  98  to  100,  contains  the  following 
stipulation : 

"and  the  extent  of  the  application  of  the  insurance  under  this  policy 
or  of  the  contribution  to  be  made  by  this  company  in  case  of  loss,  may 
be  provided  for  by  agreement  or  condition  written  hereon  or  attached 
or  appended  hereto," 

and  the  court  evidently  concluded  that  by  reason  of  this  provision 
the  average  clause  superseded  the  contribution  clause  of  the  policy, 
the  latter  having  been  omitted  from  the  average  clause.    The  Court 

543 


The  Fire  Insurance  Contract 

also  seems  to  have  ignored  the  decision  in  the  Farmers'  Feed  Com- 
pany case  (supra),  evidently  distinguishing  the  two  cases  by  reason 
of  the  fact  that  in  the  former  the  policies  were  non-concurrent, 
while  in  the  latter  they  were  concurrent.  The  case  was  not  ap- 
pealed probably  on  account  of  the  smallness  of  the  amount  involved, 
hence  we  do  not  know  what  views  the  Court  of  Appeals  may  enter- 
tain on  the  subject. 

It  should  be  stated  that  the  Farmers'  Feed  Company  case  is 
also  distinguishable  from  the  Buse  case  from  the  fact  that  in  the 
former  a  part  of  the  insurance  did  not  contain  the  average  or  co- 
insurance clause,  whereas  in  the  latter  case  all  the  insurance  was 
subject  to  co-insurance  conditions. 

Many  ingenious  methods  of  apportionment  have  been  suggested, 
among  which  may  be  mentioned  the  Finn-Griswold-Kinne  rule,  the 
Connecticut  or  Gradual  Reduction  rule,  the  Reading,  the  Albany, 
and  the  Rice  rules,  and  the  later  inventions,  the  Morristown  and 
Giesse  rules  (so  named  on  account  of  the  modesty  of  their  authors), 
all  of  which  have  been  weighed  in  the  balances  and  found"  wanting. 

Each  of  these  rules  has  had  its  strong  advocates  and  also  its 
hostile  critics.  The  number  of  court  decisions  bearing  on  the  sub- 
ject are  comparatively  few,  and  there  is  quite  as  great  a  diversity 
of  opinion  among  the  experts  as  there  is  among  the  courts;  in 
fact,  there  has  probably  been  no  court  decision  rendered  which  did 
not  have  its  inception  in  the  mind  of  some  insurance  adjuster. 

Probably  the  best  and  most  exhaustive  discussion  of  the  sub- 
ject which  has  ever  appeared,  is  that  contained  in  a  paper  read  by 
the  late  E.  F.  Rice,  adjuster  of  the  Aetna  Insurance  Company, 
before  the  Underwriters'  Association  of  the  Northwest,  and  pub- 
lished in  the  proceedings  of  that  organization  in  1880.  He  reviewed 
and  carefully  analyzed  all  the  decisions  and  the  views  of  text 
writers  and  experts  up  to  that  time,  and  clearly  demonstrated  that 
none  of  the  methods  which  had  been  devised  were  theoretically 
sound  or  universally  applicable.  He  showed  by  concrete  examples 
that  under  the  then  known  rules  of  apportionment,  which  made  a 
division  of  the  blanket  policy,  if  the  amount  of  gross  loss  were 
increased,  the  liability  of  the  blanket  policy  might  be  diminished, 
and  he  rightly  argued  that  any  rule  which  would  admit  of  a  really 
bright  adjuster  increasing  his  company's  salvage  by  magnifying 
the  loss  must  be  fallacious  in  principle.  Mr.  Rice  invented  an  in- 
genious rule  of  his  own,  to  which  reference  will  be  made  later,  and 

544 


Apportionment  Under  Non-Concurrent  Policies 

evidently  thought  he  had  at  last  found  something  which  would 
withstand  the  criticism  which  he  had  directed  against  the  older 
theories,  but  alas,  Mr.  Rice's  own  rule  succumbed  to  the  same 
test.  The  Kinne  rule  had  not  at  that  time  made  its  appearance, 
but  being  an  offspring  of  the  Finn  rule,  it  cannot  withstand  the 
test  applied  by  Mr.  Rice  any  better  than  the  others. 

The  Reading  Rule 

This,  briefly  stated,  provides  for  a  division  of  the  blanket  policy 
among  the  various  items  of  property  in  the  ratio  of  values,  for 
purposes  of  contribution. 

This  rule  was  used  by  the  Supreme  Judicial  Court  of  Massa- 
chusetts in  1858  in  the  case  of  Blake  vs.  Exchange  Mutual  Insur- 
ance Company,  12  Gray  265,  and  again  by  the  same  court  in  1913 
in  the  case  of  Taber  vs.  Continental  Insurance  Co.  et  al.,  Vol.  42, 
Insurance  Law  Journal,  page  516,  213  Mass.  487.  The  same  prin- 
ciple was  also  applied  by  the  courts  in  New  York  and  Vermont, 
Ogden  vs.  East  River  Insurance  Company,  2  Insurance  Law  Jour- 
nal 135,  50  N.  Y.  388;  Chandler  vs.  Insurance  Company  of  North 
America,  70  Vt.  562,  41  Atl.  502.  This  rule  will  often  fully  reim- 
burse the  insured  and  do  no  real  violence  to  the  interest  of  any 
insurer,  yet  it  will  in  many  instances  fail  to  give  full  indemnity, 
and  unless  modified  by  making  the  division  only  among  the  itemi; 
involved  in  the  loss,  will  work  an  injustice  to  the  specific  insurers. 

The  point  most  frequently  urged  against  it,  is  that  it  imports 
into  the  blanket  policy  the  average  distribution  clause,  a  condition, 
which  is  foreign  to  it,  thereby  giving  it  a  more  favorable  construc- 
tion than  it  deserves,  but  the  same  objection*  can  be  urged  with 
equal  propriety  against  all  of  the  other  rules  which  call  for  a  divi- 
sion of  the  blanket  policy,  and  if  the  division  were  made  only 
among  the  items  involved  in  the  loss,  in  the  ratio  of  value,  there 
would  seem  to  be  no  logical  reason  why  this  method  should  be 
subjected  to  any  greater  criticism  than  the  others. 

This  rule  has  had  the  endorsement  of  the  courts  of  last  resort, 
to  which  reference  has  been  made  (supra)  but  in  the  cases  decided 
the  interests  of  the  insured  were  not  adversely  affected  by  its  ap- 
plication. If  conditions  had  been  otherwise  we  can  easily  believe 
that  the  principle  of  the  rule  would  have  been  rejected  by  these 
courts  just  as  it  has  been  by  others. 

545 


The  Fire  Insurance  Contract    ,. 

Thf,  AIoDiFiED  Re:ading  Rui,f, 

This  rule  divides  the  blanket  policies  among  all  classes  of  prop- 
erty, whether  involved  in  the  loss  or  not,  so  that  when  possible, 
and  as  nearly  as  possible  the  percentage  of  available  insurance  to 
value  will  be  the  same  on  each  class  as  the  percentage  of.  total 
insurance  to  total  value  of  all  classes. 

This  differs  from  the  original  Reading  rule  in  that  it  takes 
into  consideration  both  value  and  insurance,  and  the  relation  of 
one  to  the  other.  Although  it  is  not  universally  applicable,  it  will 
work  reasonably  well  in  a  large  number  of  cases  when  co-insurance 
conditions  prevail. 

The:  Albany  Rui.S 

This  much  criticised  and  many  times  rejected  rule,  which  was 
inserted  as  a  condition  in  some  policies  fifty  years  ago,  provides 
that  ifthe_insured  shall  have  other  insurance  which  includes  the 
premises  or  property  described,  and  such  policy  or  policies  shall  at 
any  time  or  under  any  circunislarices  or  contingency  be  liable  to  the 
insured  fof-  any  ameunt  whatever,  such  policy  or  policies,  as  be- 
tween the  insured  and  the  company,  shall  be  considered  as  con- 
tributing insurance. 

This  condition  was  ad./pred  because  of  the  decision  of  the 
Court  of  Appeals  of  New  York  in  the  case  of  Howard  vs.  Scribner, 
in  1843,  5  Hill  298,  wherein  it  was  held  that  where  there  is  both 
specitic  and  blanket  insurance  the  latter  does  not  constitute  "other 
insurance"  and  thai  the  specitic  policy  must  pay  in  full  without 
regard  to  the  blanket  policy.  But  this  decision  was  overruled  in 
1872  in  the  case  of  Ogden  vs.  East  River  J[nsurance  Company 
(supra).  Strange  as  it  may  seem  this  antiquated  doctrine  still 
obtains  in  Pennsylvania,  Meigs  vs.  Insurance  Company  of  North 
America,  205  Pa.  St.  378,  54  Atl.  1053.  The  Federal  Court  held 
to  a  contrary  doctrine  in  another  casc  ^^me  Hill  school  case)  grow- 
ing out  of  the  same  fire,  Meigs  vs.  London  Assurance  Company, 
126  Fed.  781. 

The  Pennsylvania  Court  has  certainly  turned  the  tables  on 
those  who  are  imbued  with  the  idea  that  no  rule  of  apportionment 
is  too  good  for  the  msured  and  the  specific  msurers,  and  none  too 
harsh  for  tlie  blanket  policy.  It  swings  the  pendulum  too  far  in 
the  opposite  direction,  carries  the  doctrine  of  the  conservation  of 

SA6 


Apport-ionment  Under  Non-Concurrent  Policies 

the  blanket  policy  beyond  all  reason,  and  entirely  ignores  the  con- 
tribution clause  in  the  specific  policies.  The  Pennsylvania  Court 
had  rendered  a  similar  decision  in  the  case  of  Sloat  vs.  Royal  Insur- 
ance Company,  49  Pa.  St.  14^  in  1865,  and  its  adherence  to  the 
same  doctrine  fifty  years  later  indicates  that  the  Court  is  still  joined 
to  its  idols.  The  position  of  the  Pennsylvania  Court  is  unsound, 
and  it  is  not  at  all  surprising  that  its  opinion  is  never  followed  b)* 
other  states  and  is  ignored  in  practice  within  its  own  borders. 

The  Albany  rule  very  frequently  entails  a  loss  upon  the  insured 
and  does  a  flagrant  injustice  to  the  blanket  policy.  It  has  been  in 
harmless  disuse  for  many  years,  and  no  one  in  these  days  gives  it 
serious  consideration. 

The  courts,  however,  in  the  Farmers'  Feed  Company  and 
Stephenson  cases  (supra)  when  construing  the  words  "whole  insur- 
ance^" held  that  the  amount  of  insurance  is  the  largest  sum  that  the 
company  under  any  circumstances,  according  to  the  terms  of  the 
policy,  can  be  required  to  pay  and  not  the  smaller  sum  which  can  be 
collected  under  special  conditions,  and  according  to  these  decisions 
the  loss  which  accrues  to  the  insured  by  reason  of  the  co-insurance 
or  reduced  rate  average  clause  in  certain  policies  must  be  borne  by 
him  and  cannot  be  transferred  to  the  companies  whose  policies  are 
otherwise  concurrent  but  have  no  such  clause. 

Although  the  language  used  in  these  decisions  is  exceedingly 
broad,  and  notwithstanding  the  fact  that  both  courts  permitted  the 
insured  to  sufifer  a  loss  under  special  conditions  in  the  face  of  the 
fact  that  they  carried  full  insurance,  it  is  hardly  to  be  supposed  that 
they  would  stand  for  the  principle  of  the  Albany  rule  in  a  case 
of  either  simple  or  compound  non-concurrence,  but  would  on  the 
-contrary  follow  precedents  and  permit  some  equitable  division  of 
the  blanket  policy,  for  purposes  of  apportionment. 

Gradual  Reduction  Ruht 

This  rule  is* the  one  most  popular  among:  adjusters,  particularly 
in  the  Middle  West  where  it  has  been  in  use  for  many  years,  and 
it  has  less  to  commend  it  than  any  other  with  the  possible  excep- 
tion of  the  Albany  rule.  It  is  unsound  in  psinciple,  is  always  in- 
equitable in  its  results,  and  possesses  but.  one  virtue  and  that  is^ 
in  the  absence  of  co-insurance  conditions,  it  will  more  frequently 
indemnify  the  insured,  unless  reapportionment  is  resorted  to,  than 
any  other  rule.    But  this  virtue  is  largely  neutralized  by  the  injustice 

5-^7 


The  Fire  Insurance  Contract 

it  always  does  to  the  blanket  insurers,  and  by  its  inevitable 
discrimination  against  certain  specific  insurers  when  their  poli- 
cies cover  on  different  items.  And  if  the  blanket  policy  contains 
the  reduced  rate  average  clause,  as  it  usually  does,  the  rule  will 
in  many  instances  have  just  the  opposite  effect  from  that  intended, 
because  the  liability  of  the  blanket  policy  will  be  limited  by  the  opera- 
tion of  the  average  clause,  and  the  extra  burden  imposed  upon  it  by 
the  rule  will  be  transferred  to  the  insured. 

The  Gradual  Reduction  Rule  was  adopted  by  the  Supreme  Court 
of  Errors  of  Connecticut  in  the  case  of  Schmaelzle  vs.  London  and 
Lancashire  Fire  Insurance  Company  et  al.,  75  Conn.  397,  53  Atl. 
863,  60  L.  R.  A.  536,  96  Am.  St.  Rep.  233,  and  more  recently  by 
the  New  Jersey  Court  of  Errors  and  Appeals  in  Grollimund  vs. 
Germania  Insurance  Company,  83  Atl.  1108.  It  was  urged  by  the 
company  having  the  specific  policy  in  the  recent  Massachusetts 
case  previously  referred  to,  but  was  rejected  by  the  Court.  Taber 
vs.  Continental  Insurance  Company,  213  Mass.  487,  42  Fnsurance 
Law  Journal  516  (supra). 

It  makes  the  blanket  policy  contribute  first  for  its  full  amount 
on  the  item  where  the  loss  is  greatest,  then  in  remainder  where 
next  greatest,  etc.,  thereby,  in  all  instances  magnifying  the  contribut- 
ing power  of  said  policy,  and  in  many  instances  transforming  it 
as  a  factor  in  contribution  into  a  policy  several  times  its  original 
amount.  Why  the  imposition  should  start  with  the  greatest  loss 
instead  of  the  next  greatest  or  smallest  is  not  manifest;  in  fact 
the  Connecticut  Court  in  the  Schmaelzle  case  frankly  admitted  that 
the  starting  point  was  purely  arbitrary,  and  intimated  that  the  order 
of  reduction  might  be  determined  by  the  highly  intellectual  and, 
logical  process  of  drawing  lots.  The  ends  of  justice  would  probably 
have  been  served  quite  as  well  if  the  entire  apportionment  had  been 
made  in  that  way. 

The  Schmaelzle  case  has  its  ludicrous  side.  So  absorbed  were 
all  the  parties  in  the  question  of  apportionment,  that  the  fact  that 
the  blanket  policy  contained  a  co-insurance  clause  and  that  its 
maximum  liability  w^s  absolutely  fixed  thereby  was  entirely  over- 
looked. If  this  had  been  discovered,  we  would  doubtless  have  had 
from  the  Court,  instead  of  an  argument  in  favor  of  the  continuing 
gradual  reduction  of  the  blanket  policy,  a  learned  dissertation  in 
favor  of  its  conservation. 

548 


Apportionment  Under  Non-Concurrent  Policies 

In  the  Schmaelzle  case  all  the  blanket  policies  were  concurrent 
and  all  specific  policies  were  concurrent.  In  the  Grollimund  case 
the  specific  insurances  were  in  the  same  company,  so  that  these 
are  not  ideal  cases  with  which  to  illustrate  the  absurdity  of  the 
"gradual  reduction"  principle  as  a  practical  working  proposition. 
Let  us  take  for  example :  $10,000  specific  insurance  in  Company 
"A"  on  building,  $10,000  specific  insurance  in  Company  "B"  on 
machinery,  and  $10,000  blanket  insurance  in  Company  **C"  on 
building  and  machinery.  Sound  value  of  building  $15,000  and  loss 
$10,000.  Sound  value  of  machinery  $15,000  and  loss  $9,999.  No 
co-insurance  conditions.  Applying  the  Gradual  Reduction  rule  com- 
mencing with,  the  larger  loss,  Company  "A"  pays  10,000/20,000  of 
$10,000  on  building,  or  $5,000;  Company  "B"  pays  10,000/15,000 
of  $9,999  on  machinery,  or  $6,666,  and  Company  "C"  pays  $8,333. 

Conceding,  of  course,  that  the  insured  should  be  fully  indem- 
nified, and  even  conceding  for  the  moment  that  the  blanket  policy 
should  be  penalized,  what  possible  excuse  can  be  given  for  making 
Company  "B"  with  a  policy  covering  for  the  same  amount  on  an 
item  with  the  same  sound  value  and  a  smaller  loss,  pay  $1,666  more 
than  Company  "A"?  Why  this  extraordinary  discrimination  in 
favor  of  Company  "A"? 

This  apportionment,  which  is  self-evidently  arbitrary,  does  a; 
th^ee-fold  injustice :  First,  to  Company  "B"  which  is  made  to  pay 
a  sum  unconscionably  out  of  proportion  to  that  paid  by  Company 
"A" ;  second,  to  Company  "C"  in  that  it  is  treated  as  if  it  were  a 
policy  for  $15,000  instead  of  what  it  really  is,  one  for  $10,000; 
third,  to  the  insured  by  reason  of  the  fact  that  his  best  insurance 
(the  blanket)  is  unwarrantably  depleted,  and  solely  in  the  interest 
of  one  of  the  specific  insurers. 

If  the  100  percent  reduced  rate  average  clause  be  inserted  in 
the  blanket  policy  and  the  Gradual  Reduction  rule  be  applied, 
Company  ''A"  pays  $5,000,  Company  "B,"  $6,666,  Company  "C," 
$6,666.33  and  the  insured  loses  $1,666.67. 

This  apportionment,  if  possible,  is  even  worse  than  the  other, 
for  the  discrimination  against  Company  "B"  still  remains  and  the 
burden  which,  in  the  absence  of  the  average  clause  is  saddled  on 
to  the  blanket  policy,  is  transferred  to  the  insured  who  loses 
$1,61^67  in  the  face  of  the  fact  that  he  is  fully  insured. 

It  is  argued  by  the  advocates  of  the  rule  that  if  two  or  more 
independent  fires  occur,  no  matter  how  short  the  intervening  time, 

549 


The  Fire  Insurance  Contract 

the  blanket  policy  .will  be  gradually  reduced  by  the  first  and  by 
each  succeeding  fire,  and  in  the  payment  of  this  series  of  losses 
its  basis  of  contribution  will  in  the  aggregate  exceed  its  face  just 
as  it  does  through  the  operation  of  the  Gradual  Reduction  rule. 
That  is  quite  true,  but  one  loss  is  not  two  or  more  losses,  and  the 
amount  of  the  blanket  policy  at  the  time  of  ''any  loss"  is  no  more 
than  its  face.  And  there  is  no  more  warrant  for  magnifying  it 
beyond  that  amount  for  purposes  of  contribution,  than  for  loss 
paying  purposes,  and  the  latter  is  of  course  impossible. 

The  blanket  insurer  might  easily  be  reconciled  to  having  its 
policy  gradually  reduced  and  its  contribution  regulated  by  the  course 
of  events  in  the  shape  of  a  second  or  third  fire  which  may  never 
occur,  but  that  is  vastly  different  from  having  it  gradually  reduced 
and  thereby  greatly  magnified  as  a  contributing  factor,  by  an  arbi- 
trary act  in  every  single  Ifkss.  The  specific  insurers  might  also 
cheerfully  accept  the  results  accruing  from  the  order  of  events, 
whereas  they  might  justly  resent  the  discrimination  which  inevitably 
attends  the  operation  of  the  Gradual  Reduction  Rule. 

If  three  items  are  involved  in  a  loss,  six  different  combinations 
or  orders  of  reduction  are  possible;  if  four  items  are  involved 
twenty-four  combinations  are  possible,  and  if  five  items,  one  hun- 
dred and  twenty  combinations,  etc.  Each  one  of  these  orders  of 
reduction  will  produce  a  different  result  and  neither  is  entitled  to 
precedence  over  .any  other. 

The  rule  always  works  an  injustice  to  one  interest,  generally 
to  two  interests, "some  times  to  three  interests;  and  any  scheme 
of  apportionment  against  which  these  indictments  can  be  proven 
is  indefensible. 

Thk  Finn-Griswold-Kinne  Rule; 

The  Finn  rule  which  was  first  applied  by  its  author  in  1842 
is  substantially  as  follows :  The  contributive  liability  of  the  com- 
pound policy  shall  be  based  upon  'the  loss,  (instead  of  the  value  as 
in  the  Reading  rule)  in  the  proportion  that  the  loss  upon  the  specific 
property  shall  bear  to  the  loss  upon  all  of  the  property  covered 
by  the  general  insurance. 

This  rule  which  failed  to  fully  indemnify  the  insured  in  many 
instances,  was  modified  by  Griswold  and  still  further  modified  by 
Col.  Kinne  in  the  rule  which  bears  his  name,  which  is  the  latest 
and  probably  the  final  development  of  the  loss  to  loss  principle. 

550 


Apportionment  Under  Non-Concurrent  Policies 

It  possesses  the  merit  of  being  consistent  with  itself  in  that  it  is 
made  appHcable  to  cases  of  simple  as  well  as  to  compound  non-con- 
curi:ence.  Its  first  application  sometimes  fails  to  give  the  insured  full 
indemnity,  which  necessitates  a  reapportionment,  and  sometimes, 
though  seldom,  a  second  reapportionment.  The  idea  of  reapportion- 
ment is  repugnant  to  many,  and  to  the  minds  of  some  there  is  a 
serious  fracture  of  the  loss  to  loss  principle  the  moment  this  be- 
comes necessary.  The  rule,  in  the  absence  of  co-insurance  condi- 
tions, through  its  provisions  for  reapportionment,  will  always  give 
the  insured  the  fullest  indemnity  to  which  he  is  entitled,  but  the 
Reading  rule  or  any  other  rule  will  do  the  same  if  unlimited  reappor- 
tionment is  resorted  to. 

In  point  of  popularity  among  adjusters  the  Kinne  rule  will  take 
rank  with  the  Gradual  Reduction  rule.  It  has  been  in  use  on  the 
Pacific  Coast  for  over  thirty  years  and  in  1910  the  Fire  Under- 
writers' Association  of  the  Pacific  adopted  it  for  general  use 
among  the  companies  in  that  territory,  and  by  some  members  of 
the  fraternity  there  and  elsewhere  it  is  regarded  as  the  last  word 
on  the  subject  of  nonconcurrent  apportionments,  as  is  evidenced  by 
the  following  quotation  from  a  recent  address  delivered  by  a  promi- 
nent adjuster,  "There  is  only  one  equitable  rule,  that  is  the  Kinne 
rule,  loss  to  loss,  with  reapportionment  from  excesses  to  pay 
shortages.*' 

The  basis  for  this  somewhat  extravagant  eulogy  is  not  apparent. 
As  a  matter  of  fact  the  rule  is  simply  one  of  several  convenient 
makeshifts,  none  of  which  can  lay  claim  to  theoretical  soundness 
any  more  than  they  can  to  general  applicability.  In  addition  to  the 
criticism  directed  against  its  underlying  principle  by  Mr.  Rice,  the 
Kinne  rule  will  not  only  fail  to  fully  indemnify  the  insured  in  many 
instances  when  co-insurance  is  present,  but  will  come  about  as  far 
from  doing  so  as  almost  any  other  known  rule,  hence  under  present 
day  underwriting  conditions,  it  fails  in  the  one  point  which  of  all 
others  was  chiefly  instrumental  in  bringing  it  into  being. 

Some  who  favor  the  Kinne  rule  in  preference  to  the  Reading 
rule  do  so  on  the  ground  that  the  latter  is  too  favorable  to  the 
blanket  policy,  evidently  overlooking  the  fact  that  some  times  the 
reverse  is  true,  and  not  infrequently  the  Kinne  rule  penalizes  it 
less  than  the  Reading  rule. 

The  Modified  Finn  Rui^e 

As   the   mxodified   Reading  rule   is  sometimes   used   when  co- 

551 


The  Fire  Insurance  Contract 

insurance  conditions  are  present,  so  the  modified  Finn  rule  is  occa- 
sionally used  when  those  conditions  are  absent.  It  divides  the 
blanket  policy  among  the  various  classes  of  property  so  that  when 
possible,  and  as  nearly  as  possible,  the  ratio  of  available  insurance 
to  loss  will  be  the  same  on  each  class  as  the  total  insurance  is  to 
the  total  loss  on  all  classes. 

The  difference  between  the  modified  and  the  original  Finn  rules 
is  similar  to  the  difference  between  the  modified  and  the  original 
Reading  rules;  it  takes  into  consideration  both  loss  and  insurance, 
and  the  relation  of  one  to  the  other. 

There  is  of  course  no  authority  in  the  policy  for  such  arbitrary 
divisions  and  they  could  not  stand  if  their  result  proved  to  be  to 
reduce  payment  to  assured. 

The  Rice  Rule 

According  to  Mr.  Rice's  rule,  if  the  aggregate  loss  is  less  thai> 
fthe  aggregate  insurance,  and  the  loss  upon  each  subject  covered  by 
I  the  specific  insurance  is  less  than  the  specific  insurance  plus  the 
i  whole  insurance  available  to  pay  the  loss,  there  is  contribution,  as 
!  between  the  specific  and  collective  policies,  and  every  policy  should 
enjoy  a  proportional  abatement  of  liability.     And  the  loss,. if  any, 
for  which  the  general  policy  alone  is  liable,  having  been  provided 
for,  the  insurance  remaining  under  that  policy  should  be  appor- 
tioned for  contributive  purposes  among  the  various  subjects  in  the 
proportion  that  the  maximum  overinsurance  on  each  bears  to  the 
aggregate  overinsurance  on  all  collectively. 

By  maximum  overinsurance  on  each  item  is  meant  the  excess 
of  insurance  over  and  above  the  loss  on  each  item  ascertaniCd  by 
adding  the  full  face  of  the  blanket  policy  to  each  of  the  specific 
policies.  The  Rice  rule  virtually  makes  an  apportionment  of  the 
salvage  in  the  ratio  of  the  overinsurance.  It  is  ingenious  but,  as 
has  been  pointed  out,  it  is  open  to  the  same  objection  that  Mr. 
Rice  directed  against  the  older  well-known  rules,  that  is,  if  the 
total  loss  be  increased,  the  payment  of  some  insurer  may  be 
diminished. 

Thk  Giesse  Rule 

This  rule  takes  its  name  from  the  case  in  which  it  was  first 
appHed  and  is  quoted  verbatim : 

"First'  find   the   limit   of   liability   of  each   class   of   insurance   under 
the   average  or  co-insurance   clause,   and   find   the   total    of  tl.^^se   limits 

552 


Apportionment  Under  Non-Concurrent  Policies 

(which  will  usually  be  somewhat  greater  than  the  aggregate  loss)  by 
addi tig  them  together;  then  find  what  each  class  would  pay  if  it  got 
the  full  benefit  of  its  contribution  clause,  i.  e.,  contribution  from  the 
face"-orr  full  amount  of  all  other  insurance  covering  the  whole  or  any 
part  of  the  property  which  itself  covers,  and  find  the  total  of  these 
amounts  (which  of  course  wnll  be  less  thati  the  aggregate  loss)  by  adding 
fh^m  together.  We  thus  find  the  most  each  class  can  be  made  to 
pay,  and  also  the  least  it  can  possibly  get  off  for.  Add  the  several 
differences  between  these  pairs  of  limits,  find  what  proportion  of  that 
total  the  aggregate  excess  of  the  upper  limits  over  the  aggregate  loss 
coFktitutes,  and  deduct  that  proportion  of  each  of  the  differences  from 
the  respective  upper  limits,  to  find  what  each  class  of  insurance  shall 
pay  to  make  up  the  loss." 

This  rule  was  devised  for  use  under  reduced  rate  average  or 
co-insurance  conditions,  and  is  of  course  not  universally  applicable. 
A  great  deal  of  ingenuity  was  displayed  in  its  preparation,  but  as  the 
basis  upon  which  the  lower  limits  are  fixed  is  unsatisfactory,  it 
follows  that  the  result  must  be  equally  so  in  many  instances. 

The  Morristown  Rule 

This  rule  is  so  named  because  of  the  fact  that  it  was  whilvi 
adjusting  a  loss  at  Morristown,  New  Jersey,  that  the  author  received 
his  inspiration. 

The  basis  of  this  rule  is  the  same  as  the  lower  limits,  as  fixed 
by  the  Giesse  rule,  the  aggregate  of  which  will  be  less  than  the 
loss.  The  deficiency  is  distributed  among  the  various  policies  pro 
rata  until  each  reaches  its  co-insurance  or  other  limit  of  liability. 
Inasmuch  as  the  basis  is  the  same,  it  is  subject  to  the  same  criticism 
as  the  Giesse  rule.  Furthermore,  if  in  attempting  to  take  care  of 
the  deficiency  in  the  manner  prescribed,  the  co-insurance  limits 
of  certain  policies  are  reached,  and  a  portion  of  the  loss  still  remains 
unpaid,  no  arrangement  is  made  for  taking  care  of  the  deficit,  and 
hence  the  rule  frequently  fails  to   fully  indemnify  the  insured. 

Conclusion 

That  the  foregoing  observations  are  mainly  critical  rather  than 
constructive  is  due  to  the  fact  that  virtually  every  conceivable  phase 
of  the  question  has  been  considered  by  the  brightest  minds  that  the 
business  has  produced,  and  although  they  have  not  led  us  out  of  the 
Wilderness  into  the  Promised  Land,  the  methods  suggested  by  them 
have  been  utilized  in  solving  all  the  intricate  questions  in  apportion- 
ment that  have  arisen  up  to  the  present  time,  and  too  much  credit 
cannot  be  accorded  them  for  the  study  they  have  given,  and  for  the 
efforts  they  have  put  forth  in  the  attempt  to  perform  the  seem- 
ingly impossible  task  of  finding  a  rule  of  universal  application. 

553 


The  Fire  Insurance  Contract 

The  question  still  confronts  us ;  most  of  the  rules  possess  some 
merit  as  means  to  an  end,  but  as  the  experts  and  the  courts  have 
never  agreed  upon  a  uniform  and  clearly  defined  method  of  appor- 
tionment—and probaBIy^  neveir^ill — and  as  all  of  those  in  use 
are  arbitrary,  that  rule  should  be  applied  to  each  specific  case  which 
will  come  nearest  to  doing  substantial  justice  to  the  respective  in- 
surers, and  at  the  same  time  give  the  insured  the  fullest  indemnity 
to  which  he  is  entitled  under  the  most  generous  interpretation,  within 
reason,  of  the  various  contracts. 

Judge  Ostrander,  in  his  well-known  work  on  insurance  says: 
"Cases  are  sometimes  presented  where  the  complications  defy  human 
understanding.  When  this  occurs — when  reason  is  baffled  and 
mathematics  fail — arbitrary  action  becomes  a  necessity.  The  knot 
we  cannot  untie  must  be  cut." 

SFXOND  SECTION— CHAPTER  XXVI 

APPORTIONMENT  OF 
COMPOUND  NON-CONCURRENT  INSURANCE 

Allen  E.  Clough 

The  Limited  Liability  Rule  is  only  suggested  for  cases  where 
coinsurance  or  average  conditions  appear  in  all  policies,  and  it 
has  been  in  constant  and  satisfactory  use  for  the  past  ten  years 
in  New  York  City,  where  essentially  all  policies  are  subject  to  the 
average  clause.  The  need  for  a  rule  which  under  all  conditions  for 
which  it  is  intended  will  give  substantial  justice  to  the  assured 
and  the  insurance  companies  is  commonly  admitted. 

This  rule  follows  the  theory  of  the  English  rule  of  apportion- 
ment on  the  independent  liability  principle,  which  is  explained  at 
length  with  the  arguments  therefor  in  Welford  &  Otter-Barry's  Fire 
Insurance,  chapter  on  Contribution  and  Average  (pps.  339-349  and 
353,  para.  2). 

Limit  of  Liabtuty  Rui,e: 

For  application  to  compound  nonconcurrent  apportionment, 
i,  e.,  where  there  are  involved  in  the  loss  at  least  two  kinds  of 
specific  as  well  as  blanket  insurance,  all  subject  to  average  or  co- 
insurance conditions. 

The  sound  value  of  and  loss  on  property  insured  by  each  class 
or  kind  of  insurance  having  been  determined,  tirst_find  the  limit 
of  liability  under  each  class  or  kind  of  insurance,  whether  a  single 

554 


Compound  Non-Concurrent  Insurance 

policy,  or  group  covering  concurrently.  An  average  or  ^coinsur- 
ance clause  operation  will  determine  the  limit  of  the  class  or  kind  of 
insurance  where  it  applies;  where  there  is  sufficient  insurance  to 
value,  or  loss  exceeds  amount  of  insurance  required  -tinder  coinsur- 
ance clause,  the  limit  will  be  determined  either  by  the  amount  of  the 
loss  or  the  amount  of  the  insurance,  whichever  is  the  smaller.® 

The  sum  of  the  limits  thus  determined  is  the  whole  insurance 
applying.  If  this  sum  is  in  excess  of  the  whole  adjusted  loss, 
use  this  as  the  basis  for  a  pro  rata  apportionment.  If  the  sum 
of  the  limits  of  Hability  is  less  than  the  whole  loss  it  is  evident 
that  payment  by  each  company  must  be  its  maximum  individual 
limit  of  liability,  on  the  principle  that  the  greatest  possible  collectible 
loss  is  due  the  assured. 

If  it  should  happen  that  the  insurance  (blanket  and  specific) 
on  any  certain  ^roup  of  items  is  charged  with  a  payment  in  excess 
of  the  actual  loss  on  the  group,  it  is  obvious  that  this  excess  over 
the  actual  loss  must  be  reapportioned  to  the  other  insurance.  De- 
duct the  excess  pro  rata  from  one  group,  and  add  it  pro  rata  to  the 
other  insurance.  If  this  should  result  in  charging  any  group  of  in- 
surance with  more  than  its  limit  of  liability,  the  excess  above  the 
limit  would  have  to  be  apportioned  a  third  time  to  any  groups 
having  unexhausted  limits  of  liability. 

It  is  claimed  that  when  coinsurance  conditions  appear  in  all  y 
policies,  the  contribution  clause  in  the  policy  "This  company  shall 
not  be  liable  under  this  policy  for  a  greater  proportion  of  any  loss 
on  the  described  property  *  *  *  than  the  amount  hereby  in- 
sured shall  bear  to  the  whole  insurance  *  *  *  covering  such 
property"  should  not  be  read,  as  it  seems  to  be  so  commonly,  by 
adjusters,  as  if  it  stood  alone  and  not  modified  by  "and  the  extent 
of  the  application  of  the  insurance  under  this  policy  or  of  the  con- 
tribution to  be  made  by  this  company  in  case  of  loss,  may  be^ 
provided  for  by  agreement  or  conditions  written  hereon  or  attached 
or  appended  hereto"  (lines  96-100  policy  of  1886)  and  as  provided 
by  (lines  72-77  and  101-105)  1917  policy;  "Added  clauses,— The 
extent  of  the  appUcation  of  insurance  under  this  policy  and.  of 
contribution  to  be  made  by  this  company  in  case  of  loss  or  damage 
*  *  *  may  be  provided  by  agreement  in  writing  added  hereto" ; 
"Pro  rata  liability, — This  company  shall  not.  be  liable  for  a  greater 
proportion  of  any  loss  or  damage  than  the  amount  hereby  insured 
shall  bear  to  the  whole  insurance  covering  the  property,  etc." 

555 


The  cover  of  all  policies  is  only  "to  an  amount  not  exceeding" 
and  it  is  suggested  that  if  by  terms  of  agreement  or  conditions 
written  into  the  policy  it  actually  covers  or  is  liable  for  a  less 
amount  than  its  face,  such  reduced  amount  is  really  the  whole  in- 
surance, for  the  application  of  the  contract  is  wholly  dependent  on 
''at  the  time  of  the  loss  or  damage,"  not  what  the  liability  might 
have  been  at  some  other  time  and  under  other  circumstances. 

It  is  argued  against  this  view  of  the  whole  insurance  that  the 
court  in  the  case  of  Farmers'  Feed  Company  vs.  Scottish  Union 
and  National  held  that  in  the  circumstances  of  that  case  the  face 
of  the  policies  was  the  whole  insurance,  but  the  Farmers'  Feed 
Company  case  is  distinguishable  from  the  fact  that  a  part  of  the 
insurance  did  not  contain  the  coinsurance  clause,  although  other- 
wise concurrent.  The  Scottish  Union  and  National,  whose  policy 
did  not  contain  the  coinsurance  clause,  sought  to  enforce  contribu- 
tion from  the__other  companip'=;  pnd  it  w;^s  held  to  rip^htlv  rely 
upon  the  general  rnntphntinn  r]an<;p  The  court  upheld  the  validity 
oFthe  general  contribution  clause  for  the  company  which  had  not 
varied  its  cover  by  an  additional  agreement  and  also  upheld  the 
lower  payment  by  the  insurance  which  had  limited  its  liability  by 
attachment  of  the  80  percent  coinsurance  clause. 

It  is  on  the  theory  that  the  contribution  clause  is  specific 
authoritv  for  the  ii';^  nf  the  coinsurance  clause  that  the  New  York 
courts^ave  recently  decided  that  the  coinsurance  clause  Is  valid. 
'C^Idrich  vs.  Great  American  Insurance^ompany,"^  C.  Ap.  Div. 
N.  Y.).  This  coinsurance  clause  expressly  stipulates  that  the 
company  shall  be  liable  for  no  greater  proportion  than'  the  amount 
insured  bears  to  ....  percent  of  the  actual  cash  value  of  the  prop- 
erty described;  other  forms  add,  nor  for  more  than  the  proportion 
which  the  policy  bears  to  the  total  insurance  thereon.  The  infer- 
ence is  of  course  that  the  company  is  liable  for  whichever  shall 
prove  to  be  the  lesser  of  these  two  amounts.  Now,  if  through 
this  coinsurance  clause  the  liability  of  a  policy  is  less  than  its 
face  and  this  is  true  with  reference  to  other  policies  on  the  risk,  if 
it  is  further  true  that  the  loss  is  less  than  the  coinsurance  limit  of 
liability  or  if  it  is  true  that  the  insurance  is  less  than  the  loss,  do  not 
the  conditions  of  the  policies  limit  their  liability  in  accordance  with 
the  facts  as  above  mentioned? 

Therefore,  is  it  not  proper  in  accordance  with  the  conditions 
in  any  case,  where  all  policies  are  subject  to  the  coinsurance  and 
there  is  compound  non-concurrence,  to  use  the  coinsurance  limit  of 

556 


Compound  Non-Concurrent  Insurance 

liability,  the  loss  or  the  face  of  the  insurance,  under  the  conditions 
above  named,  as  the  component  parts  of  the  total  limit  of  liability 
under  all  the  insurance.  Surely,  the  limits  so  arrived  at  are  the. 
maximum  amount  which  the  assured  could  collect"  They  give  him 
th^  most  tavorable  construction  of  his  insurance  contracts.  This 
method  of  apportionment  has  been  twice  supported  in  New  York  by 
judicial  construction,  in  the  City  Court  of  New  York  (Cosmo- 
politan Bank  vs.  Vulcan  Insurance  Company)  and  in  Buse  vs. 
the  National  Ben-Franklin  (Insurance  Law  Journal,  Vol.  48,  p. 
404). 

This  rule  is  based  on  three  principles : 

1.  "The  limit  of  liability  expressly  agreed  to  in  the  coinsurance 
(average)  clause; 

2.  The  liability  does  not  exceed  the  loss; 

3.  The  liability  can  not  exceed  the  face  of  the  policy. 

The  aggregate  limits  may  be  determined  by  any  one  or  more  of 
the  above  principles  as  they  may  be  applicable  in  accordance  with 
the  facts,  as  stated  in  the  rule. 

The  independent  limits  of  each  policy,  or  of  insurance  if  cer- 
tain of  the  policies  are  concurrent,  become  component  parts  of  the 
whole  limit  of  liabilities  (sum  of  the  limits)  of  all  of  the  insurance. 
These  are  then  subject  to  the  pro  rata  clause. 

Critics  say  that,  admitting  the  propriety  of  pro  rata  apportion- 
ment on  the  coinsurance  limits  of  liability  when  the  coinsurance 
is  operative  as  to  all  policies,  they  hesitate  to  accept  limits  set  by 
this  rule  (when  the  coinsurance  clause  is  not  operative)  by  the 
amount  of  the  loss  or  amount  of  the  insurance.  This  feature  is 
touched  on  above.  It  is  not  feasible  to  add  to  the  policy  conditions 
sufficiently  to  make  them  apply  in  all  conceivable,  and  often  seem- 
ingly inconceivable,  variations  of  non-concurrencies  which  result 
from  careless  or  incompetent  policy  form  writers.  The  courts  prop- 
erly insi'^t  tjnat  tV^e  assured  must  be  protected  to  the  utmost  allowed 
hyjllp  pnliry  rnntrnrls  and  that  ambiguities  in  them  must  be  resolved 
in  his  favor;  if  the  insurance  companies  are  not  asked  to  pay  more 
than  their  pro  rata  shares  of  their  individual  liabilities  they  should 
not  complain.  It  is  not  the  perfect  rule  which  will  equitably  resolve 
all  compound  non-concurrencies,  but  within  the  limited  scope  sug- 
gested, where  coinsurance  conditions  are  present  in  all  policies  it 
is  the  nearest  approach  to  the  philosopher's  stone  sought,  but  only  to 
transmute  elements  it  is  suited  to ;    for  these  it  is  an  easily  un- 

557 


The  Fire  Insurance  Contract 


\ 


stood  and  worked  rule.  After  being  tested  in  some  hundreds  of 
cases  its  use  is  recommended  as  yielding  substantial  justice  and  it 
always  meets  the  consistent  mandate  of  all  courts,  that  the  assured 
should  have  his  insurance  so  applied  as  to  give  him  the  largest  re- 
covery possible  under  the  terms  and  conditions  of  his  policies.  Note 
the  equity  of  this  rule  in  its  application  to  the  example  cited  on  p. 
549,  Chap.  26.  If  all  policies  are  subject  to  100  percent  or  any 
other  average  (coinsurance)  clause,  each  $10,000  policy  pays  the 
same  amount  as  in  equity  it  should. 

The  following  cases  are  taken  from  practical  applications  of  this 
rule: 
(1) 


Military  Goods) 
Umbrellas  and  ) 
Leather  Goods) 

) 

Merchandise  ) 
other  than  ) 

above  ) 


Fixtures 


Value 
$2100. 

1150. 
300. 


Loss 

$1625. 

925. 


Insurance 

80% 
$3000.  A 


$1000.     B 
100% 


3000  X  1625. 
80%  2100  =  1680 

80%     300  = 

100%  3550  ^  3550 


300  X 

100. 

240 

1000  X 

(^50^) 

100.  300.  c: 

Limits  and  Payments. 

$1625.     A— Limit   fixed  by  loss 


100.     C— Limit  fixed  by  loss 


=      746.47     B- 


-Limit   fixed  by  avg. 
clause 


Assured 


(2) 


$2471.47  , 
178.53  V 

$2650,00 


A — I^olicie 


s  cover  pro  rata- 


$1000. 

1500. 

500. 


specific  on  horses  with  limitation 
as  to  value  on  each  of  $150. 
specific  on  v^agons  with  value  of 
each  limited  to  $150. 
blanketing,  carriage's,  wagons  and 
harness. 

B — Policy  covers  blanket  on"  horses,  carriages  and  wagons  with  value 
of  each  horse  limited  to  $250. 

C — Policy  cover  $2000.  specific  on  horses  not  limited  as  to  value  and 
1000.  blanket  on  carriages  and  wagons. 


Value  Loss                    Insurance 

Harness                          $  485.  $175.00 

Carriages                         3250.  350.00 

Wagons                             400.  75.00 

Horses                           °2400.  *300.00   AC  3000. 

"12  horses  @  $200.  each. 

*$200.  on  1  horse.    $50.  each  on  two  others. 


) 

)$1000.)  )$500. 

A  $1500.)     C     )$1000.)  A 
)  B 


558 


Compound  Non-Concurrent  Insurance 

Limits  and  Companies  Pay 

On  Wagons— the  limit  is  the  loss  $  75.00 

On  Horses  — the  limit  is  the  loss 

Limit  fixed  by  average  clause — 

On  carriages  and  wagons 

On  carriages,  wagons  and  horses 

On  harne-ss,  carriages,  wagons 


Assured  contributes 

$900.00 
*A  policies  pay  one-third  of  $250.  on  account  of  limit  of  $150  on 

each  horse. 
*C  policy  pays   two-thirds  of  $300.   there  being  no   limit  on  each 

horse. 

A  $3000.  $249.02 

B  1000.  149.79 

C  3000.  345.55 


5S 

$1000.  X  $425.00 

2920. 

1000.  X  725.00 

2^333* 

145.55 

149.79 

4840. 
500.  X  600.00 

90.69 

3308. 

$744.36 
155.61 

$7000.  $744.36 

Assured  contributes  155.64 


$900.00 

If  the  persons  responsible  for  placing  this  set  of  policies  had  been 
trying  to  present  a  trick  problem  in  apportionment  and  an  extreme  ex- 
ample of  failure  to  collect  the  loss  in  spite  of  adequate  total  insurance,  they 
could  not  have  done  better  than  in  this  case.  The  problem  would  be 
almost  impossible  of  solution  were  it  not  for  the  limit  of  liability  rule, 
the  application  of  which  is  easy  and  the  result  produced,  we  believe,  can- 
not be  challenged.  It  will  be  observed  that  each  of  the  five  groups  of 
insurance  is  charged  with  its  limit  of  liability  which  leaves  an  uncol- 
lectible loss  of  $155.64,  the  aggregate  liability  under  the  policies  being 
$744.36.  With  the  specific  items  on  wagons  and  horses  the  limit  of  lia- 
bility in  each  case  is  the  loss,  but  the  collection  on  horses  under  certain 
policies  is  on  the  basis  of  a  valuation  on  any  one  not  to  exceed  $150. 
With  the  blanket  items,  the  limit  of  liability  in  each  case  is  fixed  by  the 
operation  of  the  80%  average  clause. 

(3) 

A     Policies  cover  stock  of  woolens  out  of  safes. 
B     Policies  cover  general  stock  out  of  safes. 
C     Policies  cover  stock  in  safes. 

D     Policies  cover  blanket  on  stock  in  and  out  of  safes. 
All  subject  to  80%  average  clause. 

Sound  Value     Loss     Insurance 

Stock  of  woolens)out  $  4024.80     $2096.45  A  $1500.)  ) 

)of  )$10500.) 

Other  stock  ) safes  8809.24      4880.91  )      B     )$6500 

Stock-  in  safes  10012.60         729.34    C    4000.    .  )     D    " 

Stock  in  and  out  of  safes         $22846  64     $7706.70  ) 

559 


The  Fire  Insurance  Contract 


Companies 
Limits         Pay 
1500    X  2096.45   equals  $  976.66     $  680.61 


80%  of  $4024.80     =      3219.84 
B     There  being  sufficient  specific  insurance  to  corn- 
ply  with   average   clause   conditions   the   loss   is 
the  limit  6977.36      4862.32 

4000    X    729.34  equals       364.21        253.81 


80%  of  $10012.60     =     8010.08 

6500    X  7706.70  equals     2740.75       1909.9o 


80%  of  $22846.64     =     18277.31 


(4) 


$11058.98    $7706.70 


Sound  Value    Loss  Insurance 

Stock  $72,000.      $500.(20,000  subject  to     )  ) 

(  80%  average)  15.000—  80%) 

(18,500  do.  100%       )  19,500—100%)) 

Equipment        6,000.         250.     5,000  subject  to     )  )     $750. 

100%  )  ) 


$78,000.      $750.  43,500  34,500  $750. 

With  each  of  the  five  classes  of  insurance  involved  the  limit 
of  liability  is  fixed  by  the  operation  of  the  average     (coinsurance) 
clause. 
(5) 

In  the  following  example  the  policies  of  assured  are  seriously 
non-concurrent,  seven  different  forms  being  in  use  besides  specific 
insurance  on  horses.  The  cover  of  the  policies,  however,  may  be 
reduced  to  six  variations  besides  the  specific  horse  insurance,  the 
statement  of  which  is  as  follows : 


Value 

Loss                Insurance 

Harness  and   Parts 

$    782.60        : 

$  449.60   )F      )         )         ) 

Hay   and   Feed 

3481.12 

3481.12  )1250)E     )C''    ) 

Blankets  and  Coat 

113.00 

113.00  )         )3685)1940) 

Stable  Tools 

212.30 

192.55  )         )D*   )B      )A 

Other  Tools  and  Machinery    2757.00 

1395.76             )  650)  650)3120 

Vehicles 

3329.25 

2119.87                      )         ) 

Medicines 

150.00 

150.00                               ) 

Horses 

23000.00 

Nil                44900             ) 

Office   F.   and    F. 

553.76*° 

Nil       Covered  by  A,  D*  C° 

$34379.03 

$7901.90 

Value            Loss 

Property  covered  by  A. 

insurance  $3120. 

$34,379.03        $7901.90 

B. 

650. 

10,675.27          7751.90 

C. 

1940. 

11,229.03          7751.90 

D. 

650. 

7,899.78          5632.03 

E. 

3685. 

7,346.02          5632.03 

F. 

1250. 

4.589.02          4236.27 

Class  A.   policy   has   100%   average   clause:   others   have   80%   clause 

attached. 

560 


Compound  Non-Concurrent  Insurance 

• 

The  question  arises,  should  the  poHcies  carrying  the  80  percent 
average  clause,  not  exceeding  their  average  clause  limits,  make 
good  assured's  deficiency  under  the  insurance  carrying  the  100  per- 
cent average  clause?  The  principal  charge  under  such  a  procedure 
would  be  upon  the  D,  E  and  F  insurance  and  would  make  nearly  a 
total  loss  to  the  $1250.  of  F  insurance,  while  its  contribution  would 
otherwise  be  only  $694.06. 

By  no  one  of  the  commonly  used  rules  of  non-concurrent  ap- 
portionment can  the  assured  collect  their  full  loss  because  of  the 
small  amount  which  can  be  paid  under  the  average  clause  limit  of 
"A"  insurance. 

It  will  be  noted  that,  while  assured  had  a  large  amount  of  in- 
surance to  value  in  the  aggregate,  this  arises  mainly  from  the  fact 
that  on  a  horse  sound  value  of  $23,000  they  carried  $48,020.  insur- 
ance, all  specific  with  the  exception  of  one  policy  of  $3,120,  shown 
above  as  ** Insurance  A,"  while  on  the  remainder  of  their  property 
valued  at  $11,379.03,  there  was,  including  the  "A"  poHcy  of  $3,120, 
$11,295.  insurance. 

This  loss  was  settled  by  apportioning  pro  rata  on  limits  of 
liability,  with  the  exception  th^t  for  the  purpose  of  contribution 
with  other  insurance  "A"  insurance  of  $3,120  was  treated  as  if  it 
carried  the  80  percent  average  clause,  so  that  there  might  not  be  as- 
signed to  the  other  insurance  the  shortage  arising  from  the  fact  that 
it  carried  the  100  percent  clause,  and  then  the  actual  claim  on  "A'* 
was  for  its  real  limit  of  liability  under  its  100  percent  clause. 

(6) 

Sound  Value  Loss  Insurance 

Bldg.                        $34,860.  $14,624.            $17,000.    A)      D. 

Stock                           8,504.95  8,504.95            3,000.     B)$16,000.)       E. 

Mchy.                          19,287.72  8,050.                9,000.     C)              )$28,000. 

$62,652.67        $31,178.95        $73,000. 
90%  Coinsurance  on  A.  D.  &  E.  policies. 
80%  Coinsurance  on   B.   &  C-  policies. 

The  following  methods  of  apportionment  were  suggested  by 
various  persons,  and  we  show  below  the  results  under  them  with 
a  comparison  of  an  apportionment  under  the  limit  of  liability  rule, 
which  is  designated  (d)  in  this  case: 

APPORTIONMENT. 

(a) 

Building  Insures  Pays 

Specific  $17,000.00        $  7,533.57 

BM&S  (Blanket)  16.000.00  7,090.43 


561 


$33,000.00    $14,624.00 


1'he  Fire  Insurance  Contract 

Stock 

Specific  $3,000.00  653.07 

MCL6    (Blanket)  28,000.00  6.09.S.27 


$31,000.00        $  6,748.34 
BM&S 

Limit  of  Liability  under  90%  clause  $8,847.04 

Paid  on  Bldg.  7,090.43  $1,756.61 


$8,504.95 


Machinery 

Specific  $9,000.00  2,344.30 

M&S  $28,000.00 

Paid  Stock  6,095.27  21,904.73  5,705.70 


$30,904.73  $8,050.00 

The  insurance  being  $17,000  specific  on  building,  $3,000  specific 
on  stock,  $9,000  specific  on  machinery,  $16,000  blanket  building, 
machinery  and  stock,  and  $28,000  blanket  machinery  and  stock, 
using  the  full  amotmts  of  the  policies  as  contributing  insurance,  the 
limit  of  liability  under  the  90  percent  clause  on  the  blanket  building, 
machinery  and  stock  coverage  is  exhausted  before  being  apportioned 
to  the  stock  item.  Thereafter  an  arbitrary  method  is  used  by  de- 
ducting the  remainder  of  the  limited  liability  under  the  blanket  ma- 
chinery and  stock  coverage  (after  the  building  loss  is  paid)  from  the 
stock  loss  before  apportioning  the  stock  loss  to  the  specific  stock 
policies  and  the  blanket  machinery  and  stock  policies. 

It  seems  something  of  an  anornaly  to  use  the  full  amount  of 
the  policies  as  contributing  insurance  and  then  immediately  recog- 
nize that  the  blanket  insurance  is  not  for  the  full  amount  of  the  face 
of  the  policies,  but  only  for  its  limit  of  liability.  What  authority 
is  there  for  any  arbitrary  method  of  using  a  certain  policy  to  con- 
tribute first  to  one  part  of  a  loss  and  then  to  a  second,  when  both 
of  these  parts  are  equally  covered  imder  the  policy  and  the  order 
could  have  been  as  w^ell  reversed  in  the  application.  Why  first  ex- 
haust the  blanket  building  machinery  and  stock  insurance,  leaving 
nothing  to  pay  on  the  machinery  loss.  Paying  the  largest  loss  first 
is  merely  a  make-shift;  the  sequence  in  which  the  insurance  must 
be  appHed  might  probably  necessarily  be  changed  in  the  very  next 
loss  for  the  purpose  of  giving  the  assured  a  full  recovery. 

APPORTIONMENT, 
(b) 

Applying  blanket  available  insurance  to  greatest  loss,  as  per  Conn.  rule. 
Building — Loss  $14,624.  Insures  Pays 

Specific  Insurance— limit  90%  cl.  $  7,892.14         $  6,894.88 

Blanket  B.  M.  S.— limit  907ocl.  8,847.04  7,729.12 


Blanket  &  Spec.  Available  Ins.  $16,739.18        $14,624.00 

562 


Compound  Non-Concurrent  Insurance 

Stock— Loss  $8,504.95. 

Balance  of  blanket  insurance  to  apply  to  next 

greatest  loss  $  1,117.92         $      296.03 

Blanket  Ins.  machinery  and  stock  28,000.00  7,414.51 

Specific  Ins.  stock  3,000.00  794.41 


$32,117.92  $  8,504.93 
Machinery— Loss  $8,050. 

Balance  of  blanket  B.  M.  S.                                     $      821.89  $      217  59 

Balance  of  blanket  M&S                                          20,585.49  5,449.76 

Specific  Insurance                                                           9,000.00  2'382.65 


$30,407.38        $  8,050.00 

This  apportionment  uses  the  building  item  liniited  amount  of 
liability  under  the  90  percent  clause  as  contributing  insurance  for 
both  the  specific  building  insurance  and  the  blanket  machinery  and 
.stock  insurance,  the  remainder  of  the  blanket  building,  machinery 
and  stock  being  applied  to  the  stock  item  and  then  to  the  machinery 
item.  It  will  be  noted  that  as  to  the  stock  and  machinery  items  the 
full  amounts  of  the  policies  are  used  as  contributing  insurance,  and 
not  the  limited  liability  amounts  as  with  the  building  item. 

As  the  loss  is  not  in  excess  of  the  in.surance  on  building,  stock 
or  machinery,  what  equity  is  there  in  such  a  process  as  outlined 
above?    Or  of  coinsurance  limit  and  full  amounts  used  together? 

The  so-called  Connecticut  rule  receives  most  of  its  common 
acceptance  from  the  fact  that  it  was  supported  in  Schmaelzle  vs. 
London  &  Lancashire  (75  Conn.  397,  53  Atl.  863,  I.  L.  J.  XXXIII 
632)  by  the  Supreme  Court  of  Errors  of  Connecticut,  but  appar- 
ently without  the  fact  before  the  court  that  the  policies  were  subject 
to  the  coinsurance  clause,  which  is  said  to  have  been  operative  in 
that  case.  Had  this  fact  been  shown,  doubtless  the  verdict  would 
have  been  other  than  as  rendered  and  the  fallacy  in  this  rule,  when 
coinsurance  clauses  govern  policy  liability,  would  have  been  ex- 
posed. 

DISTRIBUTION. 


(c) 
Building 

Specific— 90%  limit 

Bldg.  Mchy    and  Stock — pro  rata  limit 

after 

Insures 

$  7,892.14 
6,833.60 

$14,725.74 

$  3,000.00 
11,588.47 

47.83 

Pays 

$  7.838.23 
6.785.77 

Stock 

Specific— 80%  limit 
Mchy.  and  Stock — pro  rata  limit 
Bldg.    Mchy.    and    Stock — Remainder 
bldg.  loss 

$14,624.00 

$  1,743.26 
6,733.90 

27.79 

$14,636.30 

$  8,504.95 

503 


The  Fire  Insurance  Contract 

Machinery 

Specific— 80%  limit  $  9,000.00        $  5,228.11 

Mchy.  and  Stock— Remainder  after  stock  loss     4,854.57  2,820.73 

Bldg.  Mchy.  and  Stock — Remainder  after  bldg. 

and   stock  loss  20.04  1.16 


$13,874.61        $  8,050.00 

This  apportionment  takes  into  consideration  the  fact  that  there 
is  more  than  the  necessary  amount  of  insurance  called  for  under  the 
coinsurance  clause,  and  that  in  the  case  of  blanket  building,  ma- 
chinery and  stock  policy,  its  limit  of  liability  is  its  pro  rata  amount 
of  the  total  insurance  and  not  the  proportion  of  the  loss  which 
policy  bears  to  90  percent  of  the  sound  value,  contending  that  the 
non-concurrencies  do  not  force  the  blanket  insurance  to  pay  more 
than  its  share  of  the  total  insurance,  unless  by  this  method  the  as- 
sured would  suffer  or  become  a  coinsurer,  in  which  case  the  90  per- 
cent limit  would  necessarily  be  used.  The  pro  rata  limits  are  also 
used  in  the  contribution  of  the  blanket,  machinery  and  stock  policy. 

It  is  contended  that  the  90  percent  limits  must  necessarily  be 
used  in  the  case  of  the  specific  poHcies,  because  the  other  insurance 
is  not  ascertainable,  but  that  the  specific  policies  receive  assistance 
and  the  blanket  policies  are  penalized  for  reason  of  the  blanket 
policies  being  compelled  to  contribute  to  each  item  upon  which 
they  cover.  / 

It  is  further  suggested  that  possibly,  in  view  of  the  fact  that  the 
pro  rata  limits  have  been  used,  these  limits  should  be  exhausted, 
and  that  both  the  blanket  building,  machinery  and  stock  and  ma- 
chinery and  stock  remainders  should  be  deducted  from  the  ma- 
chinery loss  before  calling  upon  the  specific  machinery  policies  to 
contribute. 

Unfortunately  this  apportionment  is  summarily  disposed  of 
through  the  fact  that  the  payment  required  from  the  "C"  specific 
insurance  on  machinery — $9,000 — is  mor^  than  its  limit  of  liability 
under  the  coinsurance  clause. 

The  computation  below  shows  the  apportionment  under  the 
limit  of  liability  rule  (d)  and  in  connection  therewith  the  amounts 
argued  as  payable  by  the  different  classes  of  insurance  under  appor- 
tionments which  we  have  designated  (a)  (b)  and  (c). 

564 


Compound  Non-Concurrent  Insurance 


Liability  Reappor- 

Limits         IstAppor.       tionment 

17000X14624=    7924.01  6022.78  6,909.52 


\ 


907o     34860.    =   31374 
B    Insurance  is  the  limit  3000.00  2280.19  2.048. 

9000  X    8050=   4695.35  3568.78  3.205.50 


80%     19287.72=15430.17 

16000X31178=   8847.06  6724.35  7,714.48 


D 


90%     62652.67=56287.41 
E    Loss  is  the  limit  16554.95        12582.85        11.301.45 


41021.37        31178.95        31.178.95 

It  is  apparent  that  while  the  aggregate  of  these  limits  is  more 
than  the  whole  loss  a  pro  rata  apportionment  on  these  limits  will  not 
assign  enough  to  the  A  and  D  to  pay  the  building  loss,  while  the  total 
assigned  to  B,  C  and  E  is  more  than  the  Stock  and  Machinery  losses 
combined.  This  situation  requires  the  operation  of  the  third  para- 
graph of  the  rule.  B,  C  and  E  are  assigned  $1,876.87  more  than  is 
needed  to  pay  the  Stock  and  Machinery  loss,  while  A  and  D  are  not 
assigned  enough  to  pay  the  building  loss.  Deducting  pro  rata  from 
B,  C  and  E,  and  adding  pro  rata  to  A  and  D  adjusts  thi»  difficulty, 
and  as  $27,792.67  of  value  has  $40,000  insurance  under  B,  C  and  E, 
while  building  valued  at  $34,860  has  available  insurance  under  A 
and  D  of  only  $33,000,  with  $30,974  needed  to  comply  with  the  90 
percent  coinsurance  conditions  there  would  be  but  little  left  from  D 
to  contribute  with  B,  C  and  E,  and  substantial  justice  seems  to  have 
been  done  to  all. 

Sound         Insur-  Limits  of 

Value  ance      Loss  Liability  Apportionments 

abed 

A.    34.860.    17,000  14,624.     7,924.01   7.533.57   6,894.88   7.838.23   6.909.52 
B     8,504.95   3.000   8,504.95   3,000.      653.07    794.41   1,743.26   2.048. 
C     19.287.72   9.000   8,050.     4,695.35   2.344.30   2,38'2.65   5.228.11   3.205.50 
D    62.652.67  16,000  31,178.95   8,847.06   8,847.04   8,242.74   6,814.72   7,714.48 
E    27,792.67  28.000  16.554.95  16.554.95  11.800.97  12.864.27   9,554.63  ll!301.45 


31,178.95  31,178.95  31,178.95  31.178.95 

CONCLUSIONS. 

There  is  common  ^orrppmpnt  \\^^\  fh^^^  is  need  for  the  establi^V.- 

mentof  some  regular  practice,  which  will  be  adhered  to  bv  all.  ir| 

apportionments — some  rule  or  rules  which  will  always  be  applied 

to  apportionment  of  non -concurrent  insurance  and  do  away  with 

565 

19 


/ 


The  Fire  Insurance  Contract 

the  hit  and  miss  methods  in  vogue.  Rules  which  will  consistently 
yield  the  greatest  payment  to  the  assured  which  the  conditions  of 
his  policy  will  allow  and  at  the  same  time  do  substantial  justice  to 
the  insurance  companies  which  need  protection  from  being  called 
upon  to  pay  under  one  rule  today  and  another  tomorrow,  depending 
largely  upon  the  predilections  of  the  particular  adjusters  handling 
each  case.  This  sort  of  apportionments  are  not  likely  to  yield  a 
general  average  protection  to  all  companies.  It  may  well  be  that 
to  one  company  will  fall  a  large  majority  of  larger  payments,  while 
another  company  fortunately  is  called  upon  for  the  smaller  amounts 
apportioned,  when  methods  of  apportionment  are  chosen  ^'by  favor." 

If  certain  rules  might  become  established  for  regular  use  the 
law  of  average,  on  which  insurance  depends,  would  be  allowed  to 
assert  itself  also  in  loss  payments  required  under  the  vast  number 
of  non-concurrent  insurance  loss  claims  and  thus  give  this  added 
protection  to  the  companies  which  they  fail  to  receive  at  present. 

It  is  therefore  suggested  that  three  rules  will  cover  all  non- 
current  cases^: 

For  simple  non-concurrencies,  the  Cromie  Rule ; 

For  compound  non-concurrencies,  when  policies  are  not  subject 
to  coinsurance  conditions,  the  Kinne  Rule;  when  coinsurance  con- 
ditions are  present  in  all  policies,  the  Limit  of  Liability  Rule. 

Experience  of  many  years  has  convinced  the  writer  that  con- 
sistent and  unfailing  use  of  these  three  rules  will  prove  to  any 
unprejudiced  adjuster  that  they  are  the  only  rules  needed  to  stab- 
ilize this  whole  subject,  pending  the  time  when  it  is  to  be  hoped 
that  all  policies  will  be  written  subject  to  coinsurance  conditions. 
When  this  form  of  policy  comes  our  business  will  be  put  on  a  more 
scientific  basis  than  it  now  is. 


566 


XXVll 

FOKMP]R  AND  PRESENT-DAY  METHODS  OF 
ADJUSTMENT 

Samuel  R.  Weed 

The  theme  of  this  address  was  chosen  for  me  or  else  1  would 
have  changed  its  form  and  described  the  subject  as  the  "difference 
in  ancient  and  modern  adjusting  practices."  When  I  was  a  boy 
going  about  the  streets  of  New  York,  there  used  to  be  a  foolish  sort 
of  conundrum  on  everybody's  lips  :  ''What  is  the  difference  between 
a  ride  in  an  East  Broadway  omnibus  and  a  Broadway  silk  hat?" 
The  answer  was  "$4.94/*'  the  ride  costing  6  cents  and  the  hat  $5.00. 
I  wish  it  were  possible  to  tell  you  the  difference  between  the  former 
methods  and  present  methods  of  adjustment  in  an  equally  conclu- 
sive way  in  which  the  answer  to  the  conundrum  was  given.  What 
I  shall  say  on  this  subject  applies  to  New  York  and  vicinity,  and  is 
not  intended  as  a  reflection  upon  the  present  methods  of  any  other 
locality. 

You  will  readily  believe  the  differences  are  radical  and  yet 
there  are  some  old  fogies  who  still  believe  that  the  changes  in  the 
last  thirty  (30)  years  in  various  underwriting  phases,  are  not  all 
improvements  upon  the  old  methods.  ''Ephraim  joined  to  his  idols" 
was  the  forerunner  of  those  old  fossils.  The  remark  that  the  changes 
in  underwriting  are  not  all  improvements  applies  I  presume  to  ad- 
justments but  after  making  due  allowance  for  present  imperfections, 
it  can  be  justly  said  that  the  methods  now  employed  have  met  with 
the  approval  of  every  company  concerned  and  brought  about  de- 
sirable results  which  were  literally  impossible  under  the  old  system. 
Yet  I  hear  often  there  are  no  more  ''adjustments"  but  only  "settle- 
ments." In  some  other  cities  our  plans  have  been  partially  followed, 
and  while  the  New  York  system  is  not  wholly  an  original  device, — it 
is  "cooperation"  nearly  perfected  and  the  fruit  of  experiments  more 
or  less  imperfect  tried  elsewhere. 

The  germ  of  the  present  New  York  systeni  was  really  born  in 
Cincinnati  where  a  corporation  was  formed  by  local  companies  for 
the  adjustment  of  losses,  under  the  name  of  the  Insurance  Adjust- 
ment Company  of  Cincinnati,  and  was  organized  in  April,  1875. 
The  idea  apparently  came  from  the  Secretary  of  the  Amazon  Insur- 
ance Company. 

567 


The  Fire  Insurance  Contract 

At  the  time  of  its  organization,  there  were  twenty-two  (22) 
stock  companies  and  five  (5)  mutuals,  doing  business  in  the  city 
of  Cincinnati,  most  of  them  now  on  the  retired  list.  Mr.  Bament 
writes  me  a  brief  account  of  it  and  says :  "The  old  adjustment  com- 
pany was  laid  to  rest  in  the  insurance  cemetery,  I  think,  in  the 
year  1886."  ^        .  -    .     • 

The  conditions  in  this  city  piior  to  1876  were  very  unsatisfac- 
tory both  to  companies  and  underwriters.  They  all  recognized  the 
evils  and  sought  to  remedy  them  by  individual  action.  There  was  no 
systematic  cooperation  in  handling  losses.  The  process  was  siip- 
plicity  itself.  Far  back  in  the  fifties  when  a  loss  was  reported  in 
this  city,  the  office  interested  would  send  an  outdoor  solicitor  or  in- 
spector to  take  a  look  at  the  damage  and  report  to  his  chief.  If  it 
was  an  important  loss  then  the  Secretary  or  President  would  inspect 
it.  When  several  of  thes6  officials  met  on  the  ground,  some  or  all 
of  them  would  usually  agree  on  some  individual  but  they  never 
named  an  adjuster  to  "take  exclusive  charge"  of  the  loss.  This  plan 
continued  with  some  variations  through  the  sixties  but  by  1872  some 
companies  organized  loss  departments,  growing  out  of  the  lessons  of 
the  Chicago  conflagration.  Cooperation  increased  but  it  was  never 
formally  adopted  by  all  offices.  Each  company  was  still  its  own  boss 
in  adjusting  losses  and  consequently  it  made  only  a  part  of  the  gen- 
eral management  of  each  office.  The  adjusters  employed  by  the 
companies  under  this  independent  "go  as  you  please"  plan,  some- 
times were  able  by  their  own  strength  to  obtain  more  cooperation 
than  in  former  years,  but  it  was  a  plant,  of  slow  growth  and  was  at- 
tended by  many  drawbacks.  There  is  no  doubt  according'  to  the 
gossip  of  the  period,  that  many  companies  were  deceived  by  the  men 
they  employed.  The  salvage  operations  at  that  date  offered  great 
opportunities  for  graft  and  there  was  a  general  suspicion  that  it  was 
extensively  practiced.  Then  about  1879,  private  parties  organized 
salvage  companies  for  handling  damaged  merchandise  whose  facili- 
ties and  expert  knowledge  in  reconditioning  such  goods  were  of 
great  service  and  value  to  the  companies.  '  While  recognizing  the 
possibility  that  the  companies  were  overcharged  and  sometimes 
cheated  in  achieving  results,  the  sufferers  were  not  discontented  and 
generally  well  satisfied  because  results  were  more  beneficial  than 
under  the  former  methods.  But  the  growth  of  the  evil  be- 
came more  and  more  a  burden  and  something  of  a  scandal.  The 
end  of  the  salvage  abuse  came  when  a  large  majority  of  the  com- 
panies took  the  matter  in  their  own  hands  and  organized  a  salvage 

568 


Former  and  Present-Day  Methods  of  Adjustment 

company  which  is  still  in  existence.  The  company  rented  a  ware- 
house— employed  their  own  experts  and  began  to  take  the  damaged 
goods  into  their  possession  at  the  request  of  the  companies  and  dis- 
pose of  it  on  business  principles  to  the  best  interest  of  the  under- 
writers. This  movement  was  all  in  the  line  of  cooperation.  In 
1901  the  New  York  Board  adopted  a  resolution  providing  for  the 
organization  of  a  committee  on  losses  and  adjustments.  Many 
doubts  were  expressed  regarding  its  feasibility  but  the  work  pro- 
ceeded with  the  general  cooperation  of  the  companies.  Rules  were 
adopted  by  the  Committee,  most  of  which  are  still  in  force.  The 
Committee  has  made  very  few  modifications  and  additions  to  the 
earlier  rules.  Under  this  authority,  the  Committee  were  and  are 
still  authorized  to  take  charge  of  all  losses  where  there  are  three  or 
more  companies 'interested  and  if  there  are  less  than  three  companies, 
the  Committee  may  still  take  charge  of  any  loss  at  the  request  of  any 
company  concerned.  The  Committee  has  a  list  of  approved  ad- 
justers who  are  elected  by  the  concurrent  vote  of  eight  members 
not  however  until  after  notice  of  application  has  been  sent  the  rounds 
of  all  the  companies  and  answers  as  to  honesty,  competency  and 
past  conduct  or  practices  requested.  After  their  election  the  secre- 
tary of  the  Committee  assigns  the  adjusters  on  each  loss — seldom 
less  than  two,  or  more  than  three.  The  adjusters  are  required  to 
keep  in  close  touch  with  the  secretary  and  no  contracts  are  given 
out  for  salvage,  legal  service  or  accountant  work  without  the  Secre- 
tary's consent.  The  office  is  well  organized  and  the  system  has  been 
found  in  practice  to  work  well.  The  adjusters  are  paid  through 
the  Committee  and  the  bills  must  be  approved  by  the  Secretary  or 
in  case  of  dispute,  submitted  to  the  entire  Committee  for  approval. 
The  earliest  eflPect  of  the  transfer  of  adjustments  to  the  Committee, 
was  to  reduce  the  expenses.  Many  a  company  found  in  compari- 
son with  old  style  bills  for  simple  adjustments  that  whereas  they 
formerly  paid  $25.00  for  a  common  place  adjustment,  their  Com- 
mittee bills  were  often  less  than  $2.50  and  in  some  instances  half  of 
that  sum.  The  salvage  operations  are  now  systemized  in  the  interest 
of  economy  and  better  still,  the  experience  of  salvage  experts  in  the 
appraisement  of  losses  tends  to  produce  the  most  satisfactory  results. 
The  second  efifect  was  the  cessation  of  all  suspicion  of  graft.  There 
may  have  been  criticism  in  particular  cases  but  the  instances  are 
very  rare  and  wherever  the  salvage  results  are  questioned,  the  ad- 
justers may  investigate  the  details.  This  matter  is  not  wholly  within 
the  cpntrol  of  the  adjusters  but  there  is  a  harmonious  relation  be- 

569 


The  Fire  Insurance  Contract 

tween  the  operation  of  the  Salvage  Company  and  the  Loss  Commit- 
tee which  opens  the  door  to  every  source  of  information  which  can 
throw  any  Hght  upon  the  loss  or  salvage.  The  Committee  has  passed 
upon  nearly  25,000  losses  since  its  organization  and  settlements  up 
to  the  first  of  this  year  are  $86,350,466  and  with  less  friction  and 
less  expense  than  was  ever  known  in  former  years.  (February, 
1915.) 

One  of  the  most  important  results  under  the  new  system  is  the 
accumulation  of  a  large  mass  of  historical  data  relative  to  fires  re- 
})orted  to  the  Committee  since  its  organization.  These  records  have 
grown  to  be  of  immense  size  and  occupy  most  of  the  wall  space  in 
our  offices.  They  contain  the  story  of  hundreds  of  suspicious  fires 
in  the  past  and  of  the  operations  of  public  adjusters  and  claimants. 
These  records  are  simply  invaluable  for  future  reference.  It  is  pos- 
sible now  to  keep  track  of  the  fire.s  which  are  reported  both  as  to 
location  and  name.  With  the  co-operation  of  companies  and  outside 
sources,  the  Loss  Committee  is  now  equipped  to  follow  up  all  sus- 
picious cases  and  especially  to  advise  the  companies  whether  prior 
losses  were  honest  and  legitimate.  The  extent  of  the  usefulness  of 
the  information  gathered  in  the  present  adjustment  method,  is  one 
of  the  most  important  features  in  the  whole  system.  Nothing  like 
it  in  the  old  system  existed  although  private  detectives  were  and  still 
are  paid  for  the  general  purpose  of  investigating  the  moral  hazard 
suspicions. 

Now  compare  this  system  with  the  crude  methods  of  the  fathers. 
In  the  early  fifties  it  happened  that  some  of  the  old  fashioned  local 
companies  employed  a  single  inspector  and  occasionally  one  solicitor 
who  worked  for  three  or  four  companies.  These  men  were  the  fore- 
runners of  the  present  brokers.  They  came  to  be  employed  for  all 
manner  of  outdoor  work  but  chiefly  inspecting  and  soliciting.  Some 
of  these  names  are  mentioned  and  among  them  we  occasionally  hear 
of  some  who  did  effective  service  in  adjustments  for  their  own 
office.  They  obtained  the  service  of  builders  on  building  losses,  and 
merchandise  experts  to  appraise  losses  on  stock  but  the  work  wa.s 
never  brought  to  the  conditions  now  employed.  Out  of  this  crude 
method  gradually  came  an  advanced  step  in  calling  the  interested 
companies  together  after  a  loss  and  appointing  a  Committee  to  ad- 
just it.  These  meetings  were  somewhat  a  result  of  the  Chicago  fire 
adjustments.  They  continued  for  many  years  and  even  up  to  the  time 
when  the  Loss  Committee  was  proposed.  They  were  seldom  unani- 
mous and  frequently  the  results  were  unsatisfactory  to  the  majority 

570 


Former  and  Present-Day  Methods  of  Adjustment 

of  those  interested.  The  Committee  usually  levied  an  assessm^iii 
for  their  own  services  and  if  there  were  any  proceeds  or  salvage  the 
Committee  deducted  the  amount  of  the  assessment  without  much 
ceremony.  Of  course  this  practice  led  to  considerable  criticism 
which  increased  when  the  position  taken  by  the  Committee  was  that 
it  was  their  right,  and  because  the  amounts  contributed  by  each  in- 
terested Company  were  small,  no  complaints  were  made.  Still  the 
suspicion  got  abroad  that  it  was  arbitrary  and  that  a  few  persons 
whose  names  appeared  too  often  as  adjusters  were  getting  rich  on 
the  spoils.  The  routine  of  this  crude  method  was  the  simplest  imag- 
inable. An  agency  became  somewhat  conspicuous  in  the  early  seven- 
ties for  managing  the  meetings  of  the  companies  upon  losses  on  the 
basis  of  a  political  caucus.  The  senior  partner  had  an  amiable  way 
of  calling  on  the  offices  before  the  hour  of  the  meeting  and  proposing 
himself  or  one  of  his  chums  as  chairman  and  as  the  inevitable  plaiv 
was  to  allow  the  chairman  to  nominate  the  Committee,  it  followed 
as  a  matter  of  course  that  the  favorites  were  chosen.  Nobody  ever 
openly  charged  that  there  was  any  graft  in  this  proceeding  but  it 
was  criticised  very  freely.  A  few  years  later  a  shrewd  gentleman 
with  a  suspicious  name  who  was  engaged  in  salvage  operations  as 
already  stated  is  said  to  have  retired  with  a  large  fortune  and  many 
underwriters  were  criticised  for  the  tenacity  with  which  they  adhered 
to  his  services  and  insisted  upon  his  assistance  in  settling  the  sim- 
plest losses.  I  have  a  personal  recollection  of  a  loss  on  a  neckwear 
factory  in  this  city,  in  1878,  where  the  only  salvage  was  a  few  pieces 
of  silk  in  a  corner  of  the  second  story.  It  cut  no  figure  in  an  other- 
wise conceded  total  loss.  The  value  of  the  silk  in  the  books  of  the 
tirm  was  about  $750.00  and  the  assured  had  no  objection  to  any 
appraisement  the  companies  desired  to  place  upon  it.  An  adjuster 
who  was  influential  appeared  on  the  scene  and  insisted  that  the  sal- 
vage man  should  be  allowed  to  take  the  remainder  of  the  silk  for 
$50.00  and  because  some  other  objected,  the  adjustment  was  hung 
up  for  three  weeks,  the  assured  having  meanwhile  advised  the  com- 
panies that  they  were  willing  to  accept  $50.00  to  expedite  the  settle- 
ment. It  was  a  matter  in  which  companies  had  practically  no  inter- 
est and  they  simply  awaited  events.  The  silk  was  finally  sold  for 
$100.00  to  the  salvage  man  who  put  it  through  reconditioning  process 
and  sold  it  at  auction  for  $500.00.  There  was  a  private  scandal 
about  it  but  it  never  came  to  anything  further.  This  case  is  referred 
to  now  as  a  specimen  of  the  lax  way  in  which  such  matters  were 
carried  on.  This  will  never  occur  again.  This  incident  is  forgotten 
by  nine-tenths  of  those  who  were  aware  of  it. 

571 


The  Fire  Insurance  Contract 

I  remember  being  called  to  Nashville,  Tenn.,  some  years  ago  to 
visit  a  local  agency.  On  my  arrival  at  the  Maxwell  House  I  w2ls 
surprised  to  meet  fifteen  or  twenty  special  agents  (many  of  whom 
I  knew  very  well)  and  whom  I  found  out  afterwards  were  engaged 
in  adjusting  a  loss  on  merchandise.  Late  in  the  same  afternoon,  I 
called  around  the  lobby  of  the  hotel  and  was  invited  to  a  room  where 
two-thirds  of  the  special  agents  were  engaged  in  a  very  interesting 
game  of  draw  poker.  I  was  invited  to  participate  but  respectfully 
declined  though  I  stayed  in  the  room  long  enough  to  see  that  their 
interest  in  the  game  was  very  great  and  the  stakes  considerable. 
In  the  evening  I  a^ked  one  of  them  why  they  were  not  engaged  in 
the  adjustment  in  the  day.  Then  I  learned  that  two  men  of  the 
whole  number  were  doing  the  work  while  the  others  were  engaged 
in  the  gentlemen's  game  before  mentioned.  I  happen  to  know  of  a 
similar  incident  in  the  city  of  New  York  where  a  number  of  special 
agents  from  companies  outside,  came  here  in  1880  to  assist  the  local 
representatives  in  adjusting  a  loss  and  spent  most  of  their  entire 
time  in  the  room  of  a  hotel  playing  the  game.  You  may  imagine 
that  this  was  not  in  accordance  with  sound  business  principles,  but 
it  was  the  old  way. 

In  1876  there  was  a  very  destructive  fire  in  this  city  involving 
insurance  on  buildings  and  contents  in  444  to  452  Broadway,  to  the 
amount  of  $3,418,099  which  was  finally  adjusted  for  $1,751,135. 
There  were  six  firms  burned  out.  and  the  companies  on  buildings 
each  carried  from  $100,000  down.  The  stock  lines  in  this  loss  aver- 
aged less  than  $5,000.  In  bringing  out  the  history  of  this  loss  I  have 
learned  that  twent3^-eight  adjusters  were  employed  in  this  settle- 
ment. I  haven't  the  least  doubt  that  in  our  day  six  adjusters  could 
have  handled  all  the  losses  to  better  advantage  (particularly  in  the 
salvage)  than  the  twenty-eight,  thirty-nine  years  ago. 

In  March,  1877,  the  famous  Bond  street  fire  occurred  in  an 
omnibus  building  Nos  1,  3  and  5.  It  was  occupied  largely  by  jewel- 
ers, watch  makers,  agents  and  the  Gorham  Manufacturing  Co.  The 
chief  values  were  contained  in  thirty-two  iron  safes  which  footed  up 
in  the  final  proof  at  $786,000  upon  which  there  was  an  insurance  of 
v$427,000  which  was  54  per  cent,  of  the  value.  The  loss  was  settled 
at  $267,298  or  about  62  per  cent,  which  throws  a  side  light  on  the 
value  of  the  80  per  cent,  clause  now  used.  It  is  stated  that  forty 
adjusters  and  appraisers  were  employed  in  the  settlement,  repre- 
senting ninety  companies  insuring  twenty-nine  firms  or  interests. 
But  at  the  present  time  five  adjusters  or  at  the  utmost  ten,  could 

572 


Former  and  Present-Day  Methods  of  ADjusxMENf 

have  settled  all  these  losses  much  quicker  and  with  more  satisfac- 
tion than  the  forty  who  were  used  in  1877.  The  history  of  this  loss 
and  the  settlement  reveals  that  there  was  unnecessary  friction  and 
useless  delay. 

In  January,  1878,  there  were  two  important  losses  within  a 
few  days  of  each  other.  The  first  was  on  the  northeast  corner  of 
Broadway  and  Grand  street,  occupied  by  Howard  Sanger  &  Co.. 
Naunberg,  Krause  &  Lauer  and  Edwin  Bates  &  Co.,  with  insurance 
on  building  and  contents  of  $2,130,000.  It  was  settled  for  $1,321,- 
973.  Each  firm's  insurance  was  separately  adjusted  and  twelve  ad- 
justers employed.  In  our  day,  three  men  have  handled  larger  losses 
with  equal  satisfaction  to  the  companies.  A  week  later  a  fire  oc- 
curred in  the  heart  of  the  dry  goods  district  on  Worth  and  Thomas 
streets,  within  a  few  doors  of  Church  street.  The  buildings  for  a 
half  block  were  damaged  more  or  less  and  three  vei-y  seriously.  The 
total  insurance  on  buildings  and  contents  was  $7,253,296.  On  this 
occasion  dry  goods  in  packages  proved  their  superiority  as  a  fire  risk 
over  millinery  and  fancy  goods.  The  final  adjustment  showed  a  loss 
to  the  companies  of  $1,976,734.  There  were  twenty- nine  separate 
interests  and  while  there  is  no  record  of  the  number  of  adjusters, 
a  careful  comparison  of  the  amounts  of  the  proofs  filed  shows  that 
at  least  twenty  were  employed  in  settling  the  loss.  An  official  who 
participated  in  the  loss  told  me  there  was  "a  small  army  of  them." 

These  are  examples  of  the  way  large  losses  were  adjusted.  The 
opportunity  for  differences  between  adjusters  and  owners  was  more 
conspicuous  in  the  small  losses  but  as  the  business  progressed  and 
the  companies  began  to  take  keener  interest  in  details  of  adjust- 
ments and  in  the  skill  and  ability  of  their  own  adjusters  it  began  to 
impress  itself  upon  the  ofificials  of  companies  that  there  was  room 
for  improvement  in  methods.  At  the  same  time  the  necessity  of 
closer  cooperation  was  more  and  more  apparent  and  many  com- 
panies organized  loss  departments  and  employed  competent  men  at 
their  head.  In  others  not  so  highly  organized,  certain  preferred  ad- 
justers were  employed  and  that  is  the  only  practice  which  has  con- 
tinued to  this  day.  It  took  a  long  time  to  root  out  the  practice  of 
levying  an  assessment  on  the  companies  or  deducting  it  from  the 
salvage.  The  companies  objected  to  this  system  and  although  it  died 
hard  it  was  killed  finally  early  in  the  eighties. 

The  appearance  of  public  adjusters  was  in  the  late  eighties  and 
forms  a  distinct  chapter  by  itself.  Some  of  these  men  were  reput- 
able and  some  otherwise.    One  of  the  pioneers  who  long  since  de- 

573 


The  Fire  Insurance  Contract 

parted  this  life,  obtained  considerable  credit  with  the  companies  as 
an  accountant  and  it  was  in  this  capacity  he  first  turned  up  in  adjust- 
ments. He  was  credited  with  serving  both  the  companies  and  the 
assured  ably  in  compromising  difficult  cases.  He  was  very  fair  to 
the  companies  and  no  doubt  promoted  an  era  of  good  will  which 
might  have  continued  longer  if  he  had  lived.  The  opportunity  for 
collecting  large  fees  for  assisting  the  assured  in  effecting  settle- 
ments offered  strong  temptations  to  others  less  scrupulous  and  in  a 
few  years  the  ranks  of  public  adjusters  were  swollen  to  unwieldy 
proportions.  The  scandal  began  when  these  men  got  their  jobs  by 
giving  the  assured  bad  advice.  The  Loss  Committee  took  cognizance 
of  this  evil  from  its  early  organization  but  it  was  powerless  to  pre- 
vent its  growth.  In  the  report  read  to  the  Board  in  1910,  the  follow- 
ing reference  to  the  public  adjusters  may  prove  interesting: 

"In   the   Metropolitan   District   there  are  about  twenty   firms — indi- 
viduals   or   partnerships — regularly    engaged    in    the    adjustment    of    fire 
claims  for  the  public,   employing  considerably  more  than   one  hundred 
persons  as  clerks,  solicitors,  inventory-takers,  etc.     A  few  of- these  con- 
cerns  confine   their  operations   to    Brookl3^n,   but   most   of   them    handle 
losses  throughout  the  territory  of  the  Exchange,  and  even  outside  of  it. 
Of  the  entire  number,  not  more  than  six  have  any  considerable  propor- 
tion  of  high   grade  people   among   their   clients.      Some   rarely   get   any 
hut  household  furniture  and  small  retail  stock  losses  to  handle. w  Except- 
ing the  small  losses  picked  up  by  night-hawk  solicitors — (and   not   ex- 
cepting all  of  them)  the  public  adjuster's  business  comes  to  him  almost 
wholly  through   arrangements  with   certain  brokers,  with   whom   he   di- 
vides  (for  the  most  part  equally)   the  commissions  he  receives  for  the 
adjustments.    Ordinarily  the  insured  is  ignorant  of  this  arrangement,  and 
the   majority   would   be    greatly   astonished    to   know    that    the   broker's 
motive  in  sending  such  losses  to  a  particular  adjuster  is  mainly  or  wholly 
mercenary.     Occasionally  a  public  adjuster  whose  general   run  of  busi- 
ness is  notoriously  bad  forms  a  partial   alliance  with  a   few  brokers   of 
high  repute,  and,  as  these  brokers  ought  not  to  be  ignorant  of  the  man's 
record,  it  is  a   natural  inference  that   extra   ir.duccmerils  have  been   of- 
fered them  in  such  cases.    These  standing  arrangements  with  brokers  arc 
at  the  bottom  of  much  of  the  evil  in  the  business.     On  the  one  hand,  a 
public   adjuster   cannot   well    refuse   to   handle   a   claim    coming   to    him 
through    a   regular    broker-ally,    even   if   the    fire    looks    "queer"    or    the 
claimant  has  eccentric  ideas  as  to  the  making  up  of  a  claim.     On   the 
other  hand,  the  reduction  of  net  income  entailed  by  the  double  necessity 
of  meeting  competitive  offers  from  rivals  and  giving  away  half  the  price 
at  which  the  adjustment  is  finally  secured,  forces   himself  to  adopt  a'l 
kinds  of  devices  and  practices  to  get  his  original  contract  price  increased. 
Often,  when  he  thinks  the  claimant  will   not   object,  he  intimates   that 
money  may  be  useful  to  quiet,  the  doubts  of  the  company's  adjuster,  or 
to  facilitate  the  passage  of  the  proofs  of  loss  through   some  company's 
Loss  Department.     Sometimes,  he  merely  exaggerates  the  difficulties  he 
has  encountered,  and  the  value  of  the  additional  and  unforeseen  services 
required  of  him.  ^  Sometimes  he  makes  a  new  arrangement  for  an  addi- 
tional  compensation   conditional    upon    the   collection    of   an    amount   in 
excess  of  the  minimum  sum  which  his  client  ^ould  accept  as  satisfac- 
tory.    But,  whatever  the  method  followed,  he  is  constantly  on  the  alert 
to   increase    his    compensation    above    the    agreed    figure,    and    this    is    a 
condition  which  obstructs   an   honest  handling  of  losses.     Many  public 
adjusters  freely  declare  that  they  could  not  continue  in  business  if  they 

574 


Former  and  Present-Day  Methods  of  Adjustment 

were  in  all  cases  limited  to  the  commission  originally  agreed  upon.  That 
commission  itself,  while  supposed  to  be  ordinarily  in  the  neighborhood 
of  5  per  cent.,  is  sometimes  1  per  cent,  or  even  less;  sometimes  10  per 
cent,  or  even  more,  according  to  the  exigencies  of  the  case,  the  character 
of  the  competition,  the  ignorance  of  the  insured,  etc. 

Not  all  of  the  fraudulent  tricks  used  in  such  adjustments  arc  known 
at  the  time  to  the  head  of  the  public  adjusting  firm.  Sometimes  an  in- 
ventory-taker persuades  a  claimant  that  great  things  can  be  done  by 
bribing  a  Patrol  watchman  to  allow  the  appearance  of  damage  to  be 
increased.  If  he  gets  money  for  this  purpose,  he  will  pretty  surely  keep 
part — or  all — of  it  himself,  even  if  he  succeeds  in  carrying  out  the  ex- 
pressed object  of  the  deal. 

The  Committee  has  from  the  beginning  done  what  it  could  by  it<i 
conduct  of  each  separate  adjustment  to  penalize,  directly  and  indirectly, 
the  mishandling  of  claims  for  claimants.  One  public  adjusting  firm 
retired  from  business  after  the  finding  of  an  indictment  against  one  of 
its  members  for  the  submission  of  false  proofs  of  loss.  In  each  of 
two  separate  cases  it  has  cost  a  prominent  public  adjuster  (not  the  same 
one)  nearly  or  quite  $15,000  because  his  name  was  identified  with 
wrongful  transactions  in  connection  with  a  loss  or  loss  adjustment  in 
which  this  Committee  was  interested.  In  very  many  cases  public  ad- 
justers have  withdrawn  from  adjustments  because  unwilling  to  incur  the 
Committee's  disapproval  of  remaining  in  them  longer — in  one  case  after 
first  discharging  an  employee  shown  to  have  been  guilty  of  fraud  and 
misconduct.  In  this  way,  without  the  exercise  of  an  oppression  or 
abuse  of  authority  by  the  Committee,  a  very  general  wariness  as  to 
wrong  doing  in  adjustments  has  been  created,  to  the  advantage  of  un- 
derwriters and  the  public  at  large.  It  is  doubtful,  for  example,  if  any 
public  adjuster  in  New  York  would  have  had  the  courage  to  "stand  for" 
the  gross  overstatement  of  values  submitted  in  connection  with  an  im- 
portant Committee  adjustment  during  the  past  year  by  a  well-known 
broker.  Doubtless  the  known  preservation  of  full  records  of  the  Com- 
mittee's adjustments,  with  their  eloquent  memoranda  of  all  kinds  of  mis- 
behavior, has  had  an  important  influence  in  bringing  about  an  improve- 
ment. Many  of  the  lower  grade  of  public  adjusters  seldom  have  a 
"Committee  loss"  to  adjust,  and  others  of  them  are  being  taught  to  avoid 
that  class  of  business,  or  to  handle  it  with  great  caution." 

It  has  been  publicly  charged  for  a  great  many  years  that  ad- 
justers have  been  hard-hearted,  grasping  and  insistent  upon*  the 
companies  obtaining  settlements  to  which  they  were  not  entitled. 
This  general  statement  has  been  accepted  as  true  by  a  large  number 
of  people  and  the  moment  the  good  faith  of  an  adjuster  is  men- 
tioned, it  is  met  by  denials.  I  am  reminded  of  a  conversation  with 
a  gentleman,  whom  I  knew  when  I  was  in  the  business  in  the  West, 
and  who  has  gone  to  his  fathers  long  since.  He  had  been  secretary 
of  a  local  company  which  retired  from  business,  and  took  up  adjust- 
ing. In  a  conversation  with  him  about  one  year  after  he  had  entered 
this  business,  he  stated  to  me  that  he  had  always  heard  that  adjusters 
were  sharks  and  tricksters  and  when  he  entered  his  career  as  an 
adjuster,  he  thought  he  would  try  to  do  something  to  avoid  such  a 
reputation.  After  one  year's  experience  he  had  come  to  the  con- 
clusion that  for  a  man  to  do  justice  to  the  companies  and  the  as- 
sured, he  was  bound  to  get  the  reputation  of  bein^^  tricky  to  the  as- 

575 


The  Fire  Insurance  Contract 

sured  or  over  zealous  for  his  company.  He  said  that  in  his  younger 
days  when  he  went  to  Sunday  School'  he  was  very  much  impressed 
by  the  story  of  Moses  and  Pharaoh  and  particularly  struck  by  a  sen- 
tence which  appeared  in  the  account  in  which  it  said  that  "The 
Lord  hardened  Pharaoh's  heart."  That  puzzled  him  very  much  in 
his  younger  days  but  he  said  now  he  was  able  to  explain  it.  The 
Lord  made  Pharaoh  an  adjuster  to  the  Israelties  and  the  harden- 
ing of  the  heart  came  soon  after. 

I  leave  you  to  make  the  application  to  present  conditions. 
Up  to  the  year  1871  no  such  organization  for  the  adjustment 
of  actual  losses  had  ever  occurred  as  appeared  in  the  adjustment 
of  the  Chicago  conflagration  loss.  In  that  case  the  adjusters  en- 
gaged a  hall  and  instituted  a  sort  of  clearing  house  system  by  which 
claimants  were  to  present  their  claims  to  the  adjusters  representing 
the  companies  and  then  the  matter  was  taken  up  and  each  loss  set- 
tled on  what  seemed  to  be  its  merits.  There  was  some  friction  and 
some  delays  but  generally  the  losses  were  settled  promptly.  The 
usual  experience  of  claimants  taking  not  only  the  last  pound  of 
flesh  but  several  more  pounds  in  addition,  was  developed  in  this 
long  settlement.  It  is  not  surprising  that  when  the  losses  were  all 
settled  the  adjusters  held  a  sort  of  jollification  meeting  and  agreed 
among  themselves  to  provide  gold  badges  in  honor  of  their  services 
in  this  adjustment.  When  the  question  came  of  a  suitable  inscrip- 
tion on  the  badge  it  was  finally  agreed  that  it  should  be  ''SOC-ET- 
TU-UM"  and  these  badges  are  held  in  very  great  esteem  by  those 
that  have  succeeded  in  the  work  of  the  Chicago  adjusters.  This 
has  nothing'  to  do  with  ancient  or  modern  practices  but  it  has  a  great 
deal  to  do  with  the  human  nature  which  was  the  same  in  1871  as 
it  is  in  1915.  Notwithstanding  all  the  criticisms  over  the  Chicago 
adjustments  I  have  never  heard  of  a  single  instance  where  the  integ- 
rity of  the  adjusters  was  in  question. 

The  mention  of  the  Chicago  conflagration  adjustment  reminds 
me  of  San  Francisco  in  1906.  I  was  in  that  city  a  few  months  after 
the  great  conflagration  and  many  of  the  adjustments  were  still  in- 
complete. I  heard  all  kinds  of  stories  about  the  experience  of  adjust- 
ers. I  made  up  my  mind  however,  that  there  was  not  much  chance 
of"  the  motto  of  "SOC-ET-TU-UM"  ever  being  used  on  the  San 
Francisco  badges.  I  cannot  resist  the  temptation  to  mention  one  in- 
stance to  illustrate  the  leniency  of  the  San  Francisco  adjuster. 

It  is  related  that  one  day  a  Chinaman  entv^^red  the  room  where 
the  adjusters  were  all  stationed  at  separate  tables  and  presented  a 

576 


Former  and  Present-Day  Methods  of  Adjustment 

policy  so  that  the  doorkeeper  directed  him  to  the  adjuster  represen- 
tative. When  he  came  to  the  laiter,  the  Chinaman  held  up  his  policy 
and  the  adjuster  supposed  that  he  came  to  claim  a  loss  and  began 
to  talk  about  *^six  bits,"  meaning  75  cents  on  the  dollar.  The 
Chinaman  answered  "How  much  money  ?"  which  was  almost  the 
extent  of  his  English  on  the  occasion.  The  adjuster  took  the  policy 
and  found  that  it  was  upon  a  store  and  fixtures  located  in  the  burnt 
district  and  from  general  observation  he  was  satisfied  that  there 
was  no  salvage  in  sight  so  he  figured  out  how  much  loss  he  was 
willing  to  allow  on  the  policy  at  75  cents  on  the  dollar.  When  he 
mentioned  the  sum  to  the  Chinaman  he  said  "Allee  samee  Melican 
man"?  The  adjuster  assured  him  that  those  were  the  terms  on 
which  they  settled  all  American  losses.  "Allee  Rightee"  and  be- 
fore he  left  the  room,  the  Chinaman  had  the  draft  in  his  posses- 
sion and  the  company  had  taken  a  receipt  and  a  proof  which  was 
witnessed  by  another  adjuster. 

You  may  imagine  the  chagrin  of  this  easy  going  adjuster  when 
he  learned  three  days  after  that  there  was  no  property  in  the  store 
and  that  the  Chinaman  had  come  to  the  office  to  cancel  his  policy 
and  get  a  return  premium.  He  had  been  advised  to  do  this  by  a 
broker  but  the  prospects  of  collecting  75  cents  on  the  dollar  was 
evidently  too  much  a  temptation  for  the  Chinaman  and  he  prob- 
ably, left  well  satisfied  over  his  success. 

There  was  not  much  of  the  "SOC-ET-TO-UM"  practice  on 
this  occasion  save  as  to  the  company  concerned.  I  cannot  vouch 
for  the  truth  of  this  story  but  it  was  repeated  to  me  so  many  times 
I  had  to  accept  it  as  probably  if  not  literally  true. 

At  the  present  time  there  is  a  marked  improvement  in  the 
conditions.  Public  adjusters  have  been  charged  with  complicity 
witlLjhe  work  of  an  incendiary  and  one  of  the  most  brazen  of  the 
lot  (who  had  the  audacity  to  hire  an  office  in  the  Underwriters 
Building)  has  been  convicted  of  fraud  and  sent  to  the  State  Prison. 
Others_bave  ceased  their  tricks  and  some  who  are  under  suspicion 
have  repented  and  reformed.  The  State  Insurance  Department 
has  obtained  legislation  requiring  them  to  secure  licenses  and  borne 
down  heavily  upon  the  doubtful  ones  and  insisted  on  explicit  an- 
swers to  soul-racking  questions  being  given  for  information  to  the 
Department.  In  some  cases  the  Department  has  withheld  the  license 
to  applicants  and  I  think  refused  several  of  them.  The  result  has 
been  to  lessen  the  evil  which  is  another  evidence  of  the  difl^erence  in 

577 


The  Fire  Insurance  Contract 

present  and  former  methods  of  adjustment.  I  might  probably  add 
• — in  the  quaUtiy  of  the  public  adjusters  too. 

I  cannot  forbear  saying  that  the  companies  are  well  satisfied 
with  the  changes  in  adjusting  within  the  last  twelve  years.  There 
is  a  wide  open  chance  for  a  larger  use  of  the  moral  hazard  infor- 
mation in  the  hands  of  the  Loss  Committee  and  the  knowledge 
gained  by  adjusters  in  tracing  the  origin  of  fires  is  materially  as- 
sisted by  the  information  taken  from  the  files  of  losses  now  in  our 
possession.  Neither  the  National  Board  nor  any  private  agency  can 
ever  hope  to  gather  a  tithe  of  the  data  equal  in  value  to  that  now  in 
our  hands. 

Whether  the  old  methods  should  be  preferred  to  the  new 
methods  of  adjustment  must  be  judged  by  the  fact  that  nobody  has 
ever  proposed  to  exchange  the  new  for  return  of  the  old.  "By  their 
fruits  ye  shall  know  them"  was  given  as  sound  advice  1900  years 
ago  and  it  still  holds  good  in  judging  adjustment  methods,  both  old 
and  new. 


578 


XXVIIl 

PSYCHOLOGY  OF  LOSS  ADJUSTMENTS 

George  E.  BransOxN 

President,  United  States  Fire  Insurance  Co. 

I  feel  fairly  justified  in  defining  the  subject  of  this  discourse 
as  the  personal  equation  in  adjustments,  the  relationship  of  the 
human  mind  to  all  interior,  exterior  and  ulterior  phases  of  loss 
adjustments.  It  may  also  be  more  particularly  defined  as  a  study 
of  the  relationship  of  the  adjuster  to  any  person  or  thing  with 
which  he  is  brought  in  contact  in  the  conduct  of  his  profession. 

I  have  divided  my^  talk  toyou_into__the  ^several  heads  which 
naturally  present  themselves: 

(1)  The  Relation  of  the  Adjuster  to  the  PubHc. 

(2)  The  Relation  of  the  Adjuster  to  the  Assured. 

(3)  The  Relation  of  the  Adjuster  to  hjs  Principal. 

While  each  of  these  relations  is  in  many  respects  apart  and 
distinct  from  the  others,  they  still  are  so  closely  interwoven  at 
the  points  of  contact  as  to  render  it  difficult  to  wholly  separate 
discussion  of  any  one  so  that  it  will  not  overlap  the  discussion 
of  the  other  two. 

On  the  Relation  of  the  Adjuster  to  the  Public. 

Under  this  head  come  three  sub-divisions: 
Non-discrimination. 
Prevention  of  further  fire  waste. 
Co-operation  with  public  officials  for  the  prevent  ion 
of   crimes   Jfirected   particularly   against   Insurance   Com- 
panies. 

By  its  very  nature  insurance  is,  or  should  be,  a  business  oj 
discrimination,  but  not  of'^tHTfai'f  discrimination.  Unfair  dis-~ 
crimination  is  forbuiden  ty  law,  BuFThe  statute  is  generally  as- 
sumed as  having  only  to  do  with  rates  and  cost  of  acquisition  of 
business.  As  I  read  it,  the  law  is  also  intended  to  eliminate 
favoritism  in  adjustments.  Jew  or  Gentile,  black  or  white,  of 
the  four  hundred  or  of  the  four  million,  the  side  street  tradesman 
or  the  dry  goods  merchant  prince,  the  top  floor  sweater  or  the 
industrial  trust,  all  hold  the  same  v^ontract  of  indemnity,  all  have, 

579 


The  Fire  Insurance  Contract 

in  theory,  paid  the  full  rate  for  protection,  and  in  the  eyes  of  the 
law  all  are  equal.  Sub-conscious  bias  may  make  the  adjuster 
favor  the  man  of  social  status  and  wealth  and  the  firm  of  estab- 
lished reputation  for  honesty,  and  view  with  disfaVor  the  ex- 
patriated product  of  Christian  oppression  in  darkest  Russia,  but  a 
professor  of  casuistry  would  be  non-plussed  for  an  explanation 
that  would  explain  the  waiver  of  the  coinsurance  clause  in  favor 
of  the  commercial  light  or  bank  director  and  reconcile  the  act 
with  the  doctrine  of  non-discrimination. 

The  adjuster  whose  intelligent  investigation  of  the  causes  of 
fire  leads  to  the  removal  of  the  hazard  or  its  regulation  will  not 
go  down  in  history  as  a  public  benefactor,  but  he  is  none  the  less 
a  potent  element  in  the  economic  warfare  for  the  ehmination  of 
waste.  The  altruistic  spirit  which  leads  an  adjuster  to  go  out- 
side the  mere  letter  of  his  commission  and  labor  for  his  employers 
in  a  field  not  distinctly  his  own,  has  not  generally  met  with  the 
response  to  which ,  it  is  entitled,  but  nevertheless  this  spirit,  and 
its  application,  operate  in  no  uncertain  way  to  the  benefit  of  the 
puWic  through  the  medium  of  rate  concessions  for  bona-fide  re- 
ductions of  hazard.^ 

In  considering  the  moral  hazard  and  its  partial  elimination 
as  the  result  of  careful  adjustments,  it  is  fair  to  assume  thai, 
except  under  conditions  of  specific  and  extreme  distress,  few  men 
will  exchange  merchantable  property  for  its  immediate  cash 
equivalent,  freighted  with  the  burden  and  cost  of  proving  the 
amount.  It  follows,  therefore,  that  no  sane  man  will  deliberately 
burn  his  property  except  in  the  hope  of  realizing  an  amount  in 
excess  of  that  which  the  property  would  produce  if  disposed  of 
in  ordinary  or  even  extraordinary  channels  of  business.  To  the 
so-called  ''liberal"  adjustment  may  be  charged  many  claims,  in- 
cendiary in  origin  and  fraudulent  in  presentation.  The  term  "lib- 
eral" is  a  misnomer  in  this  connection— rather  should  it  be  "loose." 
The  Simon  pure  liberal  adjustment  is  that  in  the  course  of  which 
ambiguities  are  resolved  in  favor  of  the  assured,  mere  technicah- 
ties  waived,  and  the  benefit  of  the  doubt  given  the  holder  and  not 
the  writer  of  the  insurance  contract.  The  real  liberal  adjustment 
retains  for  the  Companies  and  the  adjuster  the  wholesome  respect 
and  friendship  of  the  assured.  On  the  other  hand,  the  loose  ad- 
justment nijikes  for  gross  contempt  for  the  insurer,  and  often  opens 
the  door  to  dishonesty  practiced  upon  the  assured  by  his  own  rep- 
resentaliv/^  in  an  attempt  to  participate  in  the  spoils.    Of  prime  im- 

580 


Psychology  of  Loss  Adjustments 

portance,  therefore,  is  it  that  adjustments  should  be  fair  and  truly 
liberal.  Loose  adjustments  lead  only  to  crimes  against  the  people 
and  loss  of  surplus  to  the  underwriters. 

Cultivation  of  cordial  relations  with  the  poUce  and  prosecuting 
authorities  of  the  territory  to  which  the  adjuster  conlines  most 
of  his  activities  is  an  absolute  necessity  to  him  who  would  attain 
to  the  highest  position  in  his  profession.  While  public  officials 
are  in  theory  supposed  to  listen  to  all  complaints  and  sift  the  real 
from  the  fancied  grievance,  it  is  the  fact  'that  those  complaints 
presented  hy  persons  known  to  be  honest,  reliable,  and  not  vindic- 
tive, are  at  the  very  outset  given  full  credence  and  earnest  inves- 
tigation. The  adjuster  who  is  known  to  the  Public  Prosecutor  as 
one  who  will  not  attempt  to  use  the  criminal  process  as  a  means  to 
avoid  civil  liability,  and  who  can  be  relied  upon  as  able  to  control 
his  principals  in  this  respect,  is  in  possession  of  an  asset  of  inestim- 
able value,  the  acquisition  of  which  has  been  at  the  expense  of  vast 
labor  and  infinite  patience. 

It  may  not  be  amiss  to  say  Here  that  I  have  always  found 
the  District  Attorneys  of  this  County  merciful  to  all  but  persistent 
criminals.  The  letter  of  the  law  has  almost  always  been  sub- 
ordinated to  its  spirit.  Our  Grand  Juries  exhibit  the  same  sym- 
pathetic tendencies,  and  many  times  have  in  substance  told  the  of- 
fender to' go  and  sin  no  more.  Not  always,  however,  is  the  Scrip- 
tural injunction  heeded;  and  I  am  reminded  of  a  case  within  my 
charge  a  few  years  ago  where  the  assured,  after  months  of  denial 
and  evasion,  broke  down  after  three  hours  of  examination  in  my 
office  and  confessed  his  crime,  which  I  know  now,  but  did  not 
know  then,  involved  arson  as  well  as  fraud.  Through  mental  stress, 
the  man  had  become  almost  a  physical  wreck.;  and  with  the  tacit 
consent  of  the  District  Attorney's  office,  criminal  action  was  not 
instituted,  and  his  signed  confession  remained  in  my  possession 
until,  less  than  a  year  and  a  half  later,  he  participated  in  one  of 
the  most  celebrated  highway  robberies  the  City  has  ever  known. 
The  confession  made  to  me  was  the  means  of  effectually  disposing 
of  his  plea  of  previous  good  character,  and  for  eighteen  years  he 
is  placed  where  Banks  and  Insurance  Companies  need  not  fear  his 
activities. 

On  the  Relation  of  the  Adjuster  to  the  Assured. 

It  is  not  my  intention  to  bore  you  with  details  on  this  par- 
ticular subject,  nor  do  I  feel  qualified  to  assume  to  tell  you  how 

581 


The  Fire  Insurance  Contract 

losses  should  be  adjusted.  I  am  still  a  student  in  the  profession, 
and  doubt  whether  I  will  ever  pose  as  a  teacher.  I  do  know, 
however — and  must  emphasize  it  to  you — that  the  adjuster  is  the 
one  man,  representative  of  the  fire  insurance  interests,  who  is  con- 
tinually  in  contact  with_  the  assured;  and  the  assured's  opinion  of 
those  interests,  and  in  particular  of  the  Company  or  Companies 
represented  by  the  adjuster,  is  largely  and  justifiably  influenced 
by  the  character  of  the  man  to  whom  is  delegated  the  adjustment 
of  fire  losses.  I  venture  to  say,  and  I  challenge  contradiction,  that 
most  jof^the  legislation  inimical  to  our  interests  has  had  its  incep- 
tion in  the  minds  of  policyholders  who  felt  themselves  outraged 
by  dishonest  or  unfair  or  technical  or  unnecessarily  protracted  a^ 
justments.  I  am  credibly  informed  that  today  legislation  is  con- 
templated, if  not  impending,  in  one  of  our  Southern  States  to  do 
away  with  the  iron  safe  clause.  Should  such  a  law  become  opera- 
tive in  one  State,  it  will  be  well-nigh  impossible  to  prevent  its 
adoption  in  the  others.  The  cause  is  directly  traceable  to  lack  of 
judgment  and  diplomacy  in  the  adjustment  of  a  fire  loss. 

There  are  many  types  of  claimants,  and  for  this  reason  alone 
versatility  is  an  essential  quality  for  the  adjuster  to  possess.  We 
have,  I  am  glad  to  say,  the  strictly  honest  claimant  who  scorns  to 
think  or  act  improperly,  and  who,  by  the  same  token,  when  in  error 
is  hardest  to  deal  with ;  we  have  the  claimant,  also  honest  at  heart, 
who  pads  his  claim  solely  because  he  has  been  taught,  or  has  heard, 
that  Insurance  Companies  never  pay  a  claim  as  presented.  In  deal- 
ing with  this  latter  class,  I  find  the  best  policy  to  be  one  of  ex- 
treme frankness.  In  many  instances  of  this  character  I  have  re- 
turned an  exaggerated  schedule  to  the  claimant,  and  subsequently 
received  a  revised  one  strictly  in  accordance  with  the  facts im- 
mediate approval,  and  the  claim  passed  for  payment,  our  busi- 
ness has  made  at  least  one  new  friend.  My  memory  reverts  to  an 
aged  lawyer  of  this  City,  long  retired,  who  suflfered  a  slight  fin- 
loss  to  some  old  but  rather  valuable  law  books  stored  in  an  out- 
building attached  to  his  home.  Real  value  was  naturally  difficult 
of  ascertainment,  and  in  response  to  my  inquiry,  the  assured  stated 
that  two  hundred  dollars  would  be  a  fair  allowance.  This  impressed 
me  as  equitable,  and  the  gentleman  was  sent  with  a  clerk  to  an 
adjoining  room,  there  to  execute  proof  of  loss  and  receive  pay- 
ment. In  a  few  minutes  he  returned  to  my  office,  visibly  per- 
turbed, asked  for  a  word  in  private,  and  said  that  his  loss  was  not 
two  hundred  dollars  but  that  he  had  so  stated  believing  that  no 

582 


Psychology  of  Loss  Adjustments 

Insurance  Company  ever  paid  a  claim  in  full.  His  belief  was 
founded  on  report  only,  as  he  had  never  before  been  interested, 
directly  or  indirectly,  in  a  fire  loss. 

Allied  with  this  type  of  claimant  is  the  one  who  honestly  but 
mistakenlY__b£lieyes  his  property  worth  greatly  in  excess  of  its 
actual  value,  as,  for  example,  the  manufacturing  hatter  who  insists 
upon  the  marketability  in  the  South  of  that  part  of  his  stock 
which  consists  of  ancient  derbies  of  the  music-hall  German  come- 
dian style,  or  the  elderly  lady  who  will  not  entertain  the  sugges- 
tion of  depreciation  on  her  home  of  the  late  General  Grant  or 
early  Jesse  James  period  type  of  architecture,  and  its  "parlor"  fur- 
nishings of  horse-hair  sofas  and  chairs,  antimacassars,  wax  flow- 
ers under  glass,  and  family  albums.  A  keen  sense  of  humor  serves 
the  adjuster  well  in  cases  of  this  kind. 

Then  there  is  the  passively  dishonest  claimant  of  the  type  of 
the  lumberman  whose  source  of  supply  has  become  exhausted. 
What  adjuster  of  wide  and  varied  experience  does  not  remember 
seeing  the  glaring  signs  prohibiting  smoking  placed  everywhere 
in  the  lumber  mill  operating  with  full  millpond,  and  big  supply  still 
on  the  stump?  And  with  the  lumber  cut  about  exhausted,  what 
adjuster  is  there  who  has  not  noticed  the  absence  of  signs  in  the 
mill  and  the  popularity  of  cigarettes  and  pipes?  What  change 
had  come  over  the  spirit  of  the  millowner's  dream,  and  was  the 
sure- to-come  fire  unwelcome?  Of  course  there  was  no  incen- 
diarism, unless  mind  had  triumphed  over  matter;  but  the  trans- 
lation^ of  old  buildings  and  machinery  into  new  money  led  to  no 
tears  of  reg^ret  except  those  of  the  unlucky  or  unwise  underwriter. 

For  the  actively  dishonest  claimant — the  incendiary  or  fraud, 
or  both — I  can  conceive  of  no  treatment  too  drastic  for  adminis- 
tration. For  the  welfare  of  all  interests,  every  defense  should  be 
employed — every  technicality  availed  of;  in  fact,  this  is  the  only 
use  that  should  be  made  of  technicalities. 

Long  years  of  experience  have  taught  me  to  rely  greatly  on 
wliat_for  lack  of  a  better  title  I  shall  call  the  "visualization  of 
crime.''  To  illustrate  what  I  mean,  let  me  for  the  moment  pre- 
sent to  you  a  cloak  and  suit  manufacturer  at  the  end  of  a  bad 
season — a  warm  winter  or  a  late  spring,  overstocked  with  unsold 
merchandise  and  staggered  by  returns  of  rejected  goods,  bank  dis- 
count exhausted  and  creditors  dunning  incessantly,  accounts  re- 
ceivable hypothecated  and  bank  balance  barely  enough  for  the 
next  payroll.     F.  or  F. — fire  or  failure,  or,  not  to  discriminate,  F. 

583 


The  Fire  Insurance  Contract 

or  M.— fire  or  mahulla,  and  he  elects — fire.  From  the  physical 
evidence  obtainable  after  the  fire — the  unmistakable  signs  left  by 
vapor  ignition,  or  the  less  apparent  ones  resulting  from  the  use  of 
chemicals,  from  the  story  told  by  the  check  book — rich  only  in 
unused  checks,  from  the  exaggerated  profit  ratio  in  the  previous 
fiscal  period  resulting  from  the  substitution  of  a  padded  inventory 
— from  all  these  major  indications  and  from  many  minor  ones 
come  the  material  for  the  "visualization  of  crime,"  the  construc- 
tion of  the  Frankenstein  of  fraud  and  arson,  which,  unfortunately, 
rarely  results  in  total  defeat  of  the  claim  and  conviction  of  the 
criminal,  although  in  most  instances  profit  to  him  is  eliminated 
by  the  logical  results  of  the  process. 

In  connection  with  the  general  subject  of  the  relation  of  the 
adjuster  to  the  assured,  a  word  on  the  matter  of  appraisals  may 
be  opportune.  The  authors  of  the  standard  fire  insurance  policy 
did  not  intend  the  appraisal  provision  to  be  used  by  the  Insurance 
Companies  as  a  means  of  coercion  or  oppression.  It  follows,  there- 
fore, that  except  in  instances  of  positive  and  radical  difference 
with  respect  to  the  measure  of  loss  sustained,  a  demand  for  an 
appraisal  is  requested  as  a  means  to  an  ulterior  end,  ahd  as  such 
is  a  perversion  of  the  intent  of  that  provision  of  the  policy.  Recog- 
nition of  this  situation  led  a  few  years  ago  to  the  mandatory  addi- 
tion in  the  policy  of  a  clause  allowing  the  selection  of  an  umpire 
by  the  judiciary  where  the  appraisers  failed  to  agree  upon  one 
within  a  reasonable  time. 

Except  where  differences  are  radical  or  where  it  is  used  as 
a /'stop  order"  in  cases  involving  fraud,  positive  proof  of  which 
is  lacking,  an  appraisal  should  be  avoided  by  the  adjuster  and  every 
honorable  means   used  to  amicably   reconcile  conflicting  opinions. 

On  thk  RiiivATiON  OF  THE  ADJUSTER  TO  His  Principai,. 

On  the  part  of  the  principal  there  must  exist  absolute  con- 
fidence in  the  integrity  and  reasonable  confidence  in  the  ability 
of  the  adjuster.  I  have  known,  but  happily  have  not  been  asso- 
ciated with,  some  offices  where  the  adjuster  was  treated  as  a 
necessary  evil,  and  accorded  the  welcome  which  might  have  been 
given  the  undertaker  or  executioner.  Possibly  recitals  by  the 
adjuster  of  minor  incidentals  or  adjustments  involving  bad  judg- 
ment, euphemistically  described  as  ''hard  luck,"  may  have  been 
responsible  for  the  treatment.  In  reporting,  I  find  that  a  general 
outline  of  the  cause  and  extent  of  the  fire  and  of  the  final  resuU 

584 


Psychology  of  Loss  Adjustments 

of  the  adjustment  comprises  all  of  the  information  ordinarily  re- 
quired, akhough  I  note  that  in  the  current  month  our  National 
Board  has  become  inoculated  with  the  germ  of  loss  classification, 
with  its  attendant  detail. 

I  deprecate  most  strongly  the  employment  of  experts  and  law- 
yers in  cases  where  the  work  they  do  should  properly  be  per- 
formed by  the  adjuster;  and  on  the  other  hand,  no  one  is  more 
quick  to  recognize  than  I  am  the  necessity  for  their  employment 
in  cases  where  their  services  are  essential  to  proper  investigation 
and  determination.  The  adjuster  who  cannot  examine  books  of 
account,  detennine  the  value  of  and  loss  to  ordinary  machinery, 
who  cannot  keep~huTiseTf '  in  close  touch  with  tendencies  and 
trends  of  merchandising  conditions,  who  cannot  conduct  ordinary 
exammations  under  oath,  has  no  right  to  expect  of  his  profession 
that  it  will  yield  him  its  maximum  of  reputation  or  remuneration. 
Per  contraPtHe" adjuster  who  by  constant  application  and  study 
can  give  the  public,  the  assured,  and  the  underwriters  all  of  these 
services  is  by  right  entitled  to  equivalent  recognition  and  to  a 
status  coordinate  with  that  of  his  under\yriting  associates. 

Genius  in  this  day  may  be  defined  as  the  capacity  of  an  able 
man  for  gathering  about  him  men  of  greater  ability  in  their  specific 
spheres  of  useful  effort.  Fire  insurance  has  been  characterized 
more  by  aridity  than  by  fertility  of  genius  as.  thus  defined,  and 
today  many  of  our  Company  officials  are  wasting  valuable  time 
in  attempting  economies  which  could  be  more  profitably  employed 
in  promoting  efficiency.  Happily,  there  are  some  oases  in  the  des- 
ert of  managerial  bourbonism,  and  the  trite  and  homely,  but  applic- 
able aphorism  of  "Saving  at  the  spigot  and  wasting  at  the  bung"  may 
yet  be  forcibly  modified  by  the  economic  saving  grace  of  the  law  of 
the  survival  of  the  fittest. 

There  appear  intermittently  movements  to  reduce  the  cost  of 
loss  adjustments,  generally  by  proposed  reductions  in  adjusters' 
charges.  I  am  inclined  to  believe  that  these  movements  have  their 
inception  in  the  minds  of v  Company  officials  and  managers  whose 
early  training  has  led  them  to  the  belief  that  all  men  are  naturally 
honest,  that  claims  are  presented  which  closely  approximate  the 
actual  loss,  and  that  an  adjustment  bears  a  marked  resemblance 
to  the  labor  of  a  child  making  a  picture  out  of  a  complete  set  of 
blocks.  In  other  words,  the  result  is  always  in  hand,  merely  await- 
ing the  moment  for  it  to  become  an  accomplished  fact.  Most  of 
the  blocks  I  have  been  handfed  in  the  past  fifteen  years  resembled 

585 


The  Fire  Insurance  Contract 

(hree  sets  mixed  together  and  then  half  of  the  whole  thrown  away. 
The  resulting  picture,  after  cutting  and  trimming,  would  rival  a 
cubist  masterpiece. 

Seriously  speaking,  I  believe  the  ratio  of  adjustment  cost  to 
loss  will  continue  to  rise,  and  that  the  rise,  instead  of  being  detri- 
mental, will  be  of  distinct  benefit  to  insurance  interests.  This 
increase  in  ratio  will  be  of  twofold  nature,  the  major  factor— 
loss-declining  in  volume,  and  the  minor  factor — cost-increasing 
with  the  introduction  of  the  trained  adjuster  to  supplant  Q£ 
sutrceed^  the  untrained.  Fire  prevention  by  physical  means  has 
taken  a  long  and  broad  step  forward  in  the  past  few  years.  Fire 
prevention  by  moral  means,  inculcated  by  stress,  if  necessary,  de- 
mands that  adjustments  be  made  by  trained  adjusters,  educated  to 
their  calling,  and  not  by  unsuccessful  merchants  taught  only  in  the 
schools  of  experience. 

To  the  young  member  of  this  Society  whose  face  tonight 
evidences  the  question  he  would  ask,  I  answ'er  by  saying  to  him 
that  the  adjustment  of  fire  losses  offers  a  splendid  field  for  pro- 
gressive employment  at  fair  remuneration,  conditioned,  however, 
on  adequate  mental,  moral  and  physical  aptitude  for  the  w^ork;  but 
unless  he  loves  it,  and  recognizes  it  as  the  only  real  human  side 
of  fire  insurance,  he  had  better  continue  imbibing  wisdom  frotu 
those  who  preside  over  the  destinies  of  other  branches  of  the 
business,  in  one  or  another  of  which  he  may  find  what  today  is 
popularly  termed  his  "place  in  the  Sun." 


586 


.  XXIX 

UNUSUAL  AND  INTERESTING  FIRE  LOSS  CLAIMS 
William  R.  Pitcher 

It  seems  to  me  that  a  look  into  the  past  to  obser/e  the  growtli 
and  improvement  in  adjustments,  is  desirable  for  the  best  under- 
standing of  the  present  conditions. 

When  I  first  started  , in,  the  insurance  business  the  adjust- 
ments for  the  New  York  City  companies  were  made  largely  by 
the  surveyors.  These  gentlemen  were  also  the  real  underwriters, 
for  their  reports  while  meagre  as  to  description  of  actual  condi- 
tions, closed  with  underwriting  recommendations,  which  were 
always  accepted  by  the  companies  they  represented.  Their  objec- 
tive point  in  the  adjustment  of  a  loss  in  most  instances,  was  to 
settle  for  the  smallest  sum  possible,  without  reference  to  the  actual 
loss. 

Following  this  period  when  the  surveyor  was  so  prominent^ 
the  loss  adjustments  were  made  by  committees  appointed  by  the 
companies  at  meetings  held  at  the  Board  of  Fire  UifSerwriters', 
Rooms.  These  committee*;,  usually  company  officials,  were  at  the 
time  of  the  final  report  of  adjustment  voted  an  honorarium  even 
if  they  had  employed  an  adjuster,  a  few  adjusters  having  in  the 
meantime  started  in  the  business. 

Later,  the  companies  felt  that. too  much  favoritism  was  shown 
in  connection  with  the  selection  of  those  committees,  and  because 
of  this  dissatisfaction,  they  began  to  employ  adjusters  for  each 
loss.  In  some  cases  special  agents  were  brought  in  to  act  as  ad- 
justers for  individual  companies.  This  individualistic  adjustment 
practice  resulted  in  a  large  number  of  adjusters  acting  in  each  case, 
without  any  diminution  in  the  expense  of  adjustment,  and  with 
distinct  efforts  to  curry  favor  for  the  individual  office  at  the  ex- 
pense of  the  Associated  companies,  resulting  in  practices  that  were 
as  cheap  as  retail  clothing  store  advertising. 

In  a  case  I  have  in  mind,  where  there  were  about  a  dozen 
adjusters,  one  of  them  being  unable  to  await  the  final  closing  of 
the  case  stated  on  leaving,  that  "for  his  company  he  would  pay 
as  much  as  anybody." 

Some  settlements  were  made  with  an  agreement  with  the  as- 
sured that  if  any  other  adjustment  was  made  for  a  smaller  sum.  the 

587 


The  Fire  Insurance  Contract 

company  settling  should  have  the  same  advantage  and  not  pay  more 
than  the  lowest  sum  fixed  by  any  other  office.  This  method  grew 
to  be  such  a  nuisance  to  the  companies  and  claimants  that  the 
present  Committee  on  Losses  was  organized  to  correct  the  abuses 
and  reduce  the  expense.  The  business  of  loss  adjustments  has  thus 
been  put  upon  a  more  scientific  basis  and  temptations  and  abuses 
that  heretofore  existed  have  largely  disappeared. 

My  career  as  an  adjuster  came  very  near  ending  with  the  first 
loss  left  with  me  for  settlement.  At  that  time  I  was  what  was 
then  known  as  an  "application  clerk"  in  an  agency  interested  in 
the  loss  of  the  contents  of  a  warehouse  in  Brooklyn.  This  ware- 
house was  partly  burned  through  exposure  to  a  planing  mill  fire  and 
a  considerable  part  of  its  contents  was  removed  to  the  streets  and 
vacant  lots  in  the  vicinity.  Part  of  the  property  thus  removed  was 
undoubtedly  stolen  and  the  assured  frankly  admitted  that  some  of 
the  stock  scheduled  was  so  lost.  The  surveyor  of  a  local  Company 
was  acting  for  that  Company  in  this  adjustment,  while  I  represented 
the  agencies.  On  account  of  my  inexperience  this  surveyor  was 
allowed  to  do  all  the  talking,  and  he  secured  admissions  from  the 
assured  that  certain  of  the  property  had  been  stolen.  Some  of  this 
property,  it  seemed  to  me,  the  assured  could  very  well  have  claimed 
was  destroyed  by  the  fire.  On  our  way  back  to  New  York,  he  said 
that  at  our  next  interview,  which  would  close  the  loss,  he  would 
let  them  know  why  he  had  asked  the  questions  as  to  the  stolen  prop- 
erty. He  said  that  the  policy  did  not  cover  the  loss  of  stolen  goods. 
This,  to  my  unsophisticated  mind,  appeared  an  unfair  punishment 
to  visit  on  people  who  had  endeavored  to  minimize  their  loss  and 
hence  I  told  him  that,  while  that  might  be  the  contract,  I  would 
rather  give  up  the  adjusting  branch  of  the  business  and  confine  my 
activities  to  underwriting  than  enforce  any  such  inequitable  pro- 
vision. On  asking  the  agencies  to  relieve  me  of  any  further  duties 
in  this  adjustment,  explaining  the  reason,  they  to  my  astonishment 
said :  "Never  mind  the  contract,  you  do  what  you  think  is  fair  and 
just." 

The  adjuster  of  ftjrnier  days  was  not  entirely  free  from  phy- 
sical risk.  Today,  either  because  the  times  have  improved  or  we 
have  become  more  diplomatic,  the  danger  is  entirely  verbal.  In  any 
event,  I  meet  no  experiences  like  those  of  the  earlier  day. 

In  one  case  an  assured  in  New  Rochelle  chased  me  out  of 
his  place  with  a  knife  in  his  hand  and  I  may  say  that  I  willingly 
and  quickly  left  the  store  as  far  behind  me  as  my  breathing  ap- 
paratus would  permit. 

588 


Unusual  and  Interesting  Fire  Loss  Claims 

On  the  day  following  that  in  which  Mr.  Gesswein  was  killed 
in  John  Street,  I  received  a  skull  and  cross-bones  letter  threaten- 
ing my  life  unless  I  changed  my  methods  of  adjustment.  Again 
in  Plymouth  Street,  Brooklyn,  I  was  obliged  to  threaten  with  a 
gun  an  Italian  claimant  who  believed  that  I  was  preventing  his 
collecting  insurance  for  a  loss  which  had  occurred  in  Main  Street. 
He  was  right  in  his  belief  and  the  company  never  paid  for  the 
claim  which  he  made. 

While  it  is  humiliating  to  admit  it,  the  advent  of  companies 
from  abroad  and  from  other  States  brought  about  a  desirable 
change  in  the  method  of  adjustments.  It  is  true  that  some  of  the 
adjusters  who  came  in  shortly  after  this  Surveyor  Period  had 
passed  away,  were  still  imbued  with  the  notion  of  making  the 
loss  as  small  as  possible,  yet  they  were  held  up  to  fair  treatment 
when  complaints  were  entertained  by  the  agents  and  officers  of 
the  various  companies. 

In  those  days  the  Fire  Patrol  had  charge  of  the  work  of 
ruins,  shoring,  removing  the  salvage,  arranging  for  sale,  etc.  This 
was  taken  out  of  their  hands  by  resolution  of  the  New  York 
Board,  I  think  about  1882,  being  due  to  irregularities  discovered 
early  in  that  year.  It  was  charged  that  the  time  books  had  been 
tampered  with  and  that  other  expense  items  had  been  increased  to 
somebody's  profit. 

The  salvage  business  was  originally  in  the  hands  of  one  per- 
bon,  who  was  supposed  to  be  very  close  to  the  Patrol  Committee  and 
who  had  stocks  turned  over  to  him  without  any  check  whatever, 
resulting  in  abuses  which  added  materially  to  the  companies'  losses. 
Later,  a  competitor  arrived,  having  the  backing  of  several  offices 
and  uncomplimentary  reasons  were  given  by  the  supporters  of 
each  as  to  the  motive  of  the  other  in  favoring  their  special  wrecker. 
This  latter  competitor,  however,  left  town  shortly  after,  when  his 
creditors  got  after  him,  and  is  supposed  to  hav^  gone  abroad.  He 
was  examined  in  supplementary  proceedings  and  among  other  ques- 
tions was  asked  what  he  did  with  the  $16,000.00  cash  which  he  had 
drawn  out  of  the  bank.  His  explanation  was  that  he  had  it  in  his 
pocket  and  on  the  way  up- town  it  was  stolen  and  he  had  not  ad- 
vised the  police  of  it  as  he  knew  it  would  do  no  good. 

So  great  was  the  confidence  in  these  wreckers  that  any  criti- 
cisms of  their  methods  by  an  adjuster  was  met  with  frowns;  with 
veiled  threats   of   withdrawal  of   patronage;   and   with   the   state- 

589 


The  Fire  Insurance  Contract 

ment  that  the  methods  employed  had  always  produced  good  results 
and  that  there  was  no  reason  tor  any  change. 

In  one  instance  a  check-out  attempted  by  one  of  the  adjusters 
resulted  in  his  discomfiture.  A  large  quantity  of  goods  was  re- 
moved surreptitiously  by  the  wrecker,  thus  making  the  wrecker's 
account  show  some  hundreds  of  dozens  of  shirts  more  than  were 
shown  by  the  adjuster's  record.  Through  persistence,  however, 
joint  checking  was  finally  adopted  and  salvaging  was  made  more 
efficient  and  businesslike. 

At  some  of  the  auction  sales  in  those  days  certain  people 
always  seemed  to  be  able  to  buy  the  rags  and  suspicion  developed 
that  sometimes  these  rags  covered  goods  of  value.  One  man  in 
particular,  who  was  the  principal  buyer  of  rags,  found  these  sales 
a  very  profitable  use  of  his  time.  Of  course  it  might  be  assumed 
that  someone  gave  him  advice  before  the  sale. 

Gentlemen,  believe  me,  these  practices  of  the  past  do  not 
appear  to  be  in  vogue  today;  or,  if  so,  they  are  of  such  a  kinder- 
garten nature  that  no  one  is  hurt.  The  adjuster  of  today  scorns 
many  of  the  practices  of  some  of  the  old-time  adjusters,  and 
ethically  he  compares  very  favorably  with  the  company  officials, 
so  that  one  may  be  proud  of  being  in  the  profession. 

Likewise,  we  have  no  such  firebug  gangs  as  were  in  existence 
in  earlier  days.  There  was  a  shoe-store  gang  with  headquarters 
in  Norfolk  Street,  a  clothing  and  cloak  gang  with  headquarters 
in  Division  Street,  while  another  coterie  conducted  the  small  house- 
hold furniture  losses. 

These  firebug  gangs  operated  largely  in  New  York  and  New- 
ark, but  after  Mr.  James  Mitchel,  Fire  Marshal,  father  of  the 
present  Mayor,  became  acquainted  with  their  methods,  they  made 
Brooklyn  their  paradise  for  a  while. 

In  the  clothing  cases  there  were  one  or  two  previous  claim- 
ants who  acted  as  appraisers  in  later  losses,  so  that  they  even  had 
an  appraisal  bureau.  The  head  of  this  gang,  through  the  efforts 
of  Mr.  James  Mitchel,  was  finally  convicted  and  sentenced  to  34 
years  imprisonment.  They  operated  mainly  from  1884  to  1892  and 
during  the  years  1892  to  1895  fourteen  of  them  were  convicted, 
with  an  aggregate  term  sentence  of  288  years.  These  convictions 
were  secured  under  the  administration  of  the  present  Judge  Vernon 
M.  Davis,  then  District  Attorney  for  this  County.  The  evidence 
upon  which  the  convictions  were  secured  was  gathered  mostly  dur- 
ing Mr.  Mitchel's  incumbency  of  the  Fire  Marshal's  office.     It  was 

590 


Unusual  and  Interesting  Fire  Loss  Claims 

not,  however,  until  1897  that  the  head  of  the  gang  was  convicted 
and  sentenced  to  a  34  year  term.  Some  data  that  I  had  accumu- 
lated was  used  for  the  purpose  of  cross-examination  in  these  cases, 
and  aided  in  a  minor  way  to  convince  the  jury  of  the  guilt  of  those 
accused. 

I  might  state  right  here  that  I  am  informed  that  everyone  of 
these  fourteen  convicted  persons  has  been  pardoned  through  in- 
fluence at  Albany.  The  final  clinching  of  the  evidence  that  se- 
cured these  convictions  was  brought  about  by  District*  Attorney 
Vernon  M.  Davis  sending  to  Germany  for  one  of  the  so-called 
"mechanics"  on  the  pretext  of  wanting  him  for  an  arson  job  in  St. 
Louis.  When  he  arrived  in  New  York  Mr.  Davis  endeavored  to  get 
his  confession  but  failing  in  this,  put  him  on  trial  and  secured  a 
conviction  with  a  sentence  of  48  years.  Afterwards  he  confessed 
and  through  his  evidence,  with  what  had  already  been  gathered, 
this  head  of  the  cloak  gang  was  convicted  and  sentenced. 

After  they  started  to  work  in  Brooklyn  a  loss  in  Greene  Ave- 
nue was  placed  in  my  hands  for  adjustment.  It  was  on  furniture 
and  clothing  in  an  apartment  house.  The  place  was  pretty  thor- 
oughly burned  out  and  on  my  second  visit  many  articles  of  wearing 
apparel  were  present  which  had  not  been  in  evidence  at  my  first 
call.  The  explanation  was  made  that  they  had  been  thrown  out 
by  the  Fire  Department  and  that  boys  had  brought  them  back. 
As  the  loss  was  in  a  house  directly  opposite  what  is  known  by  the 
Police  Department  as  Jackson's  Hollow,  I  suspected  that  it  was 
another  case  of  the  hiring  of  burned  goods.  This  case  ran  along 
for  over  four  months  with  little  progress  toward  a  settlement,  when 
one  day  the  head  of  the  Division  Street  gang  appeared  and  asked 
if  I  wanted  to  settle  the  Greene  Avenue  loss.  Since  this  was  not 
one  of  the  cases  with  his  earmarks,  but  belonged  to  the  household 
operators,  I  said  to  him:  "For  God's  sake,  have  you  people  got  a 
clearing  house?"  It  was  finally  settled  on  terms  satisfactory  to 
the  company. 

Notwithstanding  that  Supt.  Byrnes  of  the  Police  Department 
was  told  by  the  Fire  Marshal  and  myself  of  this  man's  record 
and  that  he  might  burn  out  his  own  place  in  Division  Street,  he 
was  not  prevented  in  his  design,  and  within  six  months  of  our 
visit  he  destroyed  the  building  by  fire.  He  then  sued  the  com- 
panies; the  latter,  however,  securing  a  substantial  victory  and  the 
evidence  brought  out  in  this  trial  aiding  later  in  his  conviction. 

591 


The  Fire  Insurance  Contract 

Another  prominent  leader  of  these  gangs  has  recently  been 
indicted  for  life  insurance  fraud,  having  been  driven  out  of  his 
fire  activities  through  the  efforts  of  Fire  Marshal  Mitchel.  The 
man  secured  immunity  for  himself  by  turning  State's  evidence. 
His  first  activities  were  on  the  East  Side,  where  certain  evidence 
led  to  the  belief  that  if  he  found,  through  one  of  his  emissaries, 
that  a  tenant  was  without  insurance,  he  would  through  another 
agent,  and  without  the  knowledge  of  the  tenant,  place  a  policy 
covering  this  tenant's  household  goods  and  later  see  that  a  fire 
was  started.  The  crowded  condition  of  these  East  Side  tenements 
made  this  a  comparatively  easy  feat.  As  the  assured  would  truth- 
fully state  that  he  had  no  insurance,  the  insurance  patrol  would  not 
be  left  to  watch.  Then  this  firebug  would  advise  the  tenant  that 
he  had  placed  insurance  for  him  and  that  if  he  would  keep  quiet 
he  would  get  something.  Of  course,  with  all  his  meagre  worldly 
possessions  destroyed,  he  would,  in  the  words  of  the  street,  "fall 
for  it"  and  take  what  little  the  firebugs  chose  to  give  him  from 
the  amount  recovered  from  the  companies.  If  questioned  as  to 
his  statement  to  the  patrol  that  he  had  no  insurance,  he  would 
explain  by  saying  that  he  did  not  speak  English  nor  understand 
it  very  well. 

A  loss  in  Broad  Street,  where  an  assured  was  sole  tenant 
ot  two  buildings,  brought  about  a  claim,  as  I  recollect  it,  of  about 
$30,000.00.  The  business  was  what  is  called  the  blending  of 
Hquors,  and  the  component  parts  of  this  deviled  stuff  are  almost 
impossible  to  discover.  Therefore,  if  the  formula  book  is  fraudu- 
lent it  is  pretty  dif^cult  to  disprove  the  claimant's  statements. 
In.  this  case,  against  the  judgment  of  one  of  the  adjusters,  an 
appraisal  was  demanded.  The  contention  of  the  company's  repre- 
sentatives was  that  the  loss  was  about  $1,000.00.  Enough  evi- 
dence was  obtained  to  secure  an  indictment  for  presentation  of 
fraudulent  proofs,  and  at  the  trial  it  was  proven  that  the  apprais- 
ers had  based  their  valuation  on  the  details  of  the  formula  book 
and  that  this  record  was  false  and  fraudulent.  This  claimant  was 
convicted  .and  the  case  carried  through  the  Court  of  Appeals,  where 
the  conviction  was  confirmed.  Later  he  was  pardoned  and  had 
the  temerity  to  bring  suit  against  the  companies  for  the  amount 
of  his  claim.  While  the  verdict  was  against  him,  the  insurers  were 
put  to  the  further  expense  of  defending  a  civil  suit. 

In  connection  with  this  case  we  had  a  detective  from  Pinker- 
ton's  that  we  selected  on  account  of  his  having  the  stupid  appear- 

592 


Unusual  and  Interesting  Fire  Loss  Claims 

ance  of  a  German  grocery-store  clerk.  We  advised  him  to  get 
close  to  one  of  the  German  employees  who  had  a  room  in  a  house  on 
the  West  Side  of  the  city.  He  took  the  name  we  gave  him,  of 
Schmidt,  and  secured  a  room  on  the  same  floor  near  this  employee. 
After  a  time  he  got  on  friendly  terms  with  this  employee  and  se- 
cured the  information  wanted.  As  soon  as  the  trial  started  Schmidt 
was  instructed  to  keep  this  witness  in  view  night  and  day  until  he 
finally  saw  him  in  the  witness  chair  and  then  he,  Schmidt,  was  to 
disappear.  When  this  witness  was  subjected  to  cross-examination 
a  strong  effort  was  made  to  find  out  who  Schmidt  was,  and  to  the 
question  as  to  whether  Schmidt  was  a  detective,  his  answer  was, 
"Ach,  no,"  and  when  further  questioned  as  to  who  Schmidt  was., 
he  replied:  "He  is  the  son  of  old  man  Schmidt."  It  is  needless  to 
say  the  courtroom  was  convulsed. 

A  Frenchman  who  was  pretty  close  to  this  assured  obtained 
for  us  some  information  and  agreed  to  get  something  further 
from  a  young  French  girl  who  was  also  acquainted  with  the  as- 
sured. He  agreed  to  take  her  one  evening  to  a  wine-room,  where 
he  thought  the  influence  of  liquor  would  loosen  her  tongue,  and  to 
report  to  us  the  next  day.  The  next  day  he  reported  that  while  he 
expected  to  have  her  succumb  to  the  wine  which  they  drank,  he 
found  that,  notwithstanding  that  he  went  shy  several  times,  his 
condition  was  getting  such  that  he  had  only  to  admit  to  us  that  he 
had  failed  in  his  mission. 

A  case  that  I  had  of  a  liquor  saloon  in  Brooklyn,  brought  out 
one  of  the  most  interesting  incidents  of  incendiarism  that  has 
ever  come  to  my  notice.  It  seems  that  the  time  was  fixed  for  the 
mechanic  to  set  the  place  on  fire,  but  that  the  assured  did  not 
have  the  courage  to  drive  his  customers  out  at  night  on  the  pretext 
given  him.  The  next  day  he  was  upbraided  for  his  cowardice,  taken 
in  a  carriage  and  driven  over  to  South  Brooklyn*,  where  he  was 
shown  a  handsomely  furnished  saloon  with  a  large  stock  of  liquors, 
which  the  operator  told  him  was  the  result  of  a  fire  that  he  had 
started  for  these  same  people  in  another  location,  where  they  had 
had  a  very  inferior  place.  In  other  words,  like  a  salesman,  he 
showed  him  the  class  of  work  that  he  was  doing  and  took  him  to 
the  sample  line. 

There  was  also  another  case  in  Brooklyn,  where  the  son-in- 
law  of  an  insurance  broker  collected  several  times  for  the  same 
articles  of  wearing  apparel  and  furniture.  The  father-in-law  be- 
ing an  insurance  broker,  would  place  three  policies  in  three  dif- 

593 


The  Fire  Insurance  Contract 

ferent  offices  and  then  notify  first  one  and  get  the  loss  adjusted, 
then  the  same  with  Company  number  2,  and  again  with  number  3, 
in  each  case  declaring  there  was  no  other  insurance.  This  he 
could  readily  do  at  this  time,  knowing,  for  instance,  that  Mr. 
Noxon  would  be  the  adjuster  for  the  German- American,  Mr. 
.Wiltsie  would  be  the  adjuster  for  the  Star  and  Mr.  Pitcher  the 
adjuster  for  the  Royal.  He  was  finally  exposed  by  reason  of  one 
of  the  adjusters  being  sick  and  absent  from  the  office  v/hen  one 
of  his  losses  was  reported  to  the  company.  He  was  later  convicted 
for  presenting  false  proofs  and  served  a  full  sentence. 

The  first  conviction  for  presenting  false  and  fraudulent  proofs 
under  the  Code,  was  in  connection  with  an  essential  oil  case  where 
a  claim  was  made  for  some  $18,000.00  for  essential  oils  supposed 
to  have  been  burned  up  in  a  basement  store- room.  The  assured 
in  this  case  had  had  one  previous  successful  loss  claim.  This  one, 
however,  proved  to  be  his  undoing  and  he  served  time.  It,  however, 
took  two  trials  to  secure  his  conviction,  each  of  which  trials  lasted 
over  a  week.  In  the  preliminary  examination  in  the  Magistrate's 
Court,  the  Fire  Marshal  was  so  incensed  that  the  matter  had  not 
been  left  in  his  hands,  that  the  adjuster  acting  was  informed  that 
the  man  would  never '  be  held  for  the  Grand  Jury.  Since  this 
adjuster  had  been  somewhat  indiscreet  in  some  uncomplimentary 
remarks  he  had  made  to,  and  about  the  Fire  Marshal,  and  fearing 
his  political  influence,  the  adjuster  deemed  it  wise  to  find  some 
friend  of  the  Judge.  Remembering  that  a  good  friend  of  his  had 
married  a  ward  of  the  Judge,  he  explained  the  situation  to  him. 
He  promised  to  be  present  at  the  next  hearing  and  to  let  the  ad- 
juster know  just  what  the  Judge's  feeling  was.  He  also  asked  the 
adjuster  to  be  as  familiar  with  him  as  possible  and  thus  attract 
the  Judge's  attention.  By  appointment  and  just  before  the  after- 
noon session  of  the  Court,  he  advised  the  adjuster  that  he  had  had 
a  talk  with  the  Judge  during  recess. 

The  warrant  for  these  tactics  of  mine  was  evidenced  by  the 
fact  of  the  subsequent  conviction. 

Col.  Fellows  was  the  District  Attorney  who  tried  this  case, 
and  one  important  feature  was  the  claim  that  the  essential  oils 
were  in  a  hair-covered  trunk  which  was  taken  into  the  basement 
of  the  building.  At  the  second  trial,  the  jury  disagreeing  at  the 
first  trial,  we  had  a  diagram  of  the  basement  prepared,  leaving  en- 
tirely blank  the  space  actually  occupied  by  a  counter  and  shelves 
which  were  along  the  East  wall,  so  that  it  showed  nothing  between 

594 


Unusual  and  Interesting  Fire  Loss  Claims 

the  wall  and  the  middle  counter,  which  was  about  12  feet  away  from 
the  wall,  hoping  that  the  claimant  in  his  testimony  would  indicate 
that  this  trunk  was  in  this  space.  He  fell  into  the  trap  and  re- 
peatedly insisted  that  the  trunk  had  been  directly  against  the  brick 
wall.  In  the  afternoon  we  presented  a  full  and  accurate  plan  of 
the  basement,  showing  a  6  ft.  counter  extending  from  this  Eastern 
wall  into  the  room  for  the  whole  length  of  the  building,  and  then 
he  was  obliged  to  state  that  he  did  not  mean  against  the  wall,  but 
against  the  counter.  The  effect  of  this  on  the  jury  was  strong  and 
at  once  apparent.  We  presented  expert  testimony  to  show  that  a 
very  strong  and  lasting  perfume  accompanied  the  burning  of  essen-  • 
tial  oil  and  in  support  of  this  evidence,  during  the  trial,  lit  two  or 
three  matches  which  had  previously  been  dipped  in  the  oil  and, 
the  court-room  became  permeated  with  an  odor  which  lasted  for 
two  or  three  days.  At  the  close  of  the  day  when  these  matches 
Were  burned,  Col.  Fellows  addressing  Judge  Barrett,  who  was 
presiding,  asked  him  for  a  certificate  that  he  might  take  to  his  wife 
to  account  for  his  perfumed  clothing. 

While  we  had  to  have  two  trials  with  about  40  witnesses,  the 
assured  was  finally  convicted.  I  might  state  here  that  the  expense 
of  that  conviction,  which  necessitated  an  examination  before  a 
Magistrate,  and  two  trials  of  over  a  week  each,  including  lawyers' 
fees,  legal  expense  and  detective  work,  amounted  to  somewhat  less 
than  $8,000.00,  so  you  can  see  that  the  high  cost  of  living  makes 
these  expenses  much  larger  now. 

A  loss  on  a  stable  at  Jerome  Avenue,  where  there  was  in- 
surance of  $25,000.00  on  horses,  harness  and  vehicles,  brought 
about  the  conviction  of  the  leader  of  the  stable  gang  and  the 
cessation  of  those  fires.  The  man  convicted  was  but  one  of  a 
family.  Insurance  in  the  father's  name  had  been  collected  for  a 
previous  fire  and  another  claim  in  the  mother's  name  had  been 
successfully  maintained,  but  the  increased  amount  for  which  the 
son  had  insured,  with  the  evidence  that  was  in  the  ruins,  brought 
about  his  undoing.  We  proved  that  the  horses  that  had  been  taken 
up  to  this  barn  were  what  are  known  as  "skates,"  having  been 
purchased  from  the  Second  Avenue  Railroad  Company,  while  the 
bills  for  vehicles  which  he  had  from  some  of  the  gang,  were  proved 
false  by  reason  of  the  weight  of  vehicle  iron  which  we  found  in 
the  ruins. 

One  remark  made  by  a  disgruntled  member  of  this  gang, 
from  whom  we  tried  to  obtain  information  that  we  knew  he  was 

595 


The  Fire  Insurance  Contract 

possessed  of,  has  remained  in  my  memory.  He  staled  that  he 
would  not  have  anything  to  say  in  the  case,  because  as  he  para- 
doxically affirmed,  the  assured,  mentioning  his  name,  "could  swear 
a  hole  through  a  ladder." 

Another  interesting"  case  was  that  of  a  loss  on  a  bag  factory, 
where  the  invoices,  the  cash  book,  the  ledger,  the  journal  and  the 
check  book  all  demonstrated  the  accuracy  of  the  account.  But  it 
turned  out  that  two  of  the  bills  had  been  sent  to  the  assured  with 
a  statement  that  when  his  check  was  received  the  goods  would  be 
sent,  and  as  no  check  was  forthcoming  the  goods  were  never  sent: 
although  the  check  book  and  cash  book  showed  the  payment. 

There  were  other  very  interesting  things  in  connection  with 
this  claim  and  it  was  only  when  he  was  asked  for  the  returned 
bank  vouchers  that  he  fell  dow^n.  His  bank  pass  book  was  taken 
to  the  bank  and  there  it  was  learned  that  after  the  fire  he  had 
stated  that  his  pass  book  had  been  burned  and  he  wanted  a  new 
book.  The  old  book  he  had  written  up,  showing  deposits  and  re- 
turn checks,  so  that  even  the  president  of  the  bank  believed  it 
genuine,  but  it  turned  out  that  he  had  added  $1,000.00  to  the  last 
bank  balance  shown  on  the  pass  book,  and  had  made  his  deposits 
and  his  drawings  agree  with  his  other  books.  It  is  needless  to  say 
that  nothing  was  paid  for  this  loss.  Later,  however,  the  big  fire 
which  burned  in  South  Street,  Moore  Street  and  Whitehall  Street 
I  believe  was  directly  chargeable  to  this  same  person. 

The  loss  of  a  towboat  which  was  tied  up  at  the  Whitestone 
Dock  developed  the  fact  that  while  the  captain  and  the  engineer 
went  ashore  to  sleep,  the  crew^  was  left  on  the  boat  and  that  when 
the  fire  broke  out  the  crew  rushed  for  the  fire  buckets,  threw  their 
contents  on  to  the  fire,  which  added  to  the  flames,  as  instead  of 
water,  it  was  oil  which  was  in  the  buckets.  The  crew  had  to 
jump  overboard  to  save  their  lives. 

Alleged  followers  of  art  are  not  free  from  commercial  weak- 
ness nor  the  acquisitive  desire.  A  claim  was  made  for  loss  to 
one  painting,  insured  under  a  schedule  for  fifteen  hundred  dollars 
($1,500.00).  The  name  of  the  artist  given  in  the  policy  form  was 
that  of  one  of  well-known  reputation.  With  an  artist  who  was 
familiar  with  the  paintings  of  various  artists,  and  who  knew  also 
their  commercial  value,  I  visited  the  premises  in  Fifth  Avenue 
where  the  fire  occurred.  There  was  remaining  of  the  picture  the 
four  corners,  the  flame  having  burned  an  oval  hole  through  the 
canvass,  the  stretcher  being  untouched  by  the  fire. 

596 


Unusual  and  Interesting  Fire  Loss  Claims 

It  was  not  by  the  artist  whose  work  it  was  claimed  to  be,  as 
the  expert  knew  that  the  canvas  was  not  such  as  was  used  by  that 
artist,  and  the  parts  of  the  painting  showing  the  sky  were  not 
indicative  of  his  work.  An  appraisal  was  had,  which  fixed  the 
value  and  loss  at  one  hundred  and  fifty  dollars  ($150.00).  The 
assured  refused  to  accept  the  award  and  brought  suit. 

At  the  trial,  in  an  attempt  to  show  that  the  picture  was  a  total 
loss  and  thus  prove  that  an  appraisal  was  valueless,  the  remains 
of  the  picture  were  produced.  As  thus  shown,  it  was  entirely  void 
of  canvas,  and  the  stretcher  had  been  badly  charred.  However, 
three  of  us  had  seen  it  immediately  after  the  fire,  and  hence  the 
company  secured  a  verdict  and  paid  nothing  to  the  assured. 

Another  claim  of  this*  same  nature  was  disposed  of  by  paying 
about  one-quarter  of  the  schedule  values,  there  being  enough  evi- 
dence to  show  that  the  paintings  were  not  genuine. 

It  seems  to  me  that  there  is  more  humbug  in  the  dealings  in 
oil  paintings,  than  in  any  other  class  of  merchandise  and  that  it 
would  be  well  to  scrutinize  carefully  every  offer  of  insurance  on 
works  of  art,  whether  under  a  schedule  or  otherwise. 

Of  all^laiiTiants  the  Chinese  are  the  most  patient,  never  com- 
plaining of  stoppage  of  business,  loss  of  customers,  etc.  In  one 
case,  after  three  months'  delay,  an  appraisal  was  held,  the  com- 
panies selecting  a  Chinese  missionary,  the  assured  a  Chinese  editor, 
and  these  two  selecting  a  Chinese  merchant  as  umpire.  The  award 
was  very  satisfactory  to  the  companies  at  least  and  the  assured 
as  pleasant  as  ever,  although  the  award  was  very  much  below  the 
claim. 

A  loss  notice  was  sent  to  me,  with  the  locati(fn  of  the  furni- 
ture at  Canarsie.  The  claim  was  fifty  cents,  and  the  insured 
technically  right,  insisted  he  was  justified  as  there  was  no  mini- 
mum non-liability  on  the  part  of  the  company,  and  therefore  he 
wanted  his  rights.  He  got  them  by  producing  at  the  company's 
office  in  New  York  City  a  proof  of  loss  sworn  to,  and  his  policy. 

You  should  not  always  believe  that  a  suspicious  fire  is  caused 
by  the  assured.  This  was  evidenced  in  a  case  that  we  had  where 
a  small  German  manufacturer  who  had  been  in  the  premises  about 
four  years  placed  insurance  at  the  insistance  of  a  new  tenant,  and 
within  two  weeks  thereafter  a  fire  occurred  in  this  German's  prem- 
ises. Fortunately  for  him  the  man  who  occupied  the  floor  above 
and  into  whose  premises  the  fire  burned,  was  under  surveillance 
by  Mr.  Mitchel,  Fire  Marshal,  and  was  convicted  of  setting  the 
place  on  fire. 

597 
20 


The  Fire  I2S[surance  Contract 

In  another  case,  in  Brooklyn,  in  a  two-family  house  the  fire 
apparently  occurred  in  a  closet,  but  with  so  little  evidence  of  fire, 
that  we  had  some  of  the  garments  brought  to  the  office  and  they 
were  of  such  a  character  that  it  did  not  seem  possible  that  any- 
body would  have  desired  to  burn  them.  We  had  the  burned  spots 
analyzed  by  a  chemist,  who  found  that  sulphuric  acid  had  been 
used  to  destroy  the  garments.  It  developed  that  the  co-tenant  had 
had  some  differences  with  the  assured  in  real  estate  matters  and 
while  this  assured  was  absent,  had  gotten  into  the  premises  and 
destroyed  the  clothing  with  acid. 

In  my  experience  the  Hebrews  hold  the  pennant  for  fairness. 
A  loss  was  settled  with  a  firm  dealing  in  skins,  and  an  agreement 
signed  fixing  the  amount  of  claim  as  $40,961.40.  Shortly  there- 
after a  lawyer  called,  stating  that  the  assured  would  not  accept 
the  sum  fixed,  as  by  our  prompt  action  some  goods  that  we  all 
felt  would  suflfer  damage  had  turned  out  to  be  perfect,  the  only 
loss  thereon  being  the  expense  of  handling.  Later  they  advised 
me  that  the  goods  sent  to  Liverpool  had  turned  out  worse  than 
our  estimate,  but  the  net  saving  was  $4,92 L30,  which  they  insisted 
should  be  deducted  from  the  agreed  figure,  making  the  loss  $36,- 
040.04,     The  pennant  is  still  up  for  the  Gentiles  to  strive  for. 

A  loss  on  Long  Island,  destroying  a  barn  and  its  contents 
placed  a  novel  interpretation  of  a  policy  form. 

The  policy  was  divided  into  four  items  covering  the  barn 
contents  and  described  them  as  "all  being  contained  in  the  frame 
barn"  &c. 

In  the  schedule  of  claim  were  a  number  of  things  enumerated 
which  were  not  covered  by  the  policy  form. 

The  assured  insisted,  however,  that  the  words  "all  contained 
in  the  barn"  meant  everything  therein.  Discussion  did  not  change 
his  opinion.  He  appealed  to  the  Manager  of  the  Company ;  not 
receiving  any  support  of  his  view  there,  he  appealed  to  the  Trustees 
with  a  similar  result,  and  finally  wrote  to  the  office  in  London.  For 
he  was  an  Englishman  with  bull-dog  tenacity. 

Some  comical  things  occur,  and  I  am  reminded  of  an  Irish 
lady  who  had  in  her  schedule  of  claim  among  other  things  an 
eight  day  clock  valued  at  $18.00.  The  works  were  recovered  from 
the  ruins  and  she  was  informed  that  their  evidence  showed  that 
the  clock  was  only  worth  about  $4.00,  to  which  she  replied :  "Four 
dollars  for  an  eight  day  clock — only  fifty  cints  a  day!"     In  con 

598 


Unusual  and  Interesting  Fire  Loss  Claims 

sequence  of  this  clever  remark  and  believing  that  she  had  been 
badly  advised,  I  felt  compelled  to  treat  her  liberally. 

Recently  an  assured  in  Front  Street  presented  a  claim  for 
cigars  destroyed,  that  seemed  absolutely  impossible  to  be  true  and 
consequently  suspicion  rested  upon  the  assured  as  to  the  origin 
of  the  fire.  It  turned  out,  however,  that  a  party  had  rented  the 
lop  loft  of  a  building  on  Maiden  Lane,  which  was  up  against  this 
Front  Street  building,  and  that  these  parties,  three  in  number,  had 
only  occupied  this  place  for  a  month  and  had  stolen  a  lot  of  cigars 
by  going  over  the  roof  and  then  had  probably  set  the  place  on  fire. 

They  were  finally  caught  with  the  goods  in  their  possession 
in  a  building  on  14th  Street,  and  were  arrested  and  afterwards 
convicted,  each  of  the  three  having  previous  prison  records.  It 
is  believed  that  they  have  set  other  fires  in  New  York,  by  corrupt- 
ing the  porters  and  thus  getting  into  the  premises  and  stealing 
goods. 

Human  nature  still  remains  weak  and  incendiary  fires  will 
continue  to  be  met,  but  they  can  be  minimized  in  my  opinion  if 
the  present  method  of  investigation  is  changed.  On  this  subject 
Judge  Davis  said  when  he  was  District  Attorney:  "As  to  the  best 
agency  for  the  detection  of  these  criminals  and  for  the  gathering 
of  evidence  against  them,  I  am  convinced  that  in  addition  to  the 
efficient  and  the  necessary  aid  given  by  the  police  and  the  Detective 
Bureau  of  this  city,  the  district  attorney  should  have  his  own 
secret  agents  and  the  fund  for  paying  them. 

Prevention  of  this  crime  should  be  the  end.  It  is  as  im- 
portant, and  I  believe  as  practicable,  as  prosecution.  The  secret 
agents  would  move  among  criminals  of  this  class  and  report  their 
intentions  and  plottings  in  time  to  circumvent  them.  Arson  would 
thus  be  difficult  and  dangerous  for  the  incendiary.  This  method 
has  already  been  used  successfully." 

To  the  young  gentlemen  of  the  Insurance  Society  I  am  ex- 
pected to  offer  some  word  of  advice,  some  suggestion  on  the  pro- 
cedure of  an  adjuster.  I  wish  it  were  possible  to  suggest  your 
going  to  some  college  where  a  chair  had  been  endowed,  that  the 
subject  of  adjusting  fire  losses  might  be  added  to  the  curriculum. 
This  advancement  in  science  has  not  yet  been  attained. 

It  is  beyond  me  to  instruct  in  this  line,  but  to  succeed  as  an 
adjuster  you  must  have  tact,  horse  sense  and  become  a  judge  of 
human  natur*. 

599 


The  Fire  Insurance  Contract 

What  makes  an  adjuster?  Who  is  qualified  to  be  an  adjuster 
and  who  not?  How  can  a  man  tell  whether  he  is  by  nature  justi- 
fied in  the  attempt  to  qualify  himself  as  an  adjuster? 

An  adjuster  is  sent  by  an  insurance  company  in  these  modern 
times  firstly  to  verify  the  justice  of  a  claim  presented  by  a  policy- 
/  holder  and  secondly,  to  determine  the  equity  of  the  claim  under 
the  contract,  its  various  provisions  being  considered.  He  will  find 
a  necessity  for  some  understanding  of  bookkeeping  methods,  a 
still  greater  necessity  for  a  reasonable  ability  to  judge  human  char- 
acter. He  will  find  that  he  does  not  do  wisely  if  he  believes  all 
claims  dishonest  and  starts  out  to  prove  them  so.  He  should  be 
as  anxious  to  remove  as  to  confirm  a  suspicion.  Vastly  the  greater 
portion  of  the  human  race  is  honest  and  do  not  make  fraudulent 
claims.  By  far  the  majority  of  policy  holders  never  have  a  claim 
nor  a  fire  loss. 

To  the  business  man,  who  after  an  experience  of  years  is 
suddenly  confronted  with  a  partial  or  total  destruction  of  his  plant 
and  whose  only  safeguard  against  bankruptcy  may  be  his  fire  in- 
surance contracts,  a  very  serious  situation  arises.  Is  it  unnatural 
that  we  should  credit  him  with  a  degree  of  nervous  apprehension? 
Is  it  unnatural  that  we  should  find  him  disposed  to  over-estimate 
his  loss,  to  conjure  up  mentally  a  picture  of  a  grasping  monopoly 
determined  to  pay  him  a  fraction  only  of  what  he  supposes  him- 
self to  have  actually  lost,  to  ruin  him  completely  as  to  his  future 
business  career?  Adjusters  are  handling  fire  losses  all  day  long; 
we  are  familiar  with  them.  They  have  no  terrors  of  the  unknown 
for  us.  Is  it  unnatural  that  a  self-possessed  experienced  adjuster 
who  has  himself  well  in  hand  and  who  can  talk  rationally  and  con- 
vincingly to  such  a  claimant  should  later  find  a  very  great  modifi- 
cation in  that  claimant's  demands?  Would  you  think  that  such  a 
claimant  deserved  to  be  blacklisted  so  as  to  be  avoided  as  an  in- 
surance risk  in  the  future?    I  don't. 

I  say  that  an  adjuster  needs  more  than  usual  control  over  his 
temper,  more  than  the  usual  disposition  to  painstaking  investigation, 
a  strong  inclination  to  faith  in  human  nature,  a  determination  to 
be  certain  that  what  he  certifies  is  right,  a  reasonable  acquaintance 
with  many  lines  of  business,  a  strong  bump  of  anti-panic  in  his 
make-up  and  with  all — an  abiding  faith  in  the  honest  intention 
of  men.  A  little  touch  of  humor  will  be  found  a  great  insurance 
against  friction.    Don't  imagine  that  I  overlook  the  value  of  firm- 

600 


Unusual  and  Interesting  Fire  Loss  Claims 

ness;  don't  imagine  that  I  underrate  ability  to  clearly  indicate  that 

fraud  will  meet  its  deserts,  but  on  the  other  hand,  lemember  that 

you   represent   a   contract   of   indemnity  and   that   indemnity  that 
doesn't  indemnify  is  a  misrepresentation. 

Finally  I  say  have  tact,  more  tact,  and  then  some. 


601 


XXX 

THE  DOCTRINE  OF  SUBROGATION  IN  .ITS  PRAC 
TICAL  APPLICATION  TO  INSURANCE 

George  Kichards,  Lawyer 

This  subject  embraces  one  of  several  peculiarly  interesting 
doctrines,  which  are  forced  upon  contracting  parties  by  the  law. 
where  their  contract  is  silent  regarding  the  matter  or  does  not  fully 
cover  it  (Loewenstein  v.  Queen  Ins.  Co.,  227  Mo.  100,  127  S.  W. 
72.)  This  subject  also  has  a  peculiar  interest  for  the  prudent  un- 
derwriter because  it  suggests  to  hini  immense  possibilities  in  the 
way  of  reimbursement  for  losses  paid. 

What  is  the;  Doctrine:  of  Sub^og.^tion  ? 

The  word  "subrogation"  means  a  substitution  of  one  person  in 
place  of  another.  Suretyship  furnishes  a  simple  illustration.  The 
individual  surety  usually  acts  gratuitously.  If  he  is  called  upon 
to  bear  the  load  of  his  friend's  debt,  vicariously,  it  is  plain  enough 
that  he  thereby  becomes  entitled  to  all  the  rights  of  the  creditor 
against  the  principal  debtor,  and  to  the  benefit  of  all  collateral 
securities  held  for  the  debt  (American  Bonding  Co.  v.  Bank,  97 
Md.  598,  605).  Thus  the  Pennsylvania  court  declares:  "Subro- 
gation in  suretyship  is  a  mode  which  equity  adopts  to  compel  the 
ultimate  discharge  of  the  debt  by  him  who  in  good  conscience 
ought  to  pay  it,  and  to  relieve  him  whom  none  but  the  creditor 
could  ask  to  pay."     (McCormack  v.  Irwin,  35  Pa.  St.,  Ill,  117.) 

With  suretyship  thus  freshly  in  mind  let  us  press  on  to  our 
immediate  subject. 

Subrogation  in  its  Practical  Application  to  Insurance. 

What  are  the  controlling  reasons  underlying  the  doctrine?  Are 
they  the  same  as  in  the  law  of  suretyship?  And  to  what  practical 
conclusions  do  they  lead? 

In  fire  insurance  the  most  common  instance,  involving  the 
operation  of  subrogation,  is  where  a  common  carrier  or  other  third 
party  has  negligently  caused  the  loss.  (Gangler  v.  Chi.,  M.  &  R. 
S.  Ry.  Co.,  197  Fed.  79;  Connecticut  Fire  Ins.  Co.  v.  Erie  Ry.  Co., 
IZ  N.  Y.  399.)  The  insured  party  has  been  indemnified  by  his 
underwriters,  and  the  underwriters  in  turn  invoke  the  doctrine  of 
subjogation  to   secure,   if   possible,    from   the   wrorgdoer,   or  tori 

602 


Doctrine  of  Subrogation 

feasor,  as  he  is  technically  called,  a  recoupment  to  the  extent  of  their 
payment.  Why  is  the  claim  to  subrogation  on  the  part  of  the 
underwriters  in  such  a  case  recognized  as  fully  justified?  In  scrut- 
inizing the  opinions  of  the  judges,  we  find  that  two  reasons  are 
often  referred  to  in  explanation  which  really  are  quite  distinct, 
but  which  frequently  are  more  or  less  commingled  in  the  opin- 
ions of  the  courts. 

Reasons  for  the  Doctrine. 

First  Reason: — The  party  who  has  wrongfully  caused  the  loss 
ought  to  bear  the  burden  of  it,  unless  he  has  himself  contracted 
for  the  benefit  of  the  insurance.  (Stoughton  v.  Gas  Co.,  165  Pa. 
St.  428;  Hall  v.  R.  R.  Cos.,  13  Wall,  U.  S.,  367;  St.  Louis  I.  M. 
&  S.  Ry.  Co.  V.  Commercial  Union  Ins.  Co.,  139  U.  S.  223,  235.) 

This  reason,  analogous  to  that  applicable  in  suretyship,  good  as 
it  is,  is  not  altogether  satisfactory,  because  it  wholly  fails  to  ex- 
plain many  well  established  instances  of  subrogation. 

Second  Reason: — Based  not  only  upon  the  express  terms  of 
the  contract  between  insurer  and  insured,  but  also  buttressed  by 
important  considerations  of  public  policy,  is  the  underlying  prin- 
ciple of  insurance  law  that  the  liability  of  the  insurer  to  the  in- 
sured for  a  loss  must  be  limited  to  indemnity. 

I  can  offer  you  no  finer  statement  of  this  principle  than  that 
of  Mr.  Justice  Brett,  Lord  Esher,  as  employed  by  him  in  a  lead- 
ing and  famous  case: 

"In  order  to  give  my  opinion  upon  this  case,  I  feel  obliged  to  revert 
to  the  very  foundation  of  every  rule  which  has  been  promulgated  and 
acted  on  by  the  courts  with  regard  to  insurance  law.  The  very  founda- 
tion, in  my  opinion,  or  every  rule  which  has  been  applied  to  insurance 
law  is  this,  namely,  that  the  contract  of  insurance  contained  in  a  marine 
or  fire  policy  is  a  contract  of  indemnity,  and  of  indemnity  only  and 
that  this  contract  means  that  the  assured,  in  case  of  a  loss  against  which 
the  policy  has  been  made,  shall  be  fully  indemnified,  but  shall  never  be 
more  than  fully  indemnified.  That  is  the  fundamental  principle  of  in- 
surance; and  if  ever  a  proposition  is  brought  forward  which  is  at  vari- 
ance ^yith  it,  that  is  to  say,  which  either  will  prevent  the  assured  from 
obtaining  a  full  indemnity,  or  which  will  give  to  the  assured  more  than 
a  full  indemnity,  that  proposition  must  certainly  be  wrong.  *  ♦  *  Now, 
it  seems  to  rne  that  in  order  to  carry  out  the  fundamental  rule  of  insur- 
ance law,  this  doctrine  of  subrogation  must  be  carried  to  the  extent 
which  I  am  now  about  to  endeavor  to  express,  namely,  that  as  between 
the  underwriter  and  the  assured  the  underwriter  is  entitled  to  the  ad- 
vantage of  every  right  of  the  assured,  whether  such  right  consists  in 
contract,  fulfilled  or  unfulfilled,  or  in  remedy  for  tort  capable  of  being 
insisted  on  or  already  insisted  on,  or  in  any  other  right,  whether  by  way 
of  condition  or  otherwise,  legal  or  equitable,  which  can  be,  or  has 
been  exercised  or  has  accrued  and  whether  such  right  could  or  could 
not  be  enforced  by  the  insurer  in  the  name  of  the  assured,  by  the  exer- 
cise  or   acquiring   of   which    right    or   condition    the    loss,   against   which 

603 


The  Fire  Insurance  Contract 

the  assured  is  insured,  can  be  or  has  been  diminished.  That  seems  to  mc 
to  put  this  doctrine  of  subrogation  in  the  largest  possible  form,  and  if 
in  that  form,  large  as  it  is,  it  is  short  of  fulfilling  that  which  is  the 
fundamental  condition,  I  must  have  omitted  to  state  something  which 
ought  to  have  been  stated." 

Castellain  v.  Preston,  L.  R.  11  Q.  B.  Div.  380,  52  L.  J.  Q.  B.  366; 
49  L.  T.  N.  S.  29.  To  similar  effect,  Chi.,  etc.,  Ry.  Co.  v.  Pullman  Car 
Co.,  139  U.  S.  79,  88;  Packham  v.  German  Fire  Ins.  Co.,  91  Md.  515,  523; 
Monteleonc  v.  Royal  Ins.  Co.,  47  La.  Ann.  1563. 

Rights  Are  Included  Whether  Based  on  Tort,  Contract 

OR  Otherwise. 

In  pursuing  our  inquiry  it  will  be  interesting  to  examine  a  num- 
ber of  special  instances. 

In  a  case  in  the  federal  Supreme  Court  counsel  for  the  de- 
fendant, a  common  carrier,  urged  against  the  claim  to  subrogation 
that  no  tort  or  negligence  or  wrongful  act  of  any  sort  had  been 
shown  to  have  been  committed  by  the  common  carrier,  and  that  the 
owners'  right  of  action  against  the  carrier  for  failure  to  deliver  the 
goods  was  based  merely  upon  rigid  rules  of  the  common  law  making 
a  common  carrier  liable  even  for  accidents,  but  the  court  held  that 
by  such  an  argument  no  defence  was  shown,  and  that,  inasmuch  as 
the  insured  had  a  right  of  action  against  the  carrier,  which  aimed 
to  satisfy  the  loss,  the  underwriters,  upon  payment  of  the  loss,  be- 
came  equitably  entitled  to  the  same  right  of  action  whatever  its 
basis.     (Hall  v.  Railroad  Companies,  13  Wall..  367.) 

In  like  manner,  before  the  Colorado  court,  counsel  for  the  rail- 
road company  contended  that  there  could  be  no  subrogation  because 
a  statute  made  the  common  carrier  absolutely  liable  for  the  fire  loss 
without  proof  of  negligence  and  that  no  such  proof  had  been  fur- 
nished. The  Colorado  court,  however,  held  that  underwriters  were 
entitled  to  subrogation  regardless  of  negligence  or  wrong  doing  by 
the  carrier.  (Crissey,  etc.,  Co.  v.  Denver  &  R.  P.  R.  Co.,  17  Colo. 
App.  275 ;  British  Amer.  Assur.  Co.  v.  Colo.  &  S.  Ry.  Co.,  1912, 
125  Pac.  508.) 

Quite  analogous  to  the  rule  which  we  have  already  considered 
in  the  law  of  suretyship,  most  of  the  courts  have  had  no  difficulty 
in  applying  the  doctrine  of  subrogation  to  the  case  where  the  in- 
surance is  taken  out  and  paid  for  by  a  mortgagee  solely  for  his  own 
benefit.  (Carpenter  v.  The  Providence  Wash.  Ins.  Co.,  16  Pet., 
U.  S.  495;  Excelsior  Ins.  Co.  v.  Royal  Ins.  Co.,  55  N.  Y.  343; 
Thomas  v.  Montauk  Ins.  Co.,  43  Hun,  N.  Y.,  218;  Norwich  F.  Ins. 

604 


.Doctrine  of  Subrogation 

Co.  V.  Boomer,  52  111.  442;  Dick  v.  Franklin  F.  Ins.  Co.,  10  Mo. 
App.  384,  aff'd  81  Mo.,  103 ;  Bound  Brook  S.  Ins.  Co.  v.  Nelson,  41 
N.  J.  Eq.  485.) 

The  Masachusetts  courts,  however,  adopted  the  contrary  view, 
and  in  repeated  decisions  held  that  the  underwriters  having  been 
paid  the  full  equivalent  for  meeting  the  loss  must  be  left  to  sustain 
this  loss,  although  it  result  in  a  double  indemnity  to  the  mortgagee. 
(King  V.  State  Ins.  Co.,  7  Cush.  1 ;  Suffolk  F.  Ins.  Co.  v.  Boyden, 
91  Mass.,  123;  International  Trans.  Co.  v.  Boardman.  149  Mass. 
158.) 

In  a  very  elaborately  considered  case  an  insured  owner  of  a 
building  made  an  executory  contract  of  sale,  pending  the  fulfillment 
of  which,  a  partial  loss  by  fire  occurred,  which  was  adjusted  with, 
his  underwriters  and^  paid  by  them.  Subsequently  the  sale  was 
consummated  under  the  pending  contract  and  the  full  purchase 
price  paid  to  the  vendor.  Thereafter  the  underwriters  brought  suil 
against  the  vendor  to  recover  back  the  total  amount  paid  by  them 
under  the  policies.  The  insured  claimed  that  the  adjustment  with 
his  insurers  could  not  be  opened,  and  that  what  he  had  since  col- 
lected under  his  contract  of  sale  was  of  no  concern  to  them,  but  the 
court  were  of  the  contrary  opinion,  and  the  efforts  of  the  under- 
writers were  crowned  with  complete  success.  (Castellain  v.  Pres- 
ton, L.  R.,  11  Q.  B.  Div.  380.) 

This  important  case  was  decided  by  the  English  Court  of  Ap- 
peal in  1883,  but  long  before  this  time,  namely,  in  1836,  our  Chan- 
cellor Walworth  had  in  a  dictum  laid  down  precisely  the  same  rule. 
(Aetna  F.  Ins.  Co.  v.  Tyler,  16  Wend.  385,  397.) 

In  another  interesting  English  case  a  landlord  was  insured 
against  loss  by  explosion,  but  the  tenant  had  also  covenanted  in  the 
lease  to  repair  any  such  loss.  A  loss  occurred,  which  the  under- 
writers paid,  and  which  the  tenant  subsequently  repaired.  The  un- 
derwriters thereupon  brought  action  against  the  insured,  and  re- 
covered back  all  that  had  been  paid  under  the  policy.  (Darrell  v. 
Tibbitts,  L.  R.,  5  Q.  B.  D.  560.) 

It  will  readily  occur  to  us  that  some  of  these  cases  of  subroga- 
tion to  mere  contract  rights  offer  a  very  interesting  subject  for  our 
thoughtful  consideration.  The  insured  has  the  benefit  of  two  in- 
dependent contracts,  the  one  with  an  insurance  company,  the  other 
with  a  third  party,  for  example,  a  lease  with  covenant  by  the  tenant 
to  repair.  Both  these  contracts  are  based  upon  valuable  considera- 
tions.   No  question^ofjort  or  wrong  is  involved.    Where  shall  a  loss 

605 


The  Fire  Insurance  Contract 

be  put?  Can  it  be  said  that  either  the  tenant  or  the  underwriter  is 
primarily  Hable  as  compared  with  the  other?  Is  the  tenant  the  real 
insurer,  rather  than  the  insurance  company?  Shall  the  loss  be 
apportioned  between  them  under  some  principle  of  contribution,  on 
the  theory  that  both  alike  are  insurers?  These  questions  are  in- 
tensely practical.  There  are  outstanding  in  this  state  multitudes  of 
leases  containing  covenants  on  the  part  of  tenants  to  repair.  Every 
underwriter's  office  and  every  large  broker's  office  will  confess  to  an 
interest,  either  personal  or  representative,  to  an  untold  amount  con- 
nected with  leased  premises.  And  what  is  the  law?  Where  are 
these  losses  ultimately  to  rest  as  between  underwriters  and  third 
parties,  both  under  contract  with  the  owner  to  meet  the  loss? 

In  this  country  there  is  an  amazing  lack  of  decisions  covering 
these  precise  questions.  Qne  w^ould  have  supposed  that  just  such 
issues  would  have  come  before  the  American  courts  scores  of  times. 
In  my  own  experience  I  have  known  of  a  number  of  instances  where 
tenants  have  taken  leases  of  furnished  houses  for  limited  periods  in 
the  summer,  two  or  three  or  four  months,  covenanting  to  make 
good  any  loss  that  might  occur  to  real  or  personal  property.  The 
property  in  a  given  case  may  be  worth,  say,  twenty  or  thirty  thou- 
sand dollars,  and  the  whole  rent  very  likely  not  more  than  one  hun- 
dred and  fifty  dollars  a  month;  the  landlord  who  owns  all  the 
property  has  insured  it ;  the  tenant  does  not  own  it  and  has  no  insur- 
ance upon  it.  In  many  instances  the  tenant  might  give  very  littk 
heed  to  any  such  question  of  liability  created  by  the  lease,  and  might 
really  suppose  that  he  was  simply  guaranteeing  against  some  trivial 
or  improbable  act  of  negilgence  on  the  part  of  his  servants,  relatin<< 
more  especially  to  wall  papers  and  floors  and  personal  property. 
The  place  burns  up;  who  is  ultimately  responsible  for  the  loss,  the 
underwriter  or  the  tenant? 

One  of  our  most  excellent  writers  on  the  subject  of  insurance 
law  w^as  Mr.  John  Wilder  May,  whose  two  volume  book  on  insur- 
ance, published  in  Boston,  has  gone  through  several  editions.  When 
the  famous  case  of  Darrell  against  Tibbetts  was  decided  by  the  Eng 
lish  court  in  favor  of  the  landlords  underwriters  and  against  the 
landlord  who  sought  to  keep  his  double  indemnity,  the  one  indemnity 
received  from  the  underwriters  and  the  other  from  tlic  tenants,  Mr. 
May  seemed  somewhat  staggered.  In  the  next  edition  of  his  book 
he  refers  to  the  case  as  involving  "a  strict,  not  to  say  new,  applica- 
tion of  the  principle  of  indemnity" ;  and  in  a  foot  note  he  adds  the 
following  comments:  "That  the  [insurance]  contract  is  one  of  in- 

.606 


Doctrine  of  Subrogation 

demnity  has  been  heretofore  conceded  elsewhere  than  in  England  as 
elementary,  nor  are  we  aware  that  it  has  ever  been  seriously  contro- 
verted. But  it  has  been  supposed  that  the  insurer  contracts  that  he 
will  indemnify.  Whether,  however,  this  application  of  the  doctrine 
will  receive  the  approval  of  our  courts  remains  to  be  seen.  It  cer- 
tainly deals  rather  summarily  with  rights  acquired  under  lawful 
contracts,  lawfully  executed,  where  the  considerations  are  equiva- 
lents, which  cannot  be  rescinded  or  modified  except  by  the  parties 
thereto.  It  should  be  added  that  when  the  insurers  paid  over  the 
indemnity  they  did  not  know  that  the  lessee  was  bound  to  repair." 
(May  on  Ins.,  sec.  456  a.) 

The  remarks  of  Mr.  May  just  quoted  are  forcible  so  far  as  they 
go.  But  I  insist  we  must  go  further.  The  pith  and  point  of  our 
inquiry  must  be  this:  Shall  the  law  permit  the  insured  public,  in- 
cluding bad  men  and  good  men  alike,  to  utilize  their  insurance  con- 
tracts as  a  source  of  profit?  Are  such  calamities  as  conflagrations 
and  shipwrecks,  imperiling  the  safety  of  the  public  at  large,  to  be 
converted  by  canons  of  insurance  law  into  pecuniary  blessings  to 
individuals  who  are  insured  against  their  occurrence,  events  not  to 
be  dreaded  and  guarded  against,  but  to  be  hoped  for  and  prayed  for, 
and  by  unscrupulous  men  planned  for  and  labored  for?  If  the  law 
allows  any  man  to  make  a  huge  profit  by  his  insurance  contract, 
then  many  a  man  will  deliberately  take  out  and  hold  insurance  with 
that  result  in  view.  And  what  sort  of  a  situation  then  shall  we  have 
in  the  community  ? 

A  man  owns  a  house  worth  not  over  $10,000;  it  is  insured 
tu  that  amount ;  he  contracts  to  sell  it  for  $10,000,  and  is  delighted 
with  his  bargain.  May  he  collect  and  keep  his  $10,000,  received 
from  the  purchaser,  and  $10,000  more  clear  profit  received  from 
his  underwriter,  and  thereby  realize  from  the  sale  and  the  fire 
combined  $20,000?  If  so,  he  will  certainly  be  apt  to  welcome  a 
fire,  and  if  he  does  not  deliberately  drop  the  spark  that  occasions 
destruction,  it  is  not  likely  that  he  will  use  any  special  precaution 
to  prevent  it. 

Mortgagees  find  it  difiicult  indeed  to  realize  more  than  five 
percent  interest  on  their  loans  in  this  city.  Think  then  of  doubling 
the  whole  principal  and  perhaps  within  a  few  days  after  the  loan 
is  made !  The  mortgagee  has  paid  out  $10,000  as  a  loan,  and  that, 
one  would  suppose,  is  the  total  amount  of  principal  which  he 
is  to  recover  back.     Shall  he  collect  and  keep  $10,000  from  the 

607 


The  Fire  Insurance  Contract 

mortgagor  and  $10,000  more  from  his  underwriter?  Shall  such 
a  possible  plan  of  procedure  be  ever  present  before  his  eyes, 
stamped  with  the  approval  of  the  courts?  That  is  the  question 
that  confronts  us.  What  is  the  fair  meaning  of  a  promise  to  pay 
for  actual  loss?  What  does  pubHc  policy  demand?  If  the  rule  of 
indemnity  is  to  prevail,  it  is  obvious  that  we  must  apply  our  doc- 
trine of  subrogation  so  that  it  shall  cover  not  only  claims  arising 
out  of  liability  for  the  loss,  negligence,  breach  of  duty,  wrong 
doing  in  any  form,  but  also  claims  arising  out  of  contracts  as  well, 
and,  indeed,  rights  of  all  sorts,  an  enforcement  of  which  will  dimin- 
ish the  loss.  Is  not  this  the  sound  and  simple  proposition:  The 
underwriter  is  lawfully  interested  in  any  right  which  diminishes 
the  loss  of  the  insured,  because  it  is  only  that  loss  that  he  ought 
to  pay,  and  only  that  loss  that  he  has  agreed  to  pay? 

The  doctrine  is  admirably  illustrated  in  a  case  decided  by  the 
United  States  Supreme  Court :  Insurance,  issued  to  the  American 
Tobacco  Company,  covered,  among  other  items  totally  lost,  sev- 
eral thousand  dollars'  worth  of  unused  internal  revenue  stamps,  the 
full  face  of  which,  under  the  provisions  of  the  United  States 
Revised  Statutes,  was  redeemable  from  the  United  States.  The 
underwriters,  having  paid  the  loss,  claimed  reimbursement  from 
the  Government  by  virtue  of  this  doctrine  of  subrogation.  Certainly 
'  the  Governmentwas  in  no  wise  responsible  for  the  fire  or  the  loss._ 
Nevertheless,  the  underwriters  succeeded  in  maintaining  their  right 
to  a  full  reimbursement.  (United  States  v.  American  Tobacco  Co., 
166  U.  S.  468.) 

Rights  Only  Are;  Included — Not  Gifts. 

But  on  the  other  hand,  the  English  courts  have  decided  that 
while  the  doctrine  of  subrogation  extends  to  all  sorts  of  rights,  the 
enforcement  of  which  will  diminish  the  loss,  it  will  not  extend  to 
gifts,  where  the  grantor  of  the  gift  had  no  intention  of  thereby 
benefiting  the  underwriters.  This  rule  became  established  in  con- 
nection with  payments  made  by  the  United  States  Government 
after  the  late  Civil  War,  by  way  of  restitution  to  parties  who  had 
been  injured  by  acts  of. our  cruisers  during  that  war.  The  claims 
for  restitution,  you  will  remember,  were  known  as  the  Alabama 
claims.  The  parties  injured,  in  the  particular  case  decided,  had 
been  insured  and  the  underwriters  had  paid  as  for  a  total  loss. 
Subsequently    the   underwriters    sought    to    recoup    themselves    by 

608 


Doctrine  of  Subrogation 

claiming  the  money  which  the  insured  had  collected  under  the  Act 
of  Congress,  but  the  English  Court  refused  subrogation  in  that 
case,  and  held  that  the  insured  had  no  right  to  the  money,  that  the 
action  of  the  United  States  Government  was  rather  in  the  nature 
of  a  gift  to  the  insured,  intended  to  benefit  only  the  insured,  and 
that  therefore  no  right  based  thereon  passed  to  the  underwriters. 
(Burnand  v.  Rodocanachi,  7  App.  Cas.  333;  approved  on  this 
ground  in  Castellain  v.  Preston,  L.  R.,  11  Q.  B.  D.  380.) 

Rights  as  Thky  Exist  at  the  Time  of  Loss. 

Unless  the  policy  provides  otherwise,  the  doctrine  of  subro- 
gation attaches  to  rights  of  the  assured  against  third  parties  as 
th^y, exist  at  the  time  of  loss  (Hartford  Fire  Ins.  Co.  v.  Chi.,  etc., 
Ry.  Co.,  175  U.  S.  91,  96).  From  the  time  of  loss  and  thereafter, 
the  insured  must  not  alienate,  release  or  disturb  such  rights  to  the 
prejudice  of  his  underwriters,  without  the  underwriters'  consent. 
(Phoenix  Ins.  Co.  v.  Parsons,  129  N.  Y.  86;  Phoenix  Ass.  Co.  v. 
Spooner,  1905,  2  K.  B.  753.)  But^  before  loss  the  insured  may  dis- 
pose of  his  rights  as  he  will,  for  example,  in  a  bill  of  lading  w^hich 
may  practically  cut  off  any  right  of  subrogation  (Wagner  v.  Provi- 
dence Ins.  Co.,  150  U.  S.  99;  Phoenix  Ins.  Co.  v.  Erie  Transporta- 
tion Co.,  117  U.  S.  312;  Gerlach  v.  Grain  Shippers  Mut.  Fire  Ins. 
Co.,  la.,  1912,  136  X.  W.  691 ;  Piatt  v.  Richmond  Ry.  Co.,  108  N. 
Y.  358;  Pelzar  v.  The  Sun  Fire  Office,  36  S.  Car.  213);  unless 
his  representations  to  his  underwriters  or  the  warranties  of  the 
policy  j)rohibit  (Tate  v.  Hyslop,  1885,  15  O.  B.  D.  368,  conceal- 
ment; Fayerweather  v.  Phoenix  Ins.  Co.,  118  N.  Y.  324). 

New  York  Cases.     Contract  Rights. 

And  now  it  becomes  appropriate  to  take  notice  of  certain  of 
the  New  York  cases.  How  far  do  the  courts  of  our  own  state 
extend  the  scope  of  the  doctrine  of  subrogation?  Do  they  in- 
clude claims  based  only  upon  contracts  ? . 

In  a  New  York  case  frequently  cited  (Foley  v.  Manufacturers 
Fire  Ins.  Co.,  152  N.  Y.  131)  the  plaintiffs  owned  a  piece  of  land 
upon  which  their  insured  buildings  were  in  course  of  construc- 
tion under  a  building  contract,  by  the  terms  of  which  the  contrac- 
tor was  not  to  be  paid  until  after  completion  of  the  work.  While 
in  course  of  construction  the  buildings  were  destroyed  by  fire;  the 
owners  sued  on  the  policy;  the  insurance  company  defended  on 

609 


The  Fire  Insurance  Contract 

the  ground  that  the  plaintiffs  had  no  insurable  interest  and  that 

the  contractors  were  the  real  parties  in  interest.     The  court,  by 

Chief  Justice  Andrews,  and  without  any  dissenting  opinion,  had 

this  to  say: 

"The  defendant  by  its  contract  undertook  to  insure  the  plaintiffs 
against  loss  by  fire  not  exceeding  the  sum  specified  to  the  described 
property.  The  loss  or  damage  to  be  ascertained  according  to  the  actual 
cash  value  of  the  property  at  the  time  of  the  fire.  The  parties  by  this 
contract  made  the  value  of  the  property  insured,  within  the  limit,  the 
measure  of  the  insurer's  liability.  *  *  *  The  defence  comes  to  this,  that 
^s  the  plaintiffs,  by  their  contract  with  third  persons  have  imposed  upon 
them  the  risk  and  expense  of  furnishing  complete  structures  and  have 
assu^--'  no  liability  until  the  structures  are  completed,  they  had  no  in- 
surable interest  and"  have  sustained  no  loss.  But  the  contract  relations 
between  the  plaintiffs  and  the  contractors  is  a  matter  in  which  the  de- 
fendant has  no  concern.  When  the  policy  was  issued  it  could  not  be 
known  whether  the  contractors  would  perform  their  contract.  If  they 
iihcindoned  it  the  owners  would  derive  such  advantage  as  would  accrue 
from  the  partial  construction  of  the  building  prior  to  such  abandonment. 
It  is  possible  that  if  the  defendant  is  compelled  to  pay  the  policy  the 
plaintiffs  may,  if  they  insist  upon  their  rights  against  the  contractors, 
t?et  double  compensation,  unless  they  should  be  adjudged  to  hold  the 
hmd  recovered  for  the  contractors.  But,  however  this  may  be,  the 
owners  had  an  insurable  interest  to  the  whole  value  of  the  buildings  on 
I  heir  land  and  the  defendants  neither  can  compel  the  plaintiffs  to  put 
till'  .loss  on  the  contractors  nor  can  they  resort  to  the  terms  of  the 
building  contract  to  diminish  the  liability  for  an  actual  loss  within  the 
terms  of  the  policy.  The  fact  that  improvements  on  land  may  have  cost 
the  owner  nothing,  or  that  if  destroyed  by  fire  he  may  compel  another 
person  to  replace  them  without  expense  to  him  or  that  he  may  recoup 
ir's  loss  by  resort  to  a  contract  liability  of  a  third  person  in  no  way 
affects  the  liability  of  an  insurer  in  the  absence  of  any  exemption  in 
the  policy." 

To  a  proper  appreciation  of  the  opinion  just  quoted  it  is  essen- 
tial to  remark  that  no  question  of  subrogation  was  presented  to  the 
court  either  by  the  pleadings  or  by  the  argument  of  counsel,  or 
was  in  any  way  involved.  The  decision  of  the  court  was  doubt- 
less correct,  since  as  a  matter  of  fact  the  title  to  these  buildings 
was  in  the  plaintiffs,  and  the  contractors  had  not,  up  to  the  time 
of  the  trial  actually  reinstated  or  rebuilt,  in  whole  or  in  part ; 
therefore  the  present  liabihty  of  the  insurance  companies  was  clear 
and  was  unaffected  by  the  building  contract,  and  probably  no 
thought  of  possible  future  subrogation  was  in  the  mind  of  Chief 
Justice  Andrews  when  he  framed  his  opinion,  else  I  am  fully  per- 
suaded he  would  have  been  more  guarded  in  his  phraseology.  Stand- 
ing by  itself  I  do  not  think  that  the  Foley  case  amounts  to  much 
one  way  or  the  other  as  bearing  upon  any  question  of  subrogation. 

Several  years  later,  however,  namely  in  1902,  the  Buffalo  Ele- 
vating Company  case  came  up  before  the  same  court  (Michael  v. 
Prussian    National   Ins.    Co.,    171    N.   Y.   25).     There   the   insured 

610 


Doctrine  of  Subrogation 

company  had  some  $70,000  of  use  and  occupancy  insurance.  Nev- 
ertheless., it  had  turned  over  or  assigned  the  great  hulk  of  its  pros- 
pective earnings  for  the  pending  season  to  the  Western  Elevating 
Association,  a  pool  of  many  grain  elevators,  under  a  secret  arrange- 
ment undisclosed  to  the  insurance  companies,  whereby,  in  spite  of 
a  fire,  it  v^as  to  receive  its  full  income  or  percentage  of  earnings 
as  a  member  of  the  pool.  Subsequent  to  the  fire,  as  appeared  by 
pleadings  and  stipulation,  it  actually  had  received  a  very  large  re- 
mittance of  this  character  from  the  pool,  and  under  this  very  doc- 
trine of  indemnity  the  insurers  of  use  and  occupancy  contended 
that  the  subsequent  remittance  from  the  pool  should  be  credited 
to  tHernTn  diminution  of  their  liability  as  insurers.  The  court  held, 
and  I  think  rightly,  that  this  contention  of  the  insurance  companies 
was  unsound.  But  to  the  reasoning  of  the  court  we  may  find  our- 
selves unable  to  lend  our  cordial  acquiescence.  A  valid  ground  for 
holding  that  the  insurers  w-ere  not  entitled  to  that  reduction  was 
this,  that  there  was  absolutely  no  proof  before  the  court  estab- 
lishing the  total  value  of  the  subject  of  insurance.  The  courts  will 
never  willingly  apply  subrog;ation  if  it  would  interfere  with  indem- 
nity (Phoenix  Ins.  Co.  v.  First  Nat.  Bank,  85  Va.  767).  The  rule 
of  indemnity  works  both  ways  and  in  favor  of  both  parties.  For 
aught  that  conclusively  appeared  in  the  record  of  that  case  the 
insurance^  plus  the  remittance  from  the  pool  did  not  exceed  the  full 
value  of  the  subject  insured.  The  policies  were  in  the  customary 
form,  a  per  diem  allowance  for  each  day  of  idleness  caused, by 
the  fire.  If  the  plaintiffs  took  out  $10,000  of  insurance,  the  total 
per  diem  allowances  would  amount  to  a  certain  sum.  If  they  took 
out  $100,000  of  insurance,  the  total  per  diem  allowances  would 
amount  to  ten  times  as  much,  but  there  was  no  agreed  valuation 
in  the  policies,  nor  were  the  plaintiffs  under  obligation  to  take  out 
any  particular  amount  of  insurance,  and,  therefore,  there  was  noth- 
ing before  the  court  to  demonstrate  the  actual  total  value  of  com- 
mercial use  and  occupancy  for  the  pending  year.  Subrogation, 
strictly  speaking,  was  not  applicable  to  this  case  for  another  reason 
also,  to  which  the  court  alludes,  namely,  that  the  underw^riters  had 
not  yet  paid  the  loss.  But  the  ground  for  their  ruling  upon  w^hich 
the  court  laid  special  stress  was  that  earnings  and  income  consti- 
tuted no  part  of  the  subject  matter  of  the  use  and  occupancy  insur- 
ance. In  the  opinion,  Mr.  Justice  Gray  makes  the  following  state- 
ment regarding  subrogation : 

"The  appellants'-  claim,  to  be  entitled  by  application  of  tbe  equitable 

611 


The  Fire  Insurance  Contract 

doctrine  of  subrogation  to  be  credited  with  a  proportionate  share  of  the 
percentages  or  moneys  received  by  the  plaintiff  from  the  association 
in  reduction  of  its  liability  upon  the  policy,  is  not  a  tenable  one.  ♦  ♦  ♦ 
The  Western  Elevating  Association  might  conceivably  v^^ith  better 'ap- 
pearance of  right  prefer  the  claim  to  be  subrogated  as  to  the  insurance 
moneys  in  order  to  recoup  itself  for  the  moneys  paid  over  to  its  disabled 
member.  *  ♦  *  I  think  the  principle  of  the  decision  of  Foley  v.  Manu- 
facturers &  B.  Fire  Ins.  Co.,  152  N.  Y.  131,  relied  upon  at  the  Appellate 
Division  as  to  this  point  is  applicable.  There  the  policy  was  upon 
some  dwelling  houses  in  course  of  construction  and  tney  were  de- 
stroyed by  fire.  The  contractors  for  their  erection  were  obligated  to 
complete  them  before  becoming  entitled  to  be  paid  for  the  materials 
and  work,  it  was  held  that  the  insurance  company  was  not  concerned 
with  the  contract  relations  between  the  plaintiff  and  the  contractor*. 
It  was  said  that  it  is  possible  that  if  the  defendant  is  compelled  to  pay 
the  policy,  the  plaintiffs  may,  if  they  insist  on  their  rights  against  the 
contractors,  get  double  compensation  unless  they  should  be  adjudged  to 
hold  the  fund  recovered  for  the  contractors.  ♦  ♦  *  Again  it  was  observed 
that  though  the  owner  may  recoup  his  losses  by  reason  of  a  contract  lia- 
bility of  a  third  person,  it  in  no  way  affects  the  liability  of  an  insurer 
in  the  absence  of  an  exemption  in  the  policy.  The  case  is  very  much  in 
point  as  an  authority  for  the  disposition  of  this  appeal.  The  theory 
of  the  right  of  subrogation  rests  upon  the  fact  that  the  assured  have  a 
claim  against  a  third  party  for  the  loss  which  has  been  sustained  in  the 
tiestruction  of  the  property  insured.  That  is  not  the  case  with  the  plain- 
tiff who  did  not  receive  his  payment  from  the  pooling  fund  because  or 
in  consideration  of  the  loss,  but  under  an  arrangement  which  had  se- 
cured to  the  members  of  the  association  certain  percentages  under  all 
conditions  as  a  consideration  of  entering  into  it." 

If  these  remarks  of  the  learned  New  York  judge  are  to  be 
taken  as  a  general  exposition  of  the  law  of  subrogation  by  our 
highest  court,  as  many  have  supposed  they  must  be,  the  situation 
is  indeed  serious.  But  I  do  not  think  it  necessary  to  understand 
them  in  that  light.  No  issue  of  subrogation  proper  w^as  really  in- 
volved in  the  decision  of  the  grain  elevator  case.  The  doctrine 
of  subrogation  was  presented  rather  as  an  argument  to  persuade 
the  court  that  the  plaintiff's  claim  was  utterly  inconsistent  with  the 
sound  doctrine  of  indemnity.  The  Court  of  Appeals  had  before  it 
the  English  and  federal  cases  relating  to  subrogation,  but  did  not 
review  or  discuss  them,  or  declare  that  there  was  any  intention  on 
tlie  part  of  the  court  of  departing  from  them.  The  seeming  ap- 
proval of  the  theory  that  the  insured  may  recover  and  retain,  as 
the  proceeds  of  both  his  contracts,  a  double  compensation,  may 
be  regretted,  and  perhaps  amounts  to  an  unfavorable  dictum  as 
applied  to  our  present  inquiry,  but,  so  far  as  the  law  of  subrogation 
is  concerned,  I  am  disposed  to  think  we  should  regard  Judge  Gray's 
opini(»n  as  amounting  rather  to  some  such  statement  as  this,  to  wit : 
''Whatever  may  be  the  law  of  subrogation,  the  court  concludes,  that 
it  has  no  application  to  this  case,  for  two  reasons;  first,  because 
the  underwriters  have  not  as  yet  made  payment  for  the  loss,  and 

612 


Doctrine  of  Subrogation 

second,  b'ecause  the  subject  matter  of  the  insurance  is  not  the  same 
as  the  subject  matter  of  the  pooling  agreement." 

The  real  defense  in  that  case  was  this:  That  the  assignment 
and  turning  over  by  the  elevator  company  of  its  earnings  to  a  third 
party,  to  wit,  the  pool,  amounted  to  a  "change  of  interest,"  and 
that  the  elevator  company  thereafter  was  not  the  "sole  and  uncon- 
ditional owner"  of  the  subject  matter  insured.  The  Court  of  Ap- 
peals, in  its  opinion,  conceded  that  the  subject  matter  of  this  class 
of  insurance  is  "the  business  use"  of  the  premises,  and  so  the  un- 
derwriters in  that  case  contended;  but  they  further  contended  that 
the  earnings  and  income  of  the  elevator  constituted  a  very  real 
and  substantial  part  of  that  business  use.  And  the  strength  of 
their  contention  is  illustrated  by  the  argument  that  the  assignee,  to 
wit,  the  pool,  could  conceivably,  in  its  turn,  have  insured  these  same 
assigned  earnings  under  the  denomination  "use  and  occupancy,"  and 
the  next  assignee  could  have  done  the  same,  and  so  on  ad  infinitum. 
Several  different  successive  owners,  it  would  seem,  cannot  each 
at  the  same  time  be  the  sole  and  unconditional  owner  of  a  given 
subject  matter  (Fuller  v.  Jameson,  98  z\pp.  Div.  53). 

Brushing  aside  all  technicalities,  the  situation  in  this  important 
elevator  case,  though  not  spread  before  the  court  in  detail  by  the 
agreed  statement,  amounted  very  much  to  this :  The  elevator  com- 
pany had  insurance  on  their  buildings  and  on  the  contents.  Besides 
this,  they  had  upwards  of  $70,000  use  and  occupancy  insurance. 
When  the  elevator  was  razed  to  the  ground  by  the  fire,  their  operat- 
ing expenses  were,  of  course,  very  largely  diminished,  if  not  totally 
suspended,  while,  owing  to  their  agreement  with  the  pool,  which 
controlled  abundant  elevator  capacity  in  Buffalo,  their  income  re- 
mained substantially  the  same.  So  far  as  any  practical  meaning, 
in  a  commercial  sense,  can  be  attached  to  the  words,  there  was  no 
loss  to  the  insured  of  "use  and  occupancy;"  there  was  rather  a 
gain.  Nevertheless,  for  an  alleged  loss,  not  a  dollar  of  which,  prob- 
ably, was  really  sustained,  they  were  allowed  to  collect  over  $60,000 
on  their  use  and  occupancy  insurance. 

Whether  the  judgment  of  the  court  was  lawful  or  unlawful, 
just  or  unjust,  matters  little  for  our  present  purposes;  the  relevant 
inference  is  this,  that  we  must  not  regard  that  decision  as  neces- 
sarily controlling  when  we  are  seeking  only  to  investigate  the  law 
of  subrogation;  and  when  in  future  the  proper  case  of  subrogation 
shall  arise,  do  not  for  one  moment  hesitate  to  present  it  before 

613 


r 


The  Fire  Insurance  Contract 

the  judges  of  that  high  tribunal  with  considerable  continence  that 
they  will  and  must  approve  of  the  application  of  the  solind  rule  of 
''indemnity  only"  already  sweepingly  applied  by  the  English  and 
United  States  Supreme  Courts,  and  this  year  enforced  by  the 
New  York  Supreme  Court,  in  a  somewhat  different  connection, 
in  the  case  of  Heilbrunn  v.  German  Alliance  Ins.  Co.  (135  N.  Y. 
Supp.,  769,  150  App.  Div.,  670).  And  now  it  is  with  special  grati- 
fication that  I  refer  you  to  the  views  of  two  New  York  jurists  of 
more  ancient  times,  Chancellors  Kent  and  Walworth.  In  a  case 
to  which  I  have  already  alluded,  Aetna  Fire  Ins.  Co.  v.  Tyler  (16 
Wend.  385),  involving  an  executory  contract  of  sale  to  the  plain- 
tiff Tyler,  Chancellor  Walworth  lays  down  the  following  princi- 
ples, citing  also  a  much  earlier  opinion  by  Chief  Justice  Kent: 

The  vendor  Shafer,  indeed,  could  not  recover  that  money  (the  pur- 
chase price)  and  retain  it  for  his  own  benefit  after  ^le  had  been  paid  by 
his  underwriters;  but  it  could  be  collected  in  his  name  for  the  benefit 
of  such  underwriters,  as  they  are  in  equity  entitled  to  all  his  rights  and 
remedies  if  they  pay  the  amount  of  his  loss.  This  principle  of  equitable 
subrogation  or  substitution  of  the  underwriters  in  the  place  of  the  as- 
sured, is  recognized  by  every  writer  on  the  subject  of  insurance,  and  is 
constantly  acted  upon  in  courts  of  law  as  well  as  in  equity.  *  *  *  Thus, 
in  the  case  of  Gracie  v.  The  New  York  kisurance  Company,  8  Johns, 
R.  246,  where  the  assured  recovered  to  the  full  amount  of  the  policy  upon 
a  condemnation  of  the  vessel  and  cargo  under  the  Berlin  and  Milan 
decrees,  although  there  was  no  abandonment  of  the  spes  recuperandi 
against  the  French  government,  Chief  Justice  Kent  says  that  if  France 
should  at  any  time  hereafter  make  compensation  for  the  capture  and 
condemnation,  the  United  States,  upon  the  receipt  of  the  money,  would 
hold  it  as  trustee  for  the  party  having  the  equitable  interest  therein; 
and  that  would  clearly  be  the  underwriter. 

If  these  remarks,  which  I  have  just  quoted,  fairly  embody  the 
law  of  this  state  as  it  exists  today,  and  I  am  not  aware  that  they 
have  ever  been  overruled,  then  have  those  of  you  who  are  under- 
writers much  cause  for  hope  as  regards  the  ultimate  solution  of  the 
interesting  problems  which  I  have  endeavored  to  set  before  you. 
Obsen^e  that  in  the  Tyler  case  the  right  under  discussion  was  the 
right  to  a  purchase  price,  a  right  based  simply  upon  an  executory 
contract  of  sale  with  a  third  party,  a  purchase  price  that  had  to 
be  paid  to  the  vendor  regardless  of  any  question  of  fire,  insurance, 
or  loss ;  and  to  that  mere  contract  right  our  old  Supreine  Court  of 
Judicature  declares  this  doctrine  of  subrogation  will  undoubtedly 
attach,  for  the  reimbursement  of  underwriters  who  have  already 
indemnified  the  vendor.  In  these  clearly  expressed  views  of  two 
of  our  most  illustrious  judges,  do  I  not  bring  to  you  an  encouraging 
offset  to  the  dictum  contained  in  the  Foley  case,  afterward  quoted 

614 


Doctrine  of  Subrogation 

m   the  elevator  case,   regarding  an  allowance  of   double   compen- 
sation to  the  insured?    In  conclusion  a  word  as  to 

Contribution. 

Has  the  third  party  w^ho  is  prosecuted  under  the  doctrine  of 
subrogation  a  right  to  an  apportionment  of  the  loss  as  between 
himself  and  the  underwriters  of  the  insured?  Where  the  third 
party  is  responsible  for  the  loss,  or  is  primarily  hable,  as  for  ex- 
ample, in  the  case  of  a  common  carrier,  or  the  owner  or  master 
of  a  steamship,  or  a  wharfinger,  it  has  been  expressly  held  that  no 
claim  of  contribution  is  to  be  allowed  in  his  favor,  whether  he  has 
been  negligent  or  not  (The  Atlantic  Ins.  Co.  v.  Storrow,  5  Paige, 
N.  Y.,  285 ;  North  British  &  Mer.  Ins.  Co.  v.  L.  &  L.  &  0.  Ins. 
Co.  L.  R.  5  Ch.  D.  569). 

But  take  the  case  of  a  tenant  who  has  covenanted  with  the 
landlord  to  make  good  a  tire  loss ;  the  landlord  has  been  paid  the 
loss  by  his  underwriters,  and  they  in  turn  sue  the  tenant  under 
the  doctrine  of  subrogation.  Assuming  that  they  can  recover,  may 
they  recover  in  full,  or  has  the  tenant  the  right  to  say,  we  are  both 
insurers  and  we  must  contribute  pro  rata?  I  do  not  recall  any 
case  in  which  this  precise  question  has  been  decided  by  our  courts. 
If  the  covenant  of  the  tenant  is  in  terms  to  repair  or  rebuild,  it 
may  not  be  easy  to  apply  the  principle  of  contribution,  and  it  was 
not  applied  in  the  Darrell  case  in  England.  The  two  contracts  are 
not  of  the  same  kind  or  class.  One  is  to  be  performed  usually  by 
the  payment  of  money,  the  other  is  to  be  performed  by  the  rendi- 
tion of  certain  work  to  a  given  result  which  is  indivisible  in  its 
nature,  and  I  am  not  able  to  cite  any  case  which  has  enforced  the 
principle  of  an  equitable  apportionment  or  contribution  in  such  i 
situation.  If,  on  the  other  hand,  the  tenant's  covenant  in  terms 
calls  for  a  payment  in  money  for  the  amount  of  damage,  it  would 
seem  as  though  the  courts  might  regard  both  contracts  as  alike  in- 
surances against  loss,  or  contracts  of  indemnity,  and  enforce  the 
principle  of  equitable  contribution  as  betw^een  them.  (But  see  Dar- 
rell v.  Tibbetts,  L.  R.  5  O.  B.  D.  560.)  Such  a  possible  result 
you  will  remember,  is  more  than  hinted  at  in  the  language  of  Mr. 
Justice  Gray,  which  I  have  already  quoted  from  the  Grain  Elevator 
case,  and  Chancellor  Walworth  suggests  the  same  result  in  the  Stor- 
row case.    He  says: 

615 


The  Fire  Insurance  Contract 

It  is  insisted,  however,  on  the  part  of  the  respondents  that  although 
they  have  succeeded  in  satisfying  the  Superior  Court  that  this  was  a  loss 
for  which  the  underwriters  were  liable  on  this  policy,  it  was  a  case  in 
which  the  underwriters  and  ship  owners  were  equally  liable  and  that  the 
equities  of  both  were  equal  as  to  the  assured.  Even  if  this  were  so,  it 
does  not  follow  that  the  assured  had  a  right  to  receive  the  amount  of  the 
loss  from  either  and  assign  over  to  the  one  from  whom  it  was  received 
the  right  to  claim  the  full  amount  from  the  other  party.  It  would  rather 
present  a  case  of  equitable  contribution  in  which  each  should  contribute 
a  moiety  towards  the  loss,  as  in  the  case  of  a  double  insurance.  (See 
also  Chi.,  etc.,  Ry.  Co.  v.  Pullman  Car  Co.,  139  U.  S.  79,  88,  in  which  the 
court  puts  all  contracts  of  indemnity  upon  the  same  plane.) 


m 


XXXI 

SUBEOaATION 

VV.  H.  Van  Benschoten,  Lawyer 

Subrogation  is  the  substitution  of  another  person  in  the  place 
of  one  creditor  so  that  jthe  person  in  whose  favor  it  is  exercised 
succeedg.lD-th£,  rights  of  the  creditor  in  relation  to  the  debt.  More 
broadly,  it  is  the  substitution  of  one  person  in  the  place  of  another 
whether  as  creditor  or  as  the  possessor  of  any  other  rightful  claim. 
The  Court  of  Appeals  of  the  State  of  New  York  has  defined  "sub- 
rogation" as  the 

"mode  which   ecii,uty  ?Hr>pts  tn  rnmpol   the  ultimate  payment  of  a  debt. 
by  one  who  in  justice,  equity  and  good  conscience  ought  to  jpay  it." 

(Arnold  v.  Green,  116  N.  Y.  566). 

There  are  twQ..  kinds  of-^ubrogation,  legal  and  ronventinna,), 
LegaL-SubiDgation  arises  when  by  operation  of  law  a  third  person 
becpmej^^equitably  entitled  to  stand  in  the  place  of  the  creditor. 
This  kind  of  subrogation  is  sometimes  known  as  the  common  law 
right  of  subrogation  and  it  grows  out  of  the  doctrine  of  indemnity 
and  also  tinds  an  equitable  basis  in  the  consideration  that  the  per- 
son who  caused  the  loss  or  who  is  primarily  liable  ought  to  be  made 
ultimately  responsible  for  the  damages  sustained.  It  is  equitable 
and  just  that  the  burden  of  the  loss  ought  ultimately  to  rest  upon 
the  party  who  caused  it.  (Conn.  Mut.  Life  Ins.  Co.  v.  Cornwell, 
72  Hun.,  199.) 

It  should  be  remembered,  however,  that  legal  subrogation  is 
allowed  only  in  cases  where  the  person  paying  the  debt — in  the 
case  of  insurance,  the  loss — is  under  legal  obligation  or  liability 
to  do  so.  (Authorities  cited  in  Durante  v.  Eannaco,  65  N.  Y.  App7 
Div.  435.) 

The  Supreme  Court  of  the  United  States  in  the  case  of  Aetna 

Life  Insurance  Company  v.  Middleport,   124  U.  S.,  534,  approved 

the  statement  of  one  of  the  Chancellors  of  South  Carolina  made 

with  reference  to  this  question,  and  which  was  as  follows: 

"The  doctrine  of  subrogation  is  a  pure  unmixed  equity,  having  its 
foundation  in  the  principles  of  natural  justice,  and  from  its  very  nature, 
never  could  have  been  intended  for  the  relief  of  those  who  were  in  a 
condition  in  which  they  were  at  liberty  to  elect  whether  they  would  or 
would  not  be  bound,  and  as  far  as  I  have  been  enabled  to  learn  its  his- 
tory, it  never  has  been  so  applied.  If  one  with  the  perfect  knowledge  of 
the  facts,  will  part  with  his  money,  or  bind  himself  by  his  contract,  in  a 
sufficient  consideration,  any  rule  of  law  which  would  restore  him  his 
money    or   absolve   him    from    his   contract,   would    subvitrt   the    rules    of 

617 


The  Fire  Insurance  Contract 

such  order.  It  has  been  directed  in  its  application  exclusively  to  the 
relief  of  those  that  were  already  bound,  who  could  not  but  choose  to 
abide  the  penalty  *  *  *  But  I  have  seen  no  case,  and  none  has  been  re- 
ferred to  in  the  argument  in  which  a  stranger,  who  was  in  a  condition  to 
make  terms  for  himself,  and  demand  any  security  he  might  require,  has 
been  protected  by  the  principle." 

The  word  ''stranger"  as  used  in  this  connection,  is  not  neces- 
sarily one  who  has  nothing  to  do  with  the  transaction  out  of  which 
the  debt  grew ;  any  one  being  under  no  legal  obligation  or  liability 
to  pay  the  debt  is  a  stranger,  and  if  he  pays  the  debt,  a  mere  volun- 
teer. (Arnold  v.  Green,  116  N.  Y.  566;  Luppnier  v.  Carrels.  20 
'111.  App.  625.) 

In  passing  we  should  perhaps  say  that  payments  made  in  ignor- 
ance of  the  real  state  of  facts,  havejjeen  held  not  to  be  voTunta?y 
(Durante  v.  Eannaco,  65  N.  Y.  A.  D.,  435)  and  a  person  who  has 
paid  adebt  under  a  colorable  obligation  to  do  so  that  he  might 
protect  his  own  claim  or  under  an  honest  belief  that  he  is  bound  to, 
has  been  held  entitled  to  be  subrogated;  (Muir  v.  Berkshire,  52 
Ind.  149),  and  a  person  who  mistakenly,  but  in  good  faith,  be- 
lieves that  he  has  an  interest  in  property,  to  protect  which  he  dis- 
charges a  lien  is  subrogated  to  the  lien  for  his  repayment.  (Fowler 
V.  Parsons,  143  Mass-  401 ;  Cockrun  v.  West,  122  Ind.  Z72.)  There 
are,  of  course,  other  instances  of  like  nature.  These  exceptions  are 
properly  recognized  by  the  Courts  in  order  that  so  far  as  is  pos- 
sible equity  may  always  be  done. 

The  United  States  Supreme  Court,  in  referring  to  legal  sub- 
rogation, has  said: 

"In  fire  insurance,  as  in  marine  insurance,  the  insurer,  upon  paying 
to  the  assured  the  amount  of  a  loss  of  the  property  insured,  is  doubtless 
subrogated  in  a  corresponding  amount  to  the  assured's  right  of  action 
against  any  other  person  responsible  for  the  loss.  But  the  right  of  the 
insurer  against  such  other  person  does  not  rest  upon  any  relation  of 
contract  or  of  privity  between  them.  It  arises  out  of  the  nature  of  the 
contract  of  insurance  as  a  contract  of  indemnity,  and  is  derived  from  the 
assured  alone,  and  can  be  enforced  in  his  right  only.  By  the  strict  rules 
of  the  common  law,  it  must  be  asserted  in  the  name  of  the  assured.  In  a 
court  of  equity  or  of  admiralty,  or  under  some  state  codes,  it  may  be 
asserted  by  the  insurer  in  his  own  name;  but  in  any  form  of  remedy  the 
insurer  can  take  nothing  by  subrogation,  but  the  rights  of  the  assured, 
and  if  the  assured  has  no  right  of  action  none  passes  to  the  insurer." 

St.  Louis,  I.  M.  &  S.  Ry.  Co.  v.  Commercial  Union  Ins.  Co.,  139  U  S 
223,  235.) 

Conventional   subrogation   occurs   when   the   creditor   formally 

transfers  his  claim  to  a  third  person  and  arises  from  express  or 

implied  contract  between  the  payer  and  the  debtor  or  creditor  that 

the  payer  shall  be  subrogated,  rather  than,  as  is  the  case  in  legal 

subrogation,  from  the  automatic  operation  of  a  rule  of  law  upon 

6l!i 


Subrogation 

a  g^iven  set  of  circumstances.  Conventional  subrogation  or  subro- 
gition  by  act  of  parties  may  take  place  by  the  debtor's  agreement 
that  one  paying  a  claim  shall  stand  in  the  creditor's  shoes,  and,  fur- 
thermore, can  arise  only  by  reason  of  an  express  or  implied  agree- 
ment between  the  payer  and  either  the  debtor  or  the  creditor. 
(Conn.  Mut.  Life  Ins.  Co.  v.  Cornwell,  72  Hun.,  199.) 

The  right  of  subrogation  exists  where  the  recovery  is  claimed 
solely  by  virtue  of  a  statute  imposing  a  liability  just  the  same  as 
though  the  loss  was  occasioned  by  the  negligence  or  wrongdoing 
of  another. 

In  the  case  of  Crissey  &  Fowler  Lumber  Co.  v.  Denver  &  R. 
G.  R.  Co.,  68  Pac.  Reporter,  670,  (decided  in  the  Court  of.  Appeals 
of  Colorado),  an  action  was  brought  against  the  defendant  rail- 
road by  the  insurer  under  a  statute  of  the  State  of  Colorado  pro- 
viding as  follows : 

"Every  railroad  corporation  operating  its  line  of  railroad  or  any 
part  thereof  shall  be  liable  for  all  damages  by  fire  that  is  set  or  caused 
by  operating  its  line  or  any  part  thereof  and  such  damages  may  be  re- 
covered by  the  party  damaged  by  proper  action  in  any  court  of  compe- 
tent jurisdiction." 

The  fire  had  by  the  Lumber  Company,  the  insured,  was  caused 
by  the  railroad.  It  was  claimed  that  the  Insurance  Company  could 
not  be  subrogated  to  the  owner's  rights  in  an  action  where  a  recov- 
ery is  claimed  solely  by  virtue  of  the  statute.  The  court,  in  holding 
that  this  contention  was  not  sound,  said : 

"We  do  not  understand  counsel  to  challenge  this  right  of  subroga- 
tion where  the  loss  was  occasioned  by  the  negligence  or  wrongdoing  of 
another,  and  the  common-law  remedy  is  sought  to  be  enforced.  In  such 
case  we  believe  the  right  to  be  very  generally,  if  not  universally,  recog- 
nized. 2  May,  Ins.  Sec.  454;  2  Bid.  Ins.  Sec.  1280  et  seq.;  Harris,-  Subr. 
Sec.  606;  Sheldon,  Subr.  Sees.  11-230.  It  has  also  been  held  in  many 
adjudicated  cases  that  this  right  of  subrogation  exists  whether  the  fire 
is  caused  by  negligence  or  accidentally,  within  statutes  imposing  a  lia- 
bility in  any  event, — which  directly  covers  the  case  at  bar.  See  2  Bid. 
Ins.  Sec.  1281,  and  cases  cited;  Hart  v.  Railroad  Corp.,  13  Mete. 
(Mass.)  100,  46  Am.  Dec.  719  *  *  ♦  In  all  cases  the  right  of  subrogation 
is  based  upon  the  doctrine  that  the  contract  of  insurance  is  treated  as  an 
indemnity,  and  the  insurer,  as  a  surety,  is  entitled  to  all  the  remedies  and 
securities  of  the  assured,  and  tQ  stand  in  his  place,  or  upon  doctrines 
of  a  similar  equitable  character.  2  May,  Ins.  Sec.  454;  Harris.  Subr.  Sec. 
13  et  seq.  This  being  true,  we  see  no  reason  why  the  right  of  subroga- 
tion should  be  denied  in  the  one  instance  any  more  than  the  other,  unless 
because  of  some  prohibitory  statute,  or  unless,  perhaps,  in  the  absence 
oi  any  contract  for  subrogation,  the  facts  might  be  such  as  to  negative 
the  existence  of  any  equities  in  behalf  of  the  insurer.  None  of  such 
possible  exceptions,  however,  apply  to  this  case." 

From  these  definitions  it  is  evident  that  both  legal  and  con- 
ventional-subrogation  may  exist  betweejT_the  same  parties  at  the 

619 


Thie  Fire  Insurance  Contract 

same  time.  Sometimes  where  there  is  legal  subrogation,  there 
also  exists,  by  reason  of  an  express  agreement  between  the  parties, 
conventional  subrogation,  but  frequently  there  exists  conven- 
tional subrogation,  when  there  is  no  right  to  legal  subroga- 
tion. This  is  the  case  when  a  party  being  under  no  legal  obligation 
or  liability  to  pay  the  debt  or  loss,  pays  the  same  and  is  subrogated 
because  of  the  provisions  of  an  express  agreement  between  the 
parties,  and  not  because  of  the  operation  of  a  rule  of  law. 

It  has  been  held  that  the  right  of  subrogation  will  not  be 
allowed  one  who  would  thereby  reap  advantage  in  any  way  from 
his  own  wrongdoing,  nor  to  relieve  a  party  from  the  consequences 
of  his  own  unlawful  act,  nor  where  it  would  be  contrary  to  public 
policy,  and  that  as  its  purpose  is  only  to  prevent  fraud  or  subserve 
justice,  it  will  not  be  applied  where  its  exercise  would  promote  in- 
justice, and  thus  can  be  applied  only  with  a  due  regard  to  the  legal 
and  equitable  rights  of  others.  (German  Bank  v.  United  States, 
148  U.  S.,  573;  Rowley  v.  Towsley,  53  Mich.,  329;  Johnson  v. 
Moore,  33  Kan.,  90;  Piatt  v.  Brick,  35  Hun.,  121;  Drake  v.  Paige, 
52  Hun.,  292). 

It  has  also  been  held  that  the  right  of  subrogation  cannot  be 
defeated  because  the  policy  might  have  been  successfully  contested 
by  the  insurer  nor  because  the  insurance  company  had  not  complied 
with  statutory  requirements:  (St.  L.  A.  &  P.  R.  Co.  v.  Fire  Ass'n., 
28  L.  R.  A.  83  (Ark.)  13;  Phenix  Insurance  Co.  v.  Penn  Co.,  134 
Ind.  215);  nor  because  the  risk  was  negligently  assumed  by  the 
insurer.  (U.  S.  Cas.  Co.  v.  Eagley,  55  L.  R.  A.,  616  (Mich.),  nor 
because  the  insurer  is  a  member  of  a  trust  or  combination  in  viola- 
tion of  statute.     (Freed  v.  Am.  F.  Ins.  Co.,  43  So.  947  (Miss.) 

As  subrogation,  especially  legal  subrogation,  is  the  application 
of  equity,  its  enforcement  depends  to  a  considerable  degree  upon 
the  facts  and  circumstances  of  each  particular  case,  and  on  the 
principles  of  natural  justice. 

In  Drake  v.  Paige,  52  Hun.,  302,  the  Court  said: 

"The  right  of  subrogation  is  an  equitable  one  and  its  application 
must  depend  upon  the  circumstances  of  each  particular  case." 

This  proposition  is  probably  somewhat  limited  where  the  right  of 
subrogation  arises  under  contract  and  is  conventional  subrogation. 
Lines  102  to  105  of  the  Standard  Fire  Insurance  Policy  of  New 
York,  are  as  follows: 

"If  this  Company  shall  claim  that  the  fire  was  caused  by  the  act  or 
neglect  of  any  person  or  corporation,  private  *or  municipal,  this  Company 

620 


Subrogation 

shall,  on  payment  of  the  loss,  be  subrogated  to  the  extent  of  such 
payment  to  all  right  of  recovery  by  the  insured  for  the  loss  resulting 
therefrom,  and  such  right  shall  be  assigned  to  this  Company  by  the  in- 
sured on  receiving  such  payment." 

It  will  be  noted  that  this  clause  in  the  Standard  policy  is  only  ■ 
applicable  when  the  Company  claims  that  the  fire  was  caused  by 
the^act  or  neglect  of  some  third  party. ^  In  order  for  the  insurer 
to  have  any  benefit  under  this  clause,  there  must  be  some  third 
party  responsible  for  the  fire  and  who  is  liable  to  the  insured  for 
the  damages  suffered  thereby.  In  such  case,  such  party  is  pri- 
marily liable  to  the  insured  and  it  is  the  right  of  recovery  whicJi 
the  insured  has  against  such  party  under  such  circumstances  that 
this  clause  of  the  Standard  policy  refers  to. 

If  the  policy  did  not  contain  this  clause,  the  Company  would _, 
still  have  the  right  of  subrogation  under  the  circumstances  stated. 
It  might  not  be  able  to  require  the  assured  to  give  the  actual 
assignment  as  provided,  and  the  provision  that  the  assured  shall 
make  an  assignment  has  been  held  to  protect  the  insurer  from 
havtng  the  assured  destroy  its  right  of  subrogation,  as  will  be  " 
hereafter  referred  to.  (Carstairs  v.  Mechanics  &c.  Ins.  Co.,  18 
Fed.  Rep.  473;  Jackson  v.  Boylston  iVIut.  Ins.  Co.,  139  Mass.  508.) 

It  is  well  settled  that  before  there  can  be  any  right  of  subroga- 
tion, the  insured  must  be  fully  indemnified  for  the  loss  to  his  prop- 
erty;  that  is,  the  Insurance  Company  must  have  fully  indemnified 
the  insured,  before  it  can  claim  the  right  to  be  subrogated  either 
at  common  law  or  under  the  policy  provision  above  referred  to , 

When  the  insured  has  been  fully  indemnified,  subrogation 
passes  all  the  insured's  rights,  privileges  and  remedies  against  the 
party  primarily  liable  to  the  insurer.  In  other  words,  the  in- 
surer stands  in  the  shoes  of  the  insured.  It  can  be  subrogated 
to  and  have  no  greater  rights  than  those  which  the  .insured,  had.  \/ 
If  the  latter  had  no  rights,  the  insurer  as  subrogee  can  have  none, 
and  under  the  above  provision,  the  insurer  having  received  an  as- 
signment from  the  insured,  would  be  entitled  only  to  the  rights, 
privileges  and  remedies  which  the  insured  had  and  could  only 
recover  the  amount  paid  by  the  insurer  to  the  insured. 

Some  of  the  more  common  instances  where  subrogation 
arises,  which  are  of  interest  to  insurers,  are  where  goods  are 
burned  while  being  transported  by  a  carrier,  or  where  a  morto-agee 
has  taken  out  insurance  to  protect  his  mortgage,  or  where,  throug-'i 

621 


The  Fire  Insurance  Contract 

the  negligence  oi  a  third  party,  the  property  of  the  insured  has 
been  burned,  or  where  by  the  order  of  some  governmental  au- 
thority, property  has  been  destroyed  for  the  pubhc  good. 

In  the  case  of  Phoenix  Insurance  Co.  v.  Erie  Transportation 
Company,  117  U.  S.  312,  the  plaintiff  insured  grain  on  a  boat  of  the 
defendant,  which  vessel  was  afterward  destroyed  and  the  grain 
damaged.  The  plaintiff  paid  the  insurance  to  the  owners  of  the 
grain  and  then  brought  action  against  the  defendant  on  the  ground 
that  it  was  subrogated  to  the  rights  of  the  owners  of  the  grain 
against  the  defendant  carrier.  The  bill  of  lading  which  the  de- 
fendant transportation  company  gave  to  the  insured  (shipper),  pro- 
vided that  the  carrier  should  not  be  liable  for  loss  or  damage  of  the 
goods  by  fire,  collision,  etc.,  and  further  provided  that  the  carrier 
when  liable  for  the  loss,  should  have  the  full  benefit  of  any  insur- 
ance that  may  have  been  effected  on  the  goods. 

The  policy  of  insurance  contained  no  express  stipulation  for 
the  assignment  to  the  insurer  of  the  assured's  right  of  action  against 
third  persons.  In  this  respect  the  case  differs  from  an  action 
brought  under  the  standard  policy.  The  Court  held  that,  while 
the  loss  had  been  incurred  by  reason  of  the  negligence  of  the  de- 
fendant carrier,  the  provision  in  the  bill  of  lading  which  pro- 
vided that  if  the  carrier  was  liable  for  the  loss,  it  should  have  the 
full  benefit  of  any  insurance  that  may  have  been  effected  on  the 
goods,  limited  the  right  of  subrogation  and  prevented  the  insurance 
company  from  recovering  as  against  the  carrier. 

The  Court,  in  discussing  the  nature  of  the  right  to  be  subro- 
gated, said: 

"That  the  right  of  the  assured  to  recover  damages  against  a  third 
person  is  not  incident  to  the  property  in  the  thing  insured,  but  only  a 
personal  right  of  the  assured,  is  clearly  shown  by  the  fact  that  the  in- 
surer acquires  a  beneficial  interest  in  the  right  of  action,  in  proportion 
to  the  sum  paid  by  him,  not  only  in  the  case  of  a  total  loss,  but  likewise 
in  the  case  of  a  partial  loss,  and  when  no  interest  in  the  property  is 
abandoned  or  accrues  to  him. 

"The  right  of  action  against  another  person,  the  equitable  interest 
in  which  passes  to  the  insurer,  being  only  that  which  the  assured  has,  it 
'follows  that  if  the  assured  has  no  such  right  of  action  none  passes  to 
the  insurer;  and  that  if  the  assured's  right  of  action  is  limited  or  re- 
stricted by  lawful  contract  between  him  and  the  person  sought  to  be 
made  responsible  for  the  loss,  a  suit  by  the  insurer,  in  the  right  of  the 
assured,  is  subject  to  like  limitations  or  restrictions. 

"For  instance,  if  two  ships,  owned  by  the  same  person,  come  into 

collision  by  the  fault  of  the  master  and  crew  of  the  one  ship  and  to  the 

injury  of  the  other,  an  underwriter  who   ha^  insured   the  injured  ship, 

and  received  an  abandonment  from  the  owner,  and  paid  him  the  amount 

•  of  the  insurance   as   and   for  a   total   loss,   acquires   thereby   no   right   to 

622 


Subrogation 

recover  against  llic  other  ship,  because  the  assured,  the  owner  of  both 
ships,  could  not  sue  himself.  Simpson  v.  Thomson,  above  cited;  Globe 
Ins.  Co.  V.  Sherlock,  25  Ohio.  St.  50,  68. 

"Upon  the  same  principle,  any  lawful  stipulation  between  the  owmer 
and  the  carrier  of  the  goods,  limiting  the  risks  for  which  the  carrier  shall 
be  answerable,  or  the  time  of  making  the  claim,  or  the  value  to  be  re- 
covered, applies  to  any  suit  brought  in  the  right  of  the  owner,  for  the 
benefit  of  his  insurer,  against  the  carrier;  as,  for  instance,  if  the  contract 
of  carriage  expressly  exempts  the  carrier  from  liability  for  losses  by 
fire;  (York  Co.  v.  Central  Railroaci,  3  Wall.  107);  or  requires  claims 
against  the  carrier  to  be  made  within  three  months;  (Express  Co.  v. 
Caldv/ell.  21  Wall.  264);  or  fixes  the  value  for  which  the  carrier  shall  be 
responsible;  (Hart  v.  Pennsylvania  Railroad,  112  U.  S.  331).  So  the 
stipulation,  not  now  in  controversy,  in  the  bills  of  lading  in  the  present 
case,  making  the  value  of  the  goods  at  the  place  and  time  of  shipment 
the  measure  of  the  carrier's  liability,  would  control,  although  in  the 
absence  of  such  a  stipulation  the  carrier  would  be  liable  for  the  value  at 
the  place  of  destination,  as  held  in  Mobile  &  Montgomery  Railway  v. 
Jurey,  111  S.  E.  584." 

The  ruling  of  the  Court  would,  undoubtedly,  have  been  dif- 
ferent in  this  case,  had  there  been  an  express  stipulation  upon  the 
subject  in  the  policy,  or  had  there  been  proof  of  fraudulent  con- 
cealment or  misrepresentation  by  the  owner  in  obtaining  the  insur- 
ance. 

Where  there  is  no  express  stipulation  upon  the  subject  con- 
tained in  the  policy  and  no  proof  of  fraudulent  concealment  or 
misrepresentation  by  the  owner  in  securing  the  instirance,  it  is  thus 
seen  that  the  insurer's  right  to  be  subrogated  may  be  defeated  by 
an  express  contract  between  the  owner  and  the  carrier  of  the  goods, 
that  the  carrier  shall  have  the  benefit  of  any  insurance  on  them  in 
cnse  of  ^o.qs.  (Phoenix  Ins.  Co.  v.  Erie,  etc.,  Transportation  Co., 
117  U.  S.,  312;  Jackson  Co.  v.  Boylston  Mut.  Ins.  Co.,  139  Mass., 
508;  Piatt  v.  Richmond,  etc.,  R.  Co.,  108  N.  Y.,  358.)  This  might 
not  be  so  if  the  insurance  was  taken  out  after  a  bill  of  lading  con-' 
taining  such  a  provision  had  been  accepted,  and  the  insured  took  out 
the  insurance  with  knowledge  that  the  bill  of  lading  contained  stich. 
a  provision,  especially  if  the  insured  knew  that  the  insurer  had  dif- 
ferent rates  of  premium,  one  of  which  was  applicable  to  a  policy 
covering  goods  where  the  bill  of  lading  did  not  contain  such  a  pro- 
vision, and  the  other  a  higher  rate  in  case  the  goods  were  carried 
under  a  bill  of  lading  containing  such  a  provision;  or  if  there  was 
any  misrepresentation  or  fraudulent  concealment  on  the  part  of  the 
owner  and  insurer  as  to  the  nature  of  his  bill  of  lading  in  this  re- 
spect, when  procuring  his  insurance.  (Phoenix  Ins.  Co.  v.  Erie 
Transportation  Co.,  117  U.  S.,  312,  and  cases  cited.) 

623 


The  Fire  Insurance  Contract 

However,  where  the. contract  of  insurance  contains  an  express 
stipulation  that  the  insurer  shall  be  subrogated  to  the  owner's  rights 
against  the  carrier  such  as  is  contained  in  the  standard  policy,  the 
owner  cannot  defeat  the  insurer's  right  of  subrogation  by  contract 
with  the  carrier  without  forfeiting  his  own  rights  under  the  con- 
tract of  insurance  and  losing  his  right  to  look  to  the  insurer  for  a 
payment  of  his  loss.  (Carstairs  v.  Mechanics',  etc.,  Ins.  Co.,  IS 
Fed.  Rep.  473;  Jackson  Co.  v.  Boylston  Mut.  Ins.  Co.,  139  Mass. 
508.) 

In  order  that  there  may  be  no  doubt  whatsoever  that  the  in- 
sured is  bound  to  preserve  the  right  of  subrogation  to  the  insurer, 
some  policies  contain  a  clause  to  the  effect  that  any  act  or  agree- 
ment by  the  assured  tending  to  defeat  subrogation  shall  void  the 
insurance.  It  has  been  clearly  and  universally  held  by  the  Courts 
that  if  a  policy  contains  such  a  clause  and  the  owner  contracts 
with  the  carrier  that  it  shall  have  the  benefit  of  any  insurance  on 
his  goods  in  case  of  loss,  that  the  owner  violates  his  contract  of 
insurance  and  cannot  recover  his  loss  against  the  insurer.  Fayer- 
weather  v.  Phoenix  Ins.  Co.,  118  N.  Y.  324;  Inman  v.  So.  Carolina 
R.  Co.,  129  U.  S.  128.) 

While,  however,  this  might  cause  the  assured  to  lose  his  in- 
surance, the  Supreme  Court  of  the  United  States  has  held  that  he 
would  still  retain  his  right  of  action  against  the  carrier  (Inman 
V.  So.  Carolina  R.  Co.,  129  U.  S.  128). 

In  a  case  in  Minnesota  where  the  shipper's  insurance  had  be- 
come forfeited  because  he  had  violated  the  provision  in  the  policy 
for  subrogation  by  taking  a  bill  of  lading  providing  in  case  of  loss 
any  insurance  should  be  for  the  benefit  of  the  carrier,  the  insurer 
nevertheless  voluntarily  paid  the  loss  to  the  insured,  but  upon  ex- 
press condition  that  they  should  have  an  unqualified  right  of  resort 
over  against  the  carrier,  and  the  Court  held  that  the  carrier  could 
not  in  defense  avail  itself  of  the  clause  in  the  bill  of  lading,  inas- 
much as  the  insured  had  invalidated  the  policy  in  accepting  the  bill 
of  lading  and  hence  there  was  no  insurance  existing  upon  which  the 
clause  in  the  bill  of  lading  could  operate.  (Southerd  v.  Minn.,  etc., 
R.  Co.,  60  Minn.  382.) 

In  the  case  of  Connecticut  Fire  Insurance  Company  v.  Erie 
R.  R.  Co.,  73  N.  Y.  399,  buildings  which  had  been  insured  by  the 
plaintiff  were  burned  by  fire  caused  by  sparks  or  coals  from  an 
engine  of  the  defendant.     The  plaintiff,  under  a  policy  of  insur- 

624 


Subrogation 

ance  issued  by  it,  paid  the  loss  and  was  held  to  be  entitled  to  sub- 
rogation as  against  the  defendant,  it  having  been  found  that  there 
was  negligence  on  the  part  of  the  defendant  in  causing  the  firje. 

In  the  case  of  Excelsior  Fire  Insurance  Co.  v.  Royal  Insur- 
ance Co.  of  Liverpool,  55  N.  Y.  343,  it  was  held  that  when  a  mort- 
gagee or  one  in  like  position  toward  property,  is  insured  thereon  at 
his  own  expense,  upon  his  own  motion  and  for  his  sole  benefit,  and 
a  loss  by  fire  happens,  that  he  is  not  required  to  exhaust  his  remedy 
upon  the  mortgage  before  enforcing  the  policy  and  that  the  in- 
surer must  pay,  although  the  property  undestroyed  is  equal  in  value 
to  the  amount  of  the  mortgage  debt,  but  that  upon  making  such 
payment  the  insurer  is  entitled  to  an  assignment  of  tne  rights  of 
the  insured,  and  under  the  principle  of  subrogation  is  entitkd  to 
all  his  rights  and  remedies  which  the  mortgagee  had  against  the 
property  under  his  mortgage. 

It  has  also  been  held  in  many  jurisdictions,  where  the  mort- 
gagee has  taken  out  insurance  as  above  stated,  that  even  in  the 
absence  of  an  express  provision  to  that  effect  in  the  policy,  the  in- 
surer, upon  paying  the  mortgagee  the  amount  of  the  loss,  becomes 
subrogated  pro  tanto  to  the  mortgage  security  as  against  the  mort- 
gagor, but  not  so  as  to  in  any  w^ay  impair  the  right  of  the  mortgagee 
to  collect  his  debt  in  full.  (^Ulster  Co.  Sav.  Bk.  v.  Leake,  11  N.  Y., 
16L) 

In  the  case  of  Pentz  and  others  v.  The  Receivers  of  the  Aetna 

Fire  Insurance  Company,  3  Edwards  Chancery  Reports,  341,  a  loss 

arose  from  the  destruction  of  certain  stores  and  merchandise  by 

gunpowder  used  by  order  of  the  Mayor  and  two  aldermen  of  New 

York  City  to  stop  the  ravages  of  fire.     In  consequence  of  the  loss 

having  been  thus  occasioned  by  the  City  authorities,  the  assured 

was  entitled  to  recover  from  the  City,  which  it  did.    The  Aetna  Fire 

Insurance  Company,  on  account  of  the  conflagration,  which  was  the 

great  fire  in  New  York  City,  of  1835,  became  insolvent,  and  the 

assured  made  application  to  be  allowed  a  dividend  on  account  of 

his  policy  of  insurance.     The  court  denied  the  application,  and  in 

its  opinion,  said: 

"I  think  it  can  hardly  admit  of  a  doubt  that  whatever  sum  the  un- 
derwriters may  be  compelled  to  pay  upon  their  contract  of  insurance 
for  a  loss  occasioned  in  such  a  way  as  to  render  the  city  liable,  the  cor- 
poration are  liable  to  reimburse  to  the  insurer." 

The  court  based  its  decision  upon  the  proposition  that  if  the 
assured  were  allowed  to  recover  against  the  insurer  the  amount 

625 


The  Fire  Insurance  Contract 

would  have  to  be  credited  upon  the  amount  due  to  the  as^u^ed 
from  the  City  so  that  the  City  could  turn  a  hke  amount  over  to 
tlie  insurer.  To  prevent  such  a  circuity,  it  denied  the  assured's  ap- 
phcation  to  be  allowed  to  share  in  the  dividend  paid  by  the  Receiv- 
ers of  the  insurer. 

An  interesting  case  in  the  consideration  of  the  subject  of  sub- 
rogation, is  that  of  United  States  v.  The  American  Tobacco  Co., 
166  U.  S.,  468,  The  American  Tobacco  Company  had  been  paid 
by  its  insurers  for  a  large  loss  by  fire.  Among  the  items  of  total 
loss  as  adjusted  with  the  Company  were  several  thousand  dollars 
worth  of  unused  internal  revenue  stamps,  the  full  value  of  which 
under  the  provisions  of  the  United  States  Revised  Statutes,  were 
recoverable  or  redeemable  by  the  Tobacco  Company  from  the 
United  States  authorities.  The  insurers  having  paid  the  loss, 
claimed  that  they  were  subrogated  to  the  rights  and  remedies  of  the 
insured  for  reimbursement  from  the  Government  under  the  terms 
of  the  Statute.  An  action  was  brought  by  the  insurers  in  the  name 
of  the  insured  and  a  recovery  had. 

Under  the  provisions  of  the  policy  requiring  the  insured  to 
make  a  formal  assignment  pro  tanto  of  any  rights  or  remedies  that 
he  may  have  against  the  party  causing  the  fire,  the  Company_may 
require  an  assignment  as  condition  of  payment,  although  such  an 
assignment  is  not  necessary  to  perfect  the  right  of  the  company. 
(Niagara  Ins.  Co.  v.  Fidelity  Co.,  123  Pa.  St.,  516;  Hamburg  Bre- 
men Fire  Ins.  Co.  v.  Atlantic  Coast  Line  R.  R.  Co.,  132  N.  C,  75.) 
It,  however,  enables  the  insurance  company  without  any  question 
to  institute  an  action  in  its  own  name  against  the  party  primarily 
liable.  Sometimes  the  loss  exceeds  the  amount  of  the  insurance, 
and  in  such  cases  the  insured  and  the  insurer  may  properly  make 
an  agreement  to  sue  the  party  primarily  liable  for  joint  benefit. 
^Chicago  R,  R,  Co.  v.  Pullman  Car  Co.,  139  U,  S.,  79.)  The  party 
primarily  liable,  who  is  sued  for  causing  the  loss,  cannot  defend  on 
the  ground  that  the  insurer  has  paid  the  amount  due  under  the 
policy  to  the  insured,  since  the  policy  is  res  inter  alios  acta. 

In  the  absence  of  express  stipulation  the  rule  of  subrogation 
will  not  be  applied  to  prevent  the  insured  from  receiving  his  full  in- 
demnity.    This  perhaps  is  better  expressed  in  this  way: 

Assuming  that  the  insured,  where  the  loss  exceeded  the 
amount  of  insurance,  secured  a  judgment  against  the  person  pri- 
marily liable  for  the  loss,  to  wit :  a  wrongdoer,  for  the  full  amount 

626 


Subrogation 

of  the  loss,  but  by  reason  of  the  insolvency  of  the  party  is  only 
able  to  collect  a  part  of  the  judgment.  He  could  theii,  in  the  ab- 
sence of  a  stipulation,  take  to  himself  an  amount  equal  to  the  dif- 
ference between  the  amount  of  insurance  he  had  received  and  his 
actual  loss  and  "pay  the  balance  over  to  the  insurers,  although,  of 
course,  he  would  in  no  instance  pay  over  an  amount  exceeding  the 
sum  which  the  insurer  had  paid  to  him.  (Atch.  etc.,  R.  R.  Co.  v. 
Sreet~7  Kan.  App.  495.)"^"^"'^^  ~". 

In  the  instance  just  cited  had  the  rule  of  subrogation  been 
fully  applied  and  the  insurer,  under  his  right  of  subrogation,  been 
entitled  to  recover  from  the  wrongdoer  an  amount  equal  to  the  loss 
he  had  paid  to  the  insured,  the  insured  would  not  have  been  fullv 
indemnified  for  his  loss. 

The  Courts  differ  somewhat  as  to  how  far  they  will  press  the 
doctrine  of  indemnity  and  that  of  subrogation  when  applied  to  the 
law  of  insurance.  The  English  courts,  the  United  States  Supreme 
Court  and  the  courts  of  some  of  the  states  seem  inclined  to  hold 
that  the  contract  of  insurance  is  one  of  strict  indemnity  and  to  be 
very  liberal  in  construing  the  right  of  subrogation.  The  attitude  of 
these  courts  is  that  a  policy  of  fire  insurance  is  a  contract  of  in- 
demnity and  that  upon  paying  the  amount  of  the  loss  the  insurer 
has  the  right  to  be  put  in  the  place  of  the  assured,  and  if  thereafter 
the  assured  receives  compensation  from  other  sources  for  the  loss 
sustained  by  him,  the  insurer  is  entitled  to  recover  from  the  as- 
sured any  sum  which  he  may  have  received  in  excess  of  the  loss 
actually  sustained  by  him.  (Darrell  v.  Tibbitts,  L.  R.  Q.  B.  Div. 
560;  Castellain  v.  Preston,  L.  R.  11  Q.  B.  Div.  380;  Phoenix  Assur. 
Co.  V.  Spooner,  2  K.  B.  753;  Chicago,  &c.,  R.  Co.  v.  Pullman  Car 
Co.,  139  U.  S.  79;  Weber  v.  M.  &  E.  R.  Co.,  35  N.  J.  L.  400'; 
Packham  v  German  .F.  Ins.  Co.,  91  Md.  515.) 

In  the  case  of  Castellain  v.  Preston,  supra,  the  insured  made 
an  executory  contract  to  sell  the  premises  insured  under  the  poli- 
cies, without  mentioning  anything  about  insurance.  Before  the 
contract  was  performed  a  loss  by  fire  occurred  and  the  insurance 
companies  paid  the  loss  to  the  vendor.  Thereafter,  as  he  was  ob- 
ligated to  do  under  the  English  law,  the  vendee  completed  the 
purchase  and  paid  the  full  purchase  price  to  the  vendor.  Then 
the  insurance  company  claimed  the  right  to  open  its  settlement  with 
the  insured  and  be  paid  back  by  him  the  whole  amount  of  insurance 
paid.     The  lower  court  held  that  it  could  not,  but  on  appeal  the 

627 


The  Fire  Insurance  Contract 

Appellate   Court  held  that  the  company  was  entitled  to   recover 

under  the  doctrine  of  subrogation  or  upon  the  theory  that  the 

contract  of  fire  insurance  was  one  of  strict  indemnity. 

The  Court  in  giving  the  English  construction  of  the  right  of 

subrogation  said: 

"Now  it  seems  to  me  that  in  order  to  carry  out  the  fundamental 
rule  of  insurance  law,  this  doctrine  of  subrogation  must  be  carried  to 
the  extent  which  I  am  now  about  to  endeavor  to  express,  namely,  that  as 
between  the  underwriter  and  the  assured  the  underwriter  is  entitled  to 
the  advantage  of  every  right  of  the  assured,  whether  such  right  consists 
in  contract,  fulfilled  or  unfulfilled,  or  in  remedy  for  tort  capable  of  being 
insisted. on  or  already  insisted  on,  or  in  any  other  right,  whether  by  way 
of  condition  or  otherwise,  legal  or  equitable,  which  can  be,  or  has  been 
exercised  or  has  accrued,  and  whether  such  right  could  or  could  not  be 
enforced  by  the  insurer  in  the  name  of  the  assured  by  the  exercise  or 
acquiring  of  which  right  or  condition  the  loss  against  which  the  assured 
is  insured,  can  be,  or  has  been  diminished." 

In  the  case  of  Darrell  v.  Tibbitts,  supra,  the  landlord  had  in- 
surance covering  injury  by  explosion,  and  also  had  a  lease  with  a 
tenant  containing  a  covenant  to  make  repairs.  The  property  was 
damaged  by  an  explosion.  This  covenant  covered  the  making  of 
the  necessary  repairs  required  because  of  this  explosion  and  the 
damage  was  also  covered  by  the  insurance  policy.  The  insurance 
company  paid  to  the  landlord  £750,  the  amount  of  the  loss.  There- 
after the  tenant  made  the  repairs.  The  insurance  company  then 
brought  an  action  against  the  landlord  to  recover  back  the  £750, 
and  obtained  judgment  for  that  amount.  It  should,  perhaps,  be 
noted  that  the  explosion  was  caused  by  the  negligence  of  a  Gas 
Company,  which  paid  the  tenant  damages.  The  Court  in  its  opin- 
ion, said: 

"The  question  now  arises  whether  the  insurance  company  who  paid 
the  money  to  the  landlord  at  a  time  when  they  were  obliged  to  pay  by 
virtue  of  their  contract,  can  recover  it  back  because  the  tenants  have 
done  that  which  they  could  not  avoid  doing;  if  thcv  had  not  repaired, 
they  must  have  paid  damages  to  the  landlord.  If  the  company  cannot 
recover  the  money  back,  it  follows  that  the  landlord  will  have  the  whole 
extent  of  his  loss  as  to  the  building  made  good  by  the  tenants,  and  will 
also  have  the  whole  amount  of  that  loss  paid  by  the  insurance  company. 
If  that  is  so,  the  whole  doctrine  of  indemnity  would  be  done  away  with; 
the  landlord  would  be  not  merely  indemnified,  he  would  be  paid  twice 
over." 

Also  in  this  case,  the  court  stated  as  follows : 

"It  was  argued  on  behalf  of  the  defendant  that  as  regards  the  rights 
of  insurers,  a  distinction  exists  between  a  case  where  the  assured  has  a 
remedy  against  a  tortfeasor  in  respect  of  the  damage  covered  by  the 
policy,  and  a  case  where  the  assured  has  a  right  by  contract  with  some 
third  person,  to  be  indemnified  in  respect  of  that  same  loss.  I  am  by  no 
means  prepared  to  say  that  there  may  not  be  some  contracts  so  entirely 
independent  of  the  subject-matter  of  the  insurance,  as  to  p\it  the  assured 
in  the  position  of  being  more  than  indemnified  in  the  event  of  a  loss. 
But  I   am   clearly   of  opinion  as  a  matter  of  principle,  that  where   the 

628 


Subrogation 

contract  of  insurance  and  the  contract  with  the  third  party  cover  identi- 
cally the  same  subject-matter,  the  assured  has  no  right  to  more  than  an 
indemnity." 

These  cases  and  others  which  have  followed  them,  seem  to  lay  . 
down  the  rule  that  the  assured  could  never  have  but  one  reim- 
bursement for  his  loss,  that  is,  he  could  not  be  the  gainer  by  rea- 
son of  the  loss,  and  if  the  assured  was  entitled  to  receive  anything 
from  any  third  person,  which  would  in  any  way  tend  ^o  diminish  his 
loss  or  to  compensate  him  for  it,  that  the  insurance  company  would 
be  entitled  either  to  be  subrogated  to  his  right  to  recover  such  com- 
pensation or  to  receive  it  from  him  directly  or  by  credit  on  the 
amount  of  insurance,  if  he  had  already  recovered  it. 

This  must,  of  course,  necessarily  follow  if  a  policy  of  insur- 
ance-is to  be  held  strictly  and  absolutely  a  contract  of  indemnity. 

In  some  of  the  other  states,  however,  including  the  State  of  New 
York,  it  has  been  held  that  this  rule  will  not  be  enforced  to  such 
an  extent  and  that  where  the  assured  has,  under  contract,  a  claim 
against  a  third  party,  who  was  not  connected  with  the  loss  or  re- 
sponsible for  it,  that  the  insurer  cannot,  upon  payment  of  the  loss, 
be  subrogated  so  as  to  recover  from  the  third  party.  (Michael  v. 
Prussian  Nat.  Ins.  Co.,  171  N.  Y.  25;  Foley  v.  Mfgrs.  F.  Ins.  Co., 
152  N.  Y.  131 ;  Continental  Ins.  Co.  v.  Aetna  Ins.  Co.,  38  N.  Y.  16; 
International  Trust  Co.  v.  Boardman,  149  Mass.  158;  Heller  v. 
Royal  Ins.  Co.,  177  Pa.  State  262,  34  L.  R.  A.  600.) 

This  line  of  cases  seems  to  follow  the  rule  that  a  contract  of 
insurance  is  not  strictly  a  contract  of  indemnity  and  that  it  is  only 
in  instances  where  the  loss  sustained  has  been  caused  by  the  act  or 
neglect  of  some  third  party,  which  makes  such  third  party  pri- 
marily liable,  that  the  insurance  company  has  the  right  of  subro- 
gation or  is  entitled  to  be  credited  with  the  amount  received  by  the 
insured  from  such  third  party.  They  do  not  recognize  the  right 
of  the  underwriter  to  be  subrogated  to  contract  rights  belonging  to 
the  insured  against  third  parties,  unless  there  is  some  express  stipu- 
lation to  that  effect,  except  perhaps  sometimes  in  the  case  of  a 
mortgagee. 

Richards  in  his  work  on  Insurance,  has  referred  to  this  ques- 
tion as  follows:  (3rd  Ed.,  Sec.  54)  : 

"For  instance,  the  insured  has  two  contracts  both  for  value  paid, 
both  intended  to  protect  from  the  same  loss,  or  tending  to  accomplish 
that  result,  one  of  these  contracts  with  an  insurance  company,  the  other 
with  a  third  party.  Why,  under  the  doctrine  of  subrogation,  should  the 
loss  fall  upon  the  third  party,  while  the  i.nsurance  company,  though  re- 

629 
21 


The  Fire  Insurance  Contract 

taining  its  premiums,  goes  free?  Why  should  the  insurance^ company  be 
guBTn^ttrd  to  rigKfTagainsT  the  third  party  ratheF  than  tlie"lhTrd~^rty 
to  the  insurance?" 

Many  of  the  courts  of  this  country,  including  those  in  the 
states  last  referred  to,  seem  disposed  to  construe  a  contract  of 
insurance  upon  property,  if  otherwise  valid,  as  an  absolute  promise 
by  the  assurer,  according  to  the  terms  of  the  policy,  to  pay  the 
loss  sustained,  and  it  is  urged  that  inasmuch  as  premiums  are  fixed 
upon  that  measure  of  liability  it  would  be  inequitable  in  principle 
to  follow  any  other  basis  of  indemnity.  On  the  other  hand,  the 
English  courts  have  felt  that  it  might  be  against  public  policy  to 
permit  an  insured  to  receive  any  more  than  just  his  indemnity  un- 
der any  circumstances. 

In  this  connection,  we  should  note  the  case  of  Michael  v. 
Prussian  National  Insurance  Company,  171  N.  Y.  25.  In  that  case 
the  defendant  issued  a  policy  of  insurance  to  the  Buffalo  Elevating 
Company  on  the  use  and  occupancy  of  their  property  and  elevator 
building  with  boiler  and  houses  attached  *  *  *  in  Buffalo,  New 
York,  and  known  as  the  Dakota  Elevator.  At  the  time  the  policy 
was  issued  the  Buffalo  Elevating  Company  was  a  member  of  an 
association  under  an  agreement,  which  agreement  was  renewed  after 
the  policy  was  issued,  by  which  during  the  season  of  navigation  per- 
centages earned  went  in  a  general  fund  created  by  pooling  common 
earnings  of  the  members  of  the  association,  and  they  were  to  be 
paid  over  under  .all  conditions  and  notwithstanding  that  the  eleva- 
tort  might  be  destroyed  and  the  general  fund  diminished  in  conse- 
quence. In  other  words,  by  an  agreement  between  the  members  of 
the  association,  the  Buffalo  Elevating  Company  was  to  receive  its 
percentage  of  the  profits,  no  matter  if  its  elevator  which  w^as  to  be 
used  under  the  pooling  arrangement  in  earning  the  profits  which 
constituted  the  general  fund,  was  destroyed  meanwhile  by  fire. 
The  percentage  which  was  to  go  to  the  Buffalo  Elevating  Company 
did  not  depend  upon  the  remaining  in  existence  of  the  elevator.  The 
elevators  were  burned  and  destroyed,  but  not  by  reason  of  the  act 
of  the  association  or  its  members.  The  defendant  insurance  com- 
pany claimed  to  be  entitled  by  application  of  the  equitable  doctrines 
of  subrogation  to  be  credited  with  a  proportionate  share  of  the  per- 
centages or  moneys  received  by  the  plaintiff  from  the  association  in 
reduction  of  its  liability  upon  the  policy.  The  Court  held  that  this 
contention  was  untenable,  Justice  Gray  in  his  opinion,  saying: 

"How  the  appellant  (defendant  insurance  company)  can  be  heard  to 
claim  the  application  of  the  doctrine  of  subrogation,  it  is  difficult  to  per- 

630 


Subrogation 

ccive.  It  has,  certainly,  not  paid  the  loss,  and  the  loss  was  not  one 
which  was  to  be  made  good  as  such  by  the  association.  *  *  *  The 
theo^ry  of  the  rigjit  of  subrogation  rests  upon  the  fact  that  the  assured 
has  a  claim  against  a  third  party  for  the  loss  which  has  been  sustained 
in  the  destruction  of  the  property  insured.  That  is  not  the  case  with  the  ^ 
plaintiff;  who  did  not  receive  his  payment  from  the  "pooling"  fund  be- 
cause, or  in  consideration,  of  the  loss,  but  under  an  arrangement,"  which 
had  secured  to  members  of  the  association  certain  percentages,  under  all 
conditions,  as  a  consideration  of  entering  into  it." 

This  case  followed  as  an  authority  the  well  known  case  of 
Foley  V.  Manufacturers  Fire  Insurance  Company,  152  N.  Y.  131. 
In  that  case,  certain  houses  were  being  constructed  under  a  con- 
tract between  certain  contractors  and  the  plaintiff,  by  w^hich  the 
contractors  were  to  furnish  materials  and  build  the  houses,  and 
to  complete  them  by  a  time  specified  for  a  fixed  sum  to  be  paid 
defendant  ten  days  after  their  completion.  The  owner  took  out  an 
insurance  policy  upon  the  buildings.  The  fire  occurred  before  the 
completion  of  the  buildings,  and  it  was  admitted  that  the  contrac- 
tors w^ould  remain  bound  by  the  contract,  notwithstanding  the  de- 
struction of  the  buildings  by  fire,  and  that  the  owners  would  not 
be  bound  to  pay  for  the  work  done  or  material  supplied  up  to  the 
time  of  the  fire. 

The  defendant  insurance  company  contended  that  as  the  plain- 
tiffs had  not  been  put  to  any  loss  because  they  would  not  have  to 
pay  anything  to  the  contractors  until  the  buildings  were  completed, 
that  it  should  be  relieved  on  its  policy.    The  Court,  however,  said: 

The  defendants  neither  can  compel  the  plaintiffs  to  put  the  loss  on_ 
the  contractors,  nor~can  they  resort  to  the^terms  of  the  building  contract" 
to  diminish  the  liability  for  an  actual  loss  within  the  terms  of  the  policy. 

The  fact  that  improvements  on  land  may  have  cost  the  owner  noth- 
ing or,  if  destroyed  by  fire,  he  may  compel  another  person  to  replace 
them  without  expense  to  him,  or  that  he  may  recoup  his  loss  by  resorting.^ 
to  a  contract  liability  of  a  third  person,  in  no  way  affects  the  liability  of 
an  insurer  in  the  absence  of  any  exemption  in  the  policy. 

The  reasons  for  holding  that  an  insurance  policy  is  not  a  con- 
tract of  strict  indemnity,  are  set  forth  clearly  and  somewhat  at 
length  in  the  case  of  King  v.  The  State  Mutual  Fire  Insurance 
Co.,  61  Mass.  (7  Cushing)  1.  In  that  case  a  mortgagee  at  his 
own  expense  had  insured  his  interest  in  the  property  mortgaged 
against  loss  by  fire,  without  particularly  describing  the  nature  of 
his  interest.  A  fire  occurred  and  the  mortgagee  sued  the  insurance 
company.  It  was  held  that  a  mortgagee  who  gets  insurance  for  him- 
self, when  the  insurance  is  general  upon  the  property,  without  limit- 
ing it  in  terms  to  his  interest  as  mortgagee,  but  when  in  point  of 
fact  his  owm  insurable  interest  is  that  of  a  mortgagee,  in  case  of  a 

631 


The  Fire  Insurance  Contract 

loss  by  fire  before  the  payment  of  the  debt  and  discharge  of  the 
mortgage,  has  a  right  to  recover  the  amount  of  the  loss  for  his  own 
use;  and  the  Court  in  its  opinion  said: 

But  it  is  said,  and  in  this  certainly  lies  the  strength  of  the  argument, 
that  it  would  be  inequitable  for  the  mortgagee  first  to  recover  a  total  loss 
from  the  underwriters,  and  afterwards  to  recover  the  full  amount  of  his 
debt  from  the  mortgagor,  to  his  own  use.  It  would  be,  as  it  is  said,  to 
receive  a  double  satisfaction.  This  is  plausible,  and  requires  consider- 
ation; let  us  examine  it.  Is  it  a  double  satisfaction  for  the  same  thing, 
the  same  debt  or  duty? 

The  case  supposed  is  this:  A  man  makes  a  loan  of  money,  and  takes 
a  bond  and  mortgage  for  security.  Say  the  loan  is  for  ten  years.  He 
gets  insurance  on  his  own  interest,  as  mortgagee.  At  the  expiration  of 
seven  years  the  buildings  are  burnt  down;  he  claims  and  recovers  a  loss 
to  the  amount  insured,  being  equal  to  the  greater  part  of  his  debt.  He 
afterwards  receives  the  amount  of  his  debt  from  the  mortgagor,  and  dis- 
charges his  mortgage.  Has  he  received  a  double  satisfaction  for  one 
and  the  same  debt? 

He  surely  may  recover  of  the  mortgagor,  because  he  is  his  debtor, 
and  on  good  consideration  has  contracted  to  pay.  The  money  received 
from  the  underwriters  was  not  a  payment  of  his  debt;  there  was  no 
privity  between  the  mortgagor  and  the  underwriters;  he  had  not  con- 
tracted with  them  to  pay  it  for  him,  on  any  contingency;  he  had  paid 
them  nothing  for  so  doing.  They  did  not  pay  because  the  mortgagor 
owed  it;  but  because  they  had  bound  themselves,  in  the  event  which  has 
happened,  to  pay  a  certain  sum  to  the  mortgagee. 

But  the  mortgagee,  when  he  claims  of  the  underwriters,  does  not 
claim  the  same  debt,  he  claims  a  sum  of  money  due  to  him  upon  a  dis- 
tinct and  independent  contract,  upon  a  consideration,  paid  by  himself, 
that,  upon  a  certain  event,  to-wit,  the  burning  of  a  particular  house,  they 
will  pay  him  a  sum  of  money  expressed.  Taking  the  risk  or  remoteness 
of  the  contingency  into  consideration,  (in  other  words,  the  computed 
chances  of  loss,)  the  premium  paid  and  the  sum  to  be  received  are  in- 
tended to  be,  and  in  theory  of  law  are,  precisely  equivalent.  He  then 
pays  the  whole  consideration,  for  a  contract  made  without  fraud  or  im- 
position; the  terms  are  equal,  and  precisely  understood  by  both  parties. 
It  is  in  no  sense  the  same  debt.  It  is  another  and  distinct  debt,  arising 
on  a  distinct  contract,  made  with  another  party,  upon  a  separate  and  dis- 
tinct consideration  paid  by  himself.  The  argument  opposed  to  this  view 
seems  to  assume  that  it  would  be  inequitable,  because  the  creditor  seems 
to  be  getting  a  large  sum  for  a  very  small  one.  This  may  be  true  oi 
any  insurance.  A  man  gets  $1,000  insured  for  $5,  for  one  year,  and  the 
building  is  burnt  within  the  year;  he  gets  $1,000  for  $5.  This  is  because, 
by  experience  and  computation,  it  is  found  that  the  chances  are  only 
one  in  two  hundred  that  the  house  will  be  burnt  in  any  one  year,  and  the 
premium  is  equal  to  the  chance  of  loss.  But  suppose — for  in  order  to 
test  a  principle  we  may  put  a  strong  case — suppose  the  debt  has  been  run- 
ning t«venty  years,  and  the  premium  is  at  five  percent,  the  creditor  may 
pay  a  sum,  equal  to  the  whole  debt,  in  premiums,  and  yet  never  receive  a 
dollar  of  it  from  either  of  the  other  parties.  Not  from  the  under- 
writers, for  the  contingency  has  not  happened,  and  there  has  been  no 
loss  by  fire;  nor  from  the  debtor,  because,  not  having  authorized  the 
insurance  at  his  expense,  he  is  not  liable  for  the  premiums  paid. 

What,  then,  is  there  inequitable,  on  the  part  of  the  mortgagee,  to- 
wards either  party,  in  holding  both  sums?  They  are  both  due  upon  valid 
contracts  with  him,  made  upon  adequate  considerations  paid  by  himself. 
There  is  nothing  inequitable  to  the  debtor,  for  he  pays  no  more  than  he 
originally  received,  in  money  loaned;  nor  to  the  underwriter,  for  he  has 
only  paid  upon  a  risk  voluntarily  taken,  for  which  he  was  paid  by  the 
mortgagee  a  full  and  satisfactory  equivalent. 

632 


Subrogation 

This  statement  of  the  Massachusetts  court  was  dicta,  but,  nev- 
ertheless is  pertinent  for  the  purpose  for  which  it  is  cited,  namely, 
merely  to  show  the  principle  upon  which  that  line  of  cases  based 
their  decision.  It  is  interesting  to  note  in  this  connection  that  in 
the  case  of  Kernochan  v.  The  New  York  Bowery  Fire  Ins.  Co.,  17 
N.  Y.  428,  Judge  Roosevelt  in  his  opinion,  joining  in  an  affirm- 
ance, after  citing  and  quoting  from  this  Massachusetts  case,  re- 
ferred to  the  view  as  follows: 

This  view,  however,  it  will  be  seen,  ignores  the'  principle  of  public 
policy  that  no  man  should  be  allowed  to  bargain  for  an  advantage  to 
arise  from  the  destruction  of  life  or  property,  in  other  words,  to  lay  a 
wager  that  a  particular  person  will  die  or  a  particular  property  be  burnt 
within  a  given  period.  We  regard  the  contract  of  insurance  as  one 
purely  of  indemnity.  Should  it  be  said  that  insurance  companies  will 
receive  premiums  without  a  corresponding  risk,  the  answer  is  that  such 
suggestion  may  be  safely  left  to  the  interest  of  the  parties,  who  will  soon 
adjust  their  premiums  to  the  diminished  losses." 

There  is  much  to  be  said  as  to  both  of  these  views.  On  one 
side,  it  is  the  contention  that  public  policy  ought  not  to  pefmTr'a' 
party  to  bejwice  reimbursed  for  property  destroyed  by  fire,  and 
thus  to  be  a  gainer  because  of  the  destruction  of  property ;  on  the 
other  side  is  the  strict  legal  enforcement  of  contract  rights  un- 
affected by  this  claim  as  to  public  policy. 

Perhaps  the  best  w^ay  to  eliminate  this  question  would  be  for 
the  standard  forms  of  policies  to  contain  some  clause  which  would 
cover  the  situation,  so  that  both  parties  to  the  insurance  contract 
would  contract  with  the  intention  that  there  should  be  but  one  re- 
imbur.'^ement. 

Frequently  questions  connected  with  the  right  of  subrogation 
arise  between  a  mortgagor  and  his  mortgagee  and  an  insurer  which 
has  insured  the  property  for  both  or  for  one  of  them.  There  are 
certain  well  established  principles  governing  most  of  these  questions, 
some  of  which  are  as  follows : 

When  a  mortgagee  independently_of  the  owner  and  mortgagor 
takes  out  insurance  upon  his  own  interest,  and  at  his  own  expense, 
and  for  his  sole  benefit,  the  insurer  upon  payment  of  the  l"-*^-^  ^f^ 
him  is  entitled  to  subrogation. 

Excelsior  Ins.  Co.  v.  Royal  Ins.  Co.,  55  N.  Y.  543. 

And  this  is  also.  true.-under  such  circumstances  when  the  mort- 
gagee obtains  the  policy  in  form  to  the  ow-ner  and  mortgagor,  but 
with  loss  payable  to  him  (the  mortgagee). 

This  right  of  subrogation  does  not  depend  upon  the  contract. 
Thompson  v.  Montauk  Ins.  Co.,  43  Hun.,  218. 

633 


TiiE  Fire  Insurance  Contract 

In  some  states,  for  instance,  Massachusetts,  it  was  held  the 
insurer  could  not  have  subrogation  to  the  rights  of  a  mortgagee 
as  against  the  mortgagor,  unless  the  policy  in  terms  provided  for  it. 

Suffolk  Ins.  Co.  V.  Boyden,  9  Allen,  123. 

The  Form  of  Policy  now  used  in  Massachusetts  contains  a 
provision  which  makes  it  possible  for  the  insurer  to  take  steps 
which  wdll  secure  it  the  benefit  of  subrogation  against  the  mort- 
gagor. 

If  the  insurer  issues  a  policy  to  the  owner  with  the  loss 
merely  made  payable  to  the  mortgagee,  without  a  mortgagee  clause, 
/  the  latter  is  only  an  appointee  to  receive  the  loss  (if  any  due)  to 
the  owner  with  whom  the  contract  is  exclusively  made.  (Moore 
v.  Hanover  Ins.  Co.,  141  N.  Y.  219),  and  there  can  be  no  subro- 
gation on  payment  to  the  mortgagee. 

Cohen  V.  Niagara  Fire  Ins.  Co.,  60  N.  Y.  619. 

When  the  policy  insures  the  owner  and  mortgagor  and  pro- 
vides that  the  loss  be  paid  to  the  mortgagee,  with  mortgagee  clause 
attached,  and  the  insurance  is  void  as  to  the  owner,  upon  paying  the 
loss  to  the  mortgagee,  the  insurer  is  entitled  to  subrogation  and  as 
assignee  of  the  mortgage,  may  foreclose  it. 

Springfield  F.  &  M.  Ins.  Co.  v.  Allen,  43  N.  Y.  389; 

Hastings  v.  Westchester  Ins.  Co.,  Th  N.  Y.  141. 

Where  the  insurance  is  void  as  to  the  owner  as  against  the 
mortgagee  under  the  mortgagee  clause,  the  insurance  company 
cannot  claim  that  the  right  of  subrogation  has  been  impaired  or 
lost  by  a  foreclosure  and  sale,  and  that,  therefore,  he  cannot  re- 
cover for  the  loss.  If  foreclosure  proceedings  are  pending  at  the 
time  of  fire,  the  insurer  should  take  active  steps  and  protect  its  in- 
terest, if  any,  by  paying  the  mortgage  debt  and  taking  an  assign- 
ment or  otherwise. 

Eddy  V.  London  Assu--.  Co.,  143  N.  Y.  311. 

Until  payment  is  made  by  the  insurer,  the  mortgagee  is  free 
to  make  any  settlement  he  washes  with  other  insurers,  and  if  any 
insurer  desires  to  avail  itself  of  its  right  of  subrogation  under  the 
terms  of  a  mortgagee  clause,  and  to  acquire  an  interest  in  the  mort- 
gage so  as  to  be  able  to  dictate  settlement  with  other  insurers,  it 
must  first  pay  the  amount  due  from  it  on  account  of  the  loss. 

New  Hampshire  Ins.  Co.  v.  National  Life  Ins.  Co.,  112  Fed.  Rep.  199. 

When  the  insurance  is  not  sufficient  to  cover  the  mortgage 
debt,  the  insurer  takes  nothing  by  subrogation  and  assignment  until 
the  mortgage  is  paid  or  tendered  in  full,  both  as  to  principal  and 
interest. 

634 


Subrogation 

Phoenix  Ins.  Co.  v.  First  National  Bank,  85  Va.  765; 

Gibb  V.  Philadelphia  Ins.  Co.,  59  Minn.  267. 

If  an  insurer  has,  under  a  mortgagee  clause,  paid  the  mort- 
gage in  full  and  taken  an  assignment,  upon  foreclosure  of  the 
"mortgage  it  need  only  credit  upon  the  mortgage  as  against  a  pre- 
vious owner  liable  for  any  deficiency,  the  portion  of  the  loss  for 
which  it  was  originally  liable  to  the  owner  at  the  time  of  the  fire, 
under  the  apportionment  clause  of  the  policy. 

Phoenix  Ins.  Co.  v.  Floyd,  19  Hun.  287;  affd.  without  opinion,  83 
N.  Y.  613. 

Questions  relating  to  subrogation  also  sometimes  arise  in  con- 
nection with  the  rights  of  a  vendee  or  vendor. 

If  a  vendee  under  an  executory  contract  of  sale  agrees  to  pay 
the  expense  of  insurance  by  the  vendor,  and  does  so,  the  insurance 
exists  for  his  benefit,  and  the  insurer  has  no  right  of  subrogation 
to  the  claim  of  the  vendor  on  payment  of  a  loss  to  him. 
Wood  V.  Northwestern  Ins.  Co.,  46  N,  Y.  421. 

This,  however,  may  be  otherwise  when,  as  between  the  vendor 
and  vendee,  the  latter  is  not  entitled  to  any  benefit  from  the  insur- 
ance. 

Clinton  v.  Hope  Ins.  Co.,  45  N.  Y.  454. 

When  the  vendee  is  discharged  from  liability  to  the  vendor  by 

occurrence  of  the  fire,  or  when  as  between  them,  the  vendee  is 

entitled  to  the  benefit  of  the  insurance  in  event  of  loss,  there  can 

be  no  subrogation. 

Clinton  v.  Hope  Ins.  Co.,  supra;   See  Lett  v.  Guardian  Trust  Co 
52  Hun.  570. 

In  the  practical  administration  of  insurance  business  as  re- 
gards subrogation,  perhaps  one  of  the  most  important  subjects  to 
be  considered  is  that  of  waiver,  that  is  waiver  of  their  respective 
rights  by  both  the  insured  and  the  insurer. 

The  insurer's  right  of  subrogation  does  not  accrue  until  after 
loss  has  occurred.  On  payment  of  the  loss  the  insured  becomes  a 
trustee  for  the  insurer  and  cannot  afterwards  settle  or  compromise 
his  claim  against  others  liable  for  the  loss  to  the  insurer's  prejudice. 

If  the  insured  settles  with  the  party  primarily  liable  and  gives 
an  absolute  release  of  all  his  claims  against  such  party  without 
excepting  the  insurance,  thus  destroying  the  insurer's  right  of  sub- 
rogation in  case  it  should  make  payment  of  the  loss,  it  is  a  good  de- 
fense to  an  action  brought  by  the  assured  against  the  insurer. 

Dilling  V.  Draemel,  9  N.  Y.  Supp.  497;  Sims  v.  Mutual  F.  Ins.  Co, 
101  Wis.  586;  Highlands  v.  Cumberland  Valley  Farmers'  Mutual  Life 
Ins.  Co.,  203  Pa.  134. 

635 


The  Fire  Insurance  Contract 

But  if  the  release  is  not  an  absolute  one  and  includes  only  such 
losses  as  are  not  covered  by  the  insurance,  it  will  not  affect  the 
assured's  remedy  against  the  insurer  since  the  latter  upon  payment 
of  the  insurance  will  still  retain  its  right  of  action  against  the 
party  primarily  liable. 

Insurance  Co.  of  N.  A.  v.  Fidelity  Title  &  T.  Co.,  123  Pa.  523. 

If  the  assured  gives  a  release  to  the  party  primarily  liable  in 
which  it  is  expressly  stipulated  that  it  is  not  to  affect  the  claim  of 
the  assured  against  the  insurer  for  the  loss  covered  by  the  insur- 
ance, thus  making  the  settlement  include  only  the  loss  not  covered 
by  insurance,  it  will  not  affect  the  insurer's  right  of  action  upon 
his  policy. 

Insurance  Co.  of  N.  A.  v.  Fidelity  Title  &  T.  Co.,  123  Pa.  523. 

If  the  third  person  is  primarily  liable  only  for  a  portion  of  the 
loss  covered  by  the  policy  a  release  will  operate  to  the  benefit  of  the 
Insurance  Company  only  to  the  extent  to  which  the  third  person 
might  have  been  held  for  loss  for  which  the  Company  is  also  liable. 

Svea  Assurance  Co.  v.  Packham,  92  Md.  464. 

Where  a  mortgagee  has  by  any  agreement  or  act  destroyed 
any  right  of  the  insurer  to  be  subrogated  to  the  rights  of  the  mort- 
gagee, he  thereby  releases  the  insurer  from  liability. 

Lett  V.  Guardian  Ins.  Co.,  52  Hun  570;  Affd.  125  N.  Y.  582. 

If  the  assured  receive  damages  from  a  party  primarily  liable 
before  collecting  his  insurance,  the  amount  so  received  would  be 
applied  pro  tanto  in  discharge  of  the  policy. 

Conn.  Fire  Ins.  Co.  v.  Erie  Rwy.  Co.,  73  N.  Y.  399. 

If  the  assured  collects  damages  from  the  party  primarily  liable 
after  he  has  been  paid  in  full  for  his  loss  by  the  insurer,  he  must 
account  therefor  to  the  insurer,  or  if  after  being  paid  in  full  by 
the  party  primarily  liable,  he  conceals  the  fact  and  collects  from 
the  msurer,  the  insurer  may  recover  back  so  much  of  the  amount 
so  paid  as  exceeds  the  assured's  actual  loss  after  deducting  the 
amount  received  by  him  from  the  party  primarily  liable  upon  the 
ground  that  it  was  fraudulently  obtained. 

If  the  insurer  voluntarily  pays  the  loss  with  full  knowledge 
that  the  assured  has  recovered  his  full  loss  from  the  party  primarily 
liable,  it  cannot  maintain  an  action  against  the  assured  to  recover 
back. 

Conn.  Mut.  Life  Ins.  Co.  v.  Erie  Rwy.  Co.,  73  N.  Y.  399. 

If  the  party  primarily  liable  pays  the  assured  after  payment  by 
the  insurer,  with  knowledge  of  that  fact,  it  is  a  fraud  upon  the  lat- 
ter and  will  not  protect  such  party  from  liability  to  the  insurer 

636 


Subrogation 

Conn.  Mut.  Life  Ins.  Co.  v.  Erie  Rwy.  Co.,  73  N.  Y.  399;  19  Cyc. 
895,  and  cases  cited. 

A  decision  of  considerable  interest  is  found  in  the  case  of 
Fire  Association  of  Philadelphia  v.  Schellenger,  95  Atlantic  Rep. 
615  (N.  J.)  decided  June  14th,  1915.  In  that  case,  the  plaintiff 
issued  a  policy  of  insurance  for  $3,000  on  the  property  of  the  de- 
fendant. The  policy  contained  the  same  provision  as  to  subroga- 
tion as  is  found  in  the  New  York  standard  policy,  and  it  is  pre- 
sumable that  the  policy  was  on  such  a  form.  The  plaintiff  paid  to 
Schellenger,  under  its  policy,  $2,855,  the  agreed  amount  of  its  lia- 
bility. Subsequently,  Schellenger  brought  an  action  against  the  At- 
lantic City  Railway  Company,  claiming  that  the  fire  by  which  his 
property  was  injured,  was  caused  by  sparks  negligently  permitted 
to  escape  from  an  engine  of  that  company.  He  recovered  a  verdict 
which  was  finally  compromised  at  $3,000  and  paid  by  the  Company, 
and  a  general  release  was  given  by  Schellenger.  Then  the  plain- 
tiff brought  an  action  against  Schellengc,  claiming  that  it  had  a 
right  of  subrogation  to  receive,  out  of  the  amount  recovered  by 
Schellenger  against  the  railroad,  reimbursement  of  the  monies  it 
had  paid  Schellenger  under  the  policy.  The  Plaintiff  Insurance 
Company  made  no  claim  for  subrogation  until  it  commenced  its 
action  against  Schellenger,  after  Schellenger  had  recovered  from 
the  Railroad  Company. 

The  Court  of  Errors  and  Appeals  to  which  the  case  was  ap- 
pealed, held  that  the  plaintiff  could  not  recover  on  the  ground  that 
it  failed  to  assert  its  claim  to  subrogation  at  or  before  the  time 
when  it  made  payment,  under  its  policy,  to  Schellenger.  The  Court, 
in  its  opinion,  said: 

"It's  failure  to  assert  such  claim  at  or  before  the  time  when  the  pay- 
ment was  made  was  a  failure  to  comply  with  the  condition  upon  which 
its  right  to  subrogation  depended,  and  terminated  the  existence  of  that 
right,  leaving  the  defendant  free  to  so  deal  with  the  person  responsible 
for  the  fire,  with  relation  to  a  settlement  of  any  claim  against  such  per- 
son, as  he  might  see  fit,  without  any  liability  to  be  called  to  account  by 
the  complainant  for  any  of  the  proceeds  of  such  settlement." 

It  is  interesting  to  note  that  the  Court  held  that  if  there  had 
been  no  provision  in  the  policy  relating  to  subrogation,  the  plaintiff 
could  have  recovered  under  its  common  law  right  to  be  subro- 
gated, but  that  having  made  a  contract  containing  the  provision 
which  it  did,  and  which  provided  that  "This  company  shall  on  pay- 
ment of  the  loss,  be  subrogated,  etc.,"  and  "Such  right  shall  be  as- 
signed to  this  company  by  the  insured  on  receiving  such  payment," 
its  common  law  right  of  subrogation  was   waived,  and  therefore 

637 


The  Fire  Insurance  Contract 

when  it  failed  to  comply  with  the  provisions  of  the  contract  as  to 
asserting  its  claim  at  the  time  of  payment,  it  had  no  ground  for 
recovery.  Under  this  decision,  the  provision  contained  in  the  stand- 
ard policy,  to  say  the  least,  was  not  very  advantageous  to  the  In- 
surance Company.  The  importance  of  the  decision,  however,  rests 
in  the  fact  that  it  holds  that  the  Company  should,  and,  in  fact, 
must  assert  its  claim  or  right  to  be  subrogated  at  or  before  the  time 
it  makes  a  payment  to  the  insured  under  its  policy.  There  is  con- 
siderable doubt  whether  this  decision  will  receive  very  general  ap- 
proval in  the  courts.  If  during  the  time  that  the  insurance  com- 
pany delayed  in  claiming  its  right  of  subrogation,  the  position  of 
any  of  the  parties  had  been  changed  so  that  they  might  suffer  by 
reason  of  the  delay  in  claiming  the  right,  it  would  be  another  ques- 
tion and  perhaps  then  the  company  might  be  properly  held  to  have 
lost  its  right  to  be  subrogated. 

I  have  called  attention  to  some  of  the  rules  and  principles  of 
subrogation,  and  endeavored  to  show  how  they  are  sometimes  ap- 
plied under  the  law  of  fire  insurance. 

As  was  well  stated  by  the  Court  in  the  case  of  Eaton  v.  Hasty 
(6  Neb.  419),  in  referring  to  subrogation:  "No  general  rule  can 
be  laid  down  which  will  afford  a  test  in  all  cases  for  its  applica- 
tion, and  whether  the  doctrine  is  applicable  to  any  particular  case 
depends  upon  the  peculiar  facts  and  circumstances  of  such  case.' 

The  nature  and  grounds  of  subrogation  are  clear.  The  diffi- 
culties arise  in  its  application.  The  Courts  are  inclined,  however, 
rather  to  extend  than  to  restrict  the  principle. 


638 


KXXII 

THE  AGENT— AUTHORITY  OF  AGENTS  AND 
OFFICERS  OF  COMPANY 

Frederick  T.  Case,  Lawyer 
The  subject  for  discussion  is  ''the  agent — powers  of  agent  and 
officers  of  the  company." 

You  will  have  noticed  in  your  experience  with  fire  insurance 
problems  that  questions  of  agency  pervade  nearly  every  difficulty 
that  comes  up.  The  reason  for  this  is  the  obvious  one  that  prac- 
tically all  insurance  throughout  the  world  is  done  solely  by  and 
through  agents. 

We  are  not  permitted  tonight  to  range  freely  and  at  will  over 
the  whole  subject  of  agency, — if  we  wished  to  cover  the  whole 
subject,  a  year's  course  of  addresses  would  hardly  be  sufficient. 
We  could  spend  some  time  on  the  interesting  questions  that  arise 
where  a  man  acts  as  agent  for  both  the  company  and  the  assured, 
as  in  the  case  of  the  ordinary  broker.  We  could  discuss  the  statu- 
tory, provisions  relating  to  registration  and  taxation  of  agents,  and* 
so  we  could  continue  almost  without  limit.  But  your  conservative 
and  wise  committee  has  limited  me  to  that  part,  of  the  subject 
which  is  suggested  by  two  clauses  in  the  New  York  Standard  Form 
Fire  Insurance  Policy. 

The  first  of  those  clauses  (lines  47-48)  provides  that: 

"In  any  matter  relating  to  this  insurance  no  person,  unless  duly 
authorized  in  writing,  shall  be  deemed  the  agent  of  this  company." (') 
The  second  of  those  provisions  (lines  113-116)  says  that: 

"This  policy  is  made  and  accepted,  subject  to  the  fjorfigoing 
stipulations  and  conditions,  together  with  such  other  provisions, 
agreements,  or  conditions  as  may  be  indorsed  hereon  or  added  here- 
to, and  no  officer,  agent,  or  other  representative  of  this  company 
shall  have  power  to  waive  any  provision  or  condition  of  this  policy 
except  such  as  by  the  terms  of  this  policy  may  be  the  subject  of 
agreement,  indorsed  hereon  and  added  hereto,  and  as  to  such  provi- 
sions and  conditions  no  officer,  agent,  or  representative  shall  have 
such  power  or  be  deemed  or  held  to  have  waived  such  provisions 
or  conditions  unless  such  waiver,  if  any,  shall  be  written  upon  or 
attached  hereto,  nor  shall  any  privilege  or  permission  affecting  the 
insurance  under  this  policy  exist  or  be  claimed  by  the  insured  unless 
so  written  or  attached."  (') 

(1)  Elliott  on  Insurance  says  in  a  Note  at  page  199:  "This  provision  la  fonn/i 
in  the  Standard  policies  of  N.  Y.,  N.  J.,  Conn.,  R.  I..  La.,  Iowa  N  D  9  n 
and  N.  C.  The  provision  is  not  found  in  the  Standard  policies' of  M-iin^' 
N.  H..  Wise.  Mass..  and  Minn.  The  Mich,  policy  provides  that-  'In  an v 
matter  relating  to  the  procuring  of  this  insurance,  no  person,  unless  duW 
authorized  in  writing,  shall  be  deemed  the  agent  of  this  company  '  " 

(2)  Richards  on  Insurance  (3rd  Ed.)  in  a  Note  on  page  206  says  that  this  clause 
is  found  in  nearly  all  of  the  Standard  Form  policies  at  the  date  of  this 
writing  (1907)  except  Maine,  New  Hampshire.  Massachusetts.  Iowa  and 
South  Dakota. 

639 


The  Fire  Insurance  Contract 

A  careful  reading  of  the  policy  will  show  that  these  two  sec- 
tions are  the  only  ones  which  touch  directly  and  specifically  upon 
agency.  And  while  they  seem  fairly  simple  and  at  first  sight 
unobjectionable,  they  raise  fundamental  questions  that  have  come 
before  the  courts  frequently  and  which  have  resulted,  of  necessity, 
in  the  court's  practically  wiping  out  those  clauses  from  the  policy. 
I  do  not  know  upon  what  authority  or  what  advice  of  eminent 
counsel  these  clauses  were  inserted  in  the  policy,  but  I  have  no 
hesitancy  in  saying  that  it  was  inevitable  from  the  outset  that 
they  must  fail  to  stand  the  test  when  brought -before  the  courts. 

But  before  plunging  into  the  midst  of  our  subject  or  jumping 
to  our  conclusions,*  let  us  look  at  one  or  two  preliminary  points 
that  are  most  important.  First  of  all  what  is  an  agent?  You  can 
find  the  word  agent  defined  in  any  dictionary,^  and  in  any  law 
encyclopedia,^  and  then  you  can  read  thousands  of  legal  decisions, 
each  of  which  will  give  up  pages  on  pages  determining  whether 
s^ne  particular  person  is  or  is  not  an  agent.  Without  going  through 
those  decisions  or  definitions  or  any  of  them,  we  most  of  us  will 
have  a  definite  idea  of  who  is  an  agent  in  the  insurance  business. 
We  will  usually  picture  him  to  ourselves  as  a  local  agent  who  so- 
licits and  accepts  business,  and  who  is  entrusted  with  policy  forms 
which  he  fills  in,  countersigns  and  issues  to  the  applicants  for  in- 
surance; or  perhaps  the  word  agent  calls  up  to  our  mind  the  Spe- 
cial Agent,  whom  the  company  sends  out  with  greater  or  less 
authority  to  appoint  and  supervise  the  local  agents  and  their  ac- 
ceptance of  risks ;  or  again  perhaps  the  word  agent  will  suggest 
the  adjuster  whose  most  thoughtful  action  or  most  careful  inaction 
is  so  often  urged  as  a  waiver  or  an  estoppel. 

;rt»:i  In?  -ah  legal  or  dictionary  sense,  however,  the  term  is  much 
■bfdader.'  n  were  to  try  to  define  the  word  agent,  we  would 
probably  say  that  an  agent  is  any  person  who  acts  under  proper 
^^tithprity  for  another  person.  Such  a  definition  is  not  complete 
nop  quite  accurate,  but  for  our  purposes  it  is  probably  sufficient 
to  say  that  in  the  insurance  sense  an  agent  is  any  person  who  rep- 
resents an  insurance  company  with  the  latter's  authority.  It  makes 
no  difference  what  name  or  title  such  agent  assumes  or  is  given  by 
the  company,   it  makes  no  difference  whether  he  be  called  local 

(3)  Century  Dictionary    "Agent — a  person   acting  on   behalf  of  another,   called 
his  principal;  a  representative;  a  deputy,  factor,  substitute,  or  attorney." 

(4)  31  Cyc.  1189  "Agency  in  its  broadest  sense  includes  every  relation  in  which 
one  per«on  acts  for  or  represents  another  by  his  authority." 

640 


Authority  of  Agents  and  Officers 

agent,  United  States  Manager,^  President,  Secretary,  adjuster,  or 
even  broker- — if  he  j;epresents  the  company  and  is  authorized  to 
do  so  hejs  the  agent  of  the  company,  and  the  company  is  bound 
by  his  acts^done  within  his  aulhority.  Thus  we  come  back  to  one 
of  our  first  propositions,  namely,  that  agency  pervades  the  whole 
insurance  business  from  beginning  to  end.  Practically  all  insurance 
business  is  done  by  corporations  or  associations  and  it  is  funda- 
mental that  they  can  act  only  through  human  agencies.^  A  cor- 
poration is  an  artificial  entity  created  by  law,  and  it  can  act  only 
through  human  hands.  Thus  every  act  of  an  insurance  company 
must  be  done  through  an  agent  of  higher  or  lower  degree — in  many 
instances  the  agent  is  the  President  or  other  high  official  of  the 
company,  while  in  other  instances  the  agent  may  be  the  less  exalted 
but  also  necessary  counter  man  or  even  the  reinsurance  placer. 
One  is  an  agent  as  much  as  another  and  each  will  bind  his  com- 
pany by  all  that  he  does  within  the  real  or  apparent  scope  of  his 
employment. 

The  ordinary  way  of  making  a  man  an  agent  is  by  agree- 
ment between  him  and  the  company,  w^hereby  he  is  appointed  to 
represent  the  company.  Such  an  agenc^^jcpiitract,  like  any  .other 
agreement,  may  be  in  w^riting  or  oral  and_may  take  any  form  that 
sujts  the  parties."  It  will  sometimes  be  a  formal  contract  drawn 
by  a  lawyer,  but  more  often  it  will  be  a  mere  exchange  of  let- 
ters or  a  mere  understanding  reached  in  the  course  of  a  conversa- 
tion. There  is  no  provision  of  law  in  any  jurisdiction  so  far  as  I 
know  which  would  require  a  contract  of  agency  to  be  in  writing. 
If  has  never  been  placed  in  the  category  of  contracts  for  the  sale 
of  real  estate,  or  contracts  for  the  sale  of  merchandise  worth  more' 
than  $50,  and  certain  other  contracts  all  of  which  are  unenforcible 
unless  evidenced  by  some  written  memorandum  signed  by  the  par- 
ties. In  the  case  of  the  local  insurance  agent,  the  company  usuallv 
but  not  always  issues  a  written  certificate  of  authority  which  the 
agent  has  framed  and  hung  in  his  office.  That  certificate  contains 
no  lengthy  statement  of  powers,  nor  does  it  contain  any  fine  print 
conditions  limiting  the  authority.     It  simply  says  that  John  Smith 

(5)  See  ADAMSON  v.  SCHREINER,  N.  Y.  Law  Journal  for  December  9  1915 
page  914. 

(6)  Richards  on  Insurance,  3rd  Ed.,  page  189;  Morowetz  on  Corporations  2nd 
Ed.,  Section  575,  says:  "Corporations  almost  invariably  act  through  agents 
There  are  few  acts  which  a  corporation  aggregate  can  possibly  perform 
without  the  intervention  of  an  agency  of  some  kind.  It  becomes  necessarv 
therefore,  in  almost  every  instance  in  which  the  legal  effect  of  a  corporate 
act  is  in  question,  to  consider  the  application  of  the  doctrine  of  the  law  of 
agency." 

(7)  For  instance,  in  a  New  Jersey  case  the  relation  of  agency  was  held  to  ba 
created  merely  by  a  nod  of  the  head.  THOMAS  v.  SPENCER  (1899)  Atl 
275 

641 


The  Fire  Insurance  Contract 

of  this  town  or  that  town  is  duly  authorized  to  represent  the  com- 
pany and  write  and  issue  its  pohcies  of  insurance.  There  may  be 
some  understanding  through  special  instructions  or  correspondence 
that  the  company  has  a  prohibited  list,  or  that  it  will  limit  its  lines 
very  strictly  on  certain  named  hazards.  Such  special  instructions 
and  understandings  will  be  absolutely  binding  between  the  company 
and  the  agent,  and  any  violation  of  the  limitations  of  his  authority 
will  render  the  agent  absolutely  liable  to  the  company  for  any  re- 
sulting damages.^  But  these  special  limitations  cannot  be  held  effec- 
tive as  against  third  parties  who  never  heard  of  them.^  An  easy 
example  of  this  proposition  is  readily  found  in  automobile  insur- 
ance. The  companies  usually  refuse  to  insure  automobiles  after 
they  have  arrived  at  a  fixed  and  certain  degree  of  antiquity.  An- 
tiques of  all  sorts  are  very  difficult  of  valuation,  and  aged  automo- 
biles moreover  might  well  be  classed  as  extra  hazardous — they 
seem  peculiarly  susceptible  to  fire  on  lonely  roads  where  there  are 
no  unnecessary  witnesses.  But  suppose  an  agent  who  has  the  strict- 
est instructions  on  this  point,  violates  the  instructions,  and  in- 
sures a  1905  Atlas  that  is  seriously  affected  in  both  lungs,  and  has 
a  complication  of  internal  troubles.  The  company  may  have  a  right 
of  action  against  the  agent  for  violating  his  instructions,  but  the 
policy  w^ould  be  absolutely  binding  upon  the  company  unless  it  could 
be  shown  that  the  assured  knew  that  the  agent  had  no  right  to  issue 
the  policy  on  a  car  of  that  age.  Proof  of  such  knowledge  on  the 
part  of  the  assured  would  generally  be  impossible.  The  point 
which  I  wish  to  make  is  that  the  agent  under  such  general  authority 
has  wide  and  almost  unlimited  power  to  bind  his  company,  except- 
ing in  the  rare  case  where  the  assured  could  be  shown  to  have 
knowledge  of  some  limitation  upon  the  agent's  general  powers. 

Two  other  ways  of  creating  the  relation  of  agency  are  by 
estoj)pel  and  by  ratification.  If  we  were  to  speak  more  precisely 
we~  would  say  that  estoppel  and  ratification  do  not  create  agency 
but  merely  create  the  same  obligations  and  liabilities  as  if  there  had 
been  a  real  agency.  An  example  or  two  will  show  wjat  I  mean. 
Suppose  John  Smith  of  Syracuse  had  been  your  agent,  but  owing 
to  the  high  cost  of  living  and  an  expensive  family  he  has  gotten 

(8)  It  was  said  in  LIGHTBODY  v.  NO.  AM.  INS.  CO..  23  Wend.  18.  "Althouirh 
he  (the  agent)  must  answer  t^o  his  principals  for  departing  from  their  pri- 
vate instructions,  he  clearly  Bound  them  so  far  a«  third  persons  dealing  with 
him  in  good  faith  are  concerned." 

(9)  In  RUGGLES  v.  AM.  CENT.  INS.  CO.  (1889)  114.  N.  T.  415,  an  agent  was 
authorized  to  write  policies  but  was  instructed  not  to  bind  any  Special  Risk.s 
— HELD:  The  agent  could  and  did  bind  the  company  on  plaintiff's  special 
risk,  the  plaintiff  having  no  knowledge  of  the  restrictive  instruftion.  See 
also  WALSH  v.  HARTFORD  FIRE  INS.  CO..  59  N.  T.  171. 

642 


Authority  of  Agents  and  Officers 

so  far  behind  with  his  balances  that  you  terminate  the  agency. 
Ordinarily  you  do  not  advertise  the  fact  in  the  local  papers,  and 
perhaps  you  do  not  take  down  his  signs.  Mr.  Assured  comes 
along  and  still  sees  your  sign  in  the  agent's  office  and  so  tells  the 
agent  to  renew  an  expiring  policy  in  your  company.  The  agent 
agrees,  and  receives  the  premium,  and  perhaps  even  writes  up  the 
policy  on  some  old  form  that  he  did  not  return  to  the  company. 
Of  course,  I  understand  perfectly  that  the  companies  always  try 
to  avoid  this  sort  of  thing  by  taking  up  the  supplies  and  by  taking 
back  their  signs  and  certificates  of  authprity.  But  I  know  also 
that  the  companies  do  not  always  fully  succeed  in  this  effort.  In 
any  such  case  it  would  be  manifestly  unfair  to  allow  the  company 
to  sit  back  and  say  that  man  was  not  their  agent  when  he  wrote 
the  policy.  The  company  through  design  or  neglect  permitted  him 
to  hold  himself  out  as  its  agent,  and  the  assured  relied  upon  his 
apparent  authority.  He  was  not  the  agent  of  the  company  in  writ- 
ing that  policy,  but  the  company  will  be  bound  by  his  acts  because 
he  was  permitted  to  act  as  though  he  were  duly  authorized  in  that 
regard.    Such  is  an  example  of  what  we  know  as  agency  by  estoppel. 

Now  suppose  this  discharged  agent  sends  in  to  the  company 
a  line  that  is  Jiuite  attractive  and  the  company  in  its  eagerness 
for  business  accepts  the  line  and  the  premium  that  goes  with  it. 
In  that  case  the  agent  has  no  authority  to  accept  the  business,  but 
the  company  by  confirming  his  action  and  receiving  the  premium 
thereby  ratifies  his  act  and  becomes  bound  by  it.  Still  he  was  not 
the  agent  of  the  company,  but  the  company  becomes  obligated  by 
its  ratification  to  the  same  extent  and  in  the  same  manner  as  if  he 
had  been  acting  under  an  original  authority. 

However  the  agencj/^  may  arise,  whether  by  direct  understand- 
ing  between  the  company  and  agent,  or  by  estoppel,  or  by  ratifica- 
tjon,^  the  result  is  the  same,  namely :  that  the  company  is  bound  by, 
the  acts  of  the  agent  that  are  done  within  the  scope  of  his  authority 
or  ^within  its  apparent  scope.  Thus  it  becomes  evident  that  the 
companies  are  to  a  very  remarkable  degree  at  the  mercy  of  their 
local  agents,  and  their  adjusters  and  their  other  representatives. 
The  local  agent  may  say  to  the  assured  *^your  chattel  mortgages,  or 
your  barrels  of  gasoline  will  not  make  any  difference  with  your  in- 
surance." The  adjuster  can  readily  say  "never  mind  about  a  proof 
of  loss,  I  see  what  you  have  and  I  will  tell  the  company's  loss  de- 
partment all  about  it."  It  was  undoubtedly  for  the  purpose  of  avoid- 

643 


f 


The  Fire  Insurance  Contract 

ing  the  innumerable  difficulties  in  which  the  agents  may  involve 
the  companies,  that  the  framers  of  the  New  York  Standard  Form 
Policy  inserted  the  two  clauses  as  to  agency.  They  were  not  new 
ideas  but  were  found  in  similar,  if  not  identical,  form  in  other 
policies  that  were  then  in  use. 

The  first  of  these  clauses  was  that  "in  any  matter  relatin^o 
this  insurance  no  person  unless  duly  authorized  in  writing  shall  be 
deemed  an  agent  of  this  company."  It  is  hard  for  us  to  see  ex- 
actly what  the  framers  of  the  policy  had  in  mind  when  they  used 
that  clause.  They  must  have  known  perfectly  well  that  there  are 
constantly  a  great  number  of  agents  of  the  insurance  companies 
who  have  no  written  authority.  Recently  I  had  occasion  to  sue  a 
local  agent  for  over-due  balance.  When  I  came  to  prove  the  agency 
in  court  I  found  that  by  a  peculiar  chance  no  written  commission 
had  ever  been  issued  to  him.  He  had  been  acting  as  agent  for  the 
company,  and  had  done  a  large  volume  of  business  for  them  for 
something  like  eight  years  or  more.  Unquestionably  he  had  been 
the  company's  agent,  and  he  had  issued  and  signed  thousands  of 
policies  containing  this  clause  that  no  one  should  be  deemed  an 
agent  for  the  company  unless  authorized  in  writing.  And  mani- 
festly it  would  be  grossly  unfair  and  impossible  for  the  company  to 
deny  liability  on  any  of  those  policies  on  the  ground  that  the  agent 
who  wrote  them  had  no  written  certificate  of  authority.^^  If  this 
clause  were  held  to  be  strictly  binding  as  between  the  insured  and 
the  company,  we  could  deny  liability  under  every  policy  written 
by  that  agent,  simply  and  solely  because  he  never  received  a  writ- 
ten authorization  to  represent  the  company.  If  that  clause  could 
be  invoked  literally,  the  companies  might  do  well  to  appoint  every 
agent  orally  and  then  they  could  recognize  his  authority  in  all  hon- 
est and  unobjectionable  losses,  and  deny  his  authority  in  tjie  fraudu- 
lent cases.  ^^ 

This  clause  and  similar  clauses  have  come  before  the  courts 
on  numerous  occasions  and  it  has  been  held  always  that  a  man  is 
or  is  not  an  agent  without  regard  to  any  clause  or  provisions  stated 

(10)  See  Mcelroy  v.  British  American  assn.  co.  (1899)  94  Fed.  990. 

(11)  Elliott  on  Insurance  at  page  199  says:  "Any  other  rule  would  permit  an  in- 
surance company  to  relieve  itself  from  all  responsibility  for  the  mistakes 
or  misconduct  of  its  agents,  by  the  simple  device  of  sending  them  out  with- 
out written  authorization." 

644 


Authority  of  Agents  and  Officers 

in  the  contract.^-  Thus  if  you  have  had  a  Mr.  Smith  as  your  local 
agent  in  Syracuse  for  the  past  ten  years,  you  cannot  unmake  or 
disaffirm  such  agency  merely  by  a  clause  in  the  policies  which  he 
writes  as  your  agent.  If  it  is  true  that  j\Ir.;  Smith  is  your  agent,  it 
does  not  become  untrue  merely  by  the  insertion  of  a  clause  to  the 
contrary  in  the  policies.  This  same  idea  is  expressed  by  one  high 
authority  on  insurance  law  where  he  says  in  eflFect  that  these  pro- 
visions in  the  policies  are  binding  if  not  untrue^^ — undoubtedly  he 
would  agree  that  if  the  clause  is  untrue  then  it  is  not  of  any  effect. 

This  provision  was  probably  put  into  the  policy  primarily  to 
save  the  companies  from  liabilities  for  acts  and  statements  of  the 
brokers.  Many  of  us  have  had  occasion  to  learn  why  so  many 
property  owners  regard  the  broker  as  the  agent  for  the  company. 
First  of  all  he  is  paid  by  the  company.  The  rate  of  premium  is  fixed 
by  the  companies,  and  the  assured  pays  only  that  premium  without 
giving  any  compensation  to  the  broker  for  his  work.  The  assured 
very  likely  does  not  know  whether  the  broker  is  a  salaried  man, 
or  on  commission,  or  on  both  salary  and  commission.  But  he  does 
know  that  the  broker  looks  solely  to  the  company  for  his  pay. 

Then  too  the  broker  delivers  the  policy  and  collects  the  pre- 
mium. He  comes  into  the  assured's  place  of  business,  solicits  the 
business,  and  having  obtained  the  line  he  says  to  the  assured,  "con- 
sider yourself  insured  from  this  moment, — I  will  bring  the  policy  as 
soon  as  I  can  have  it  written  up."  A  few  days  later  he  brings 
around  the  policy  and  collects  the  premium.  If  the  broker  had 
been  a  salaried  solicitor  of  the  insurance  company,  his  actions  and 
his  statements  would  not  have  been  different.  Moreover,  the  com- 
pany usually  has  a  running  account  with  the  broker,  giving  him 
sixty  or  ninety  days  credit  for  payment  of  premiums^ charging  his 
account  with  return  premiums.  They  have  a  regular  course*  of 
business  whereby  the  policy  is  handed  to  the  broker  for  delivery 
to  the  assured,  and  the  broker  is  expected  to  collect  the  premium 
from  the  assured  and  then  within  the  sixty  or  ninety  days  he  is 
supposed  to  remit  to  the  company,  less  commissions  and  subject 
to  other  proper  credits  and  allowances  that  may  have  accrued. 

(12)  May  on  Instirance  (4th  Ed.)  Section  144  G,  at  page  286  says:  "It  makes  no 
difference  that  the  policy  declares  the  agent  to  be  the  agent  of  the  assured 
not  of  the  coyipany.  For  whom  a  person  is  acting  is  a  matter  of  law  ori 
the  facts  of  eVery  case.  The  application  precedes  the  policy,  and  to  hold 
that  a  provision  in  the  aftercoming  policy  unknown  to  the  assured  at  the 
time  of  application  could  turn  the  insurance  agent  into  his  agent,  when  he 
thought  an  the  time  he  was  dealing  with  him  and  accepting  his  advice 
as  agent  of  the  company,  would  be  an  outrage." 

(13)  Richards  on  Insurance  (3rd  Ed.)  page  193. 

645 


The  Fire  Insurance  Contract 

When  these  facts  have  been  called  to  the  attention  of  the  courts 
they  have  held  that  under  such  a  course  of  dealing  the  broker  is  the 
agent  of  the  company  at  least  for  the  purpose  of  delivering  the 
policy  and  collecting  the  premium — and  this  has  been  held  regard- 
less of  the  policy  provisions  that  no  one  is  to  be  deemed  an  agent 
of  the  company  unless  duly  authorized  in.  writing. 

Thus  in  one  case  that  has  come  to  my  attention  the  company 
sued  the  assured  for  the  premiums  upon  his  policies  and  he  de- 
fended on  the  ground  that  he  had  already  paid  the  premiums  to 
the  broker.  To  this  the  company  replied  that  they  were  not  bound 
by  his  payment  to  the  broker  because  the  broker  was  not  an  agent 
for  the  company.  But  the  court  held  that  as  the  business  was  done 
the  broker  was  the  agent  for  the  company,  at  least  for  the  purpose 
of  delivering  tjie  policy  and  collecting  the  premium.  He  held  no 
authority  in  writing  from  the  company  but  he  was  held  to  be  the 
company's  agent  in  spite  of  the  policy  provision  which  we  are  now 
considering." 

In  another  case  the  insurance  company  had  endeavored  to  can- 
cel a  policy  for  non-payment  of  the  premium.  A  little  later  a 
fire  occurred.  When  the  assured  sued  on  the  policy  the  company 
defended  on  the  ground  that  the  policy  had  been  cancelled  for  non- 
payment of  premiums.  The  assured  replied  that  there  had  been 
no  effective  cancellation  because  there  had  been  no  return  of  the 
unearned  premium.  She  showed  that  she  had  paid  the  premium 
to  the  broker  and  that  the  cancellation  notice  was  not  accompanied 
by  any  tender  of  the  return  premium.  The  Court  held  in  this  case 
as  in  the  other  one,  that  the  broker  was  the  agent  for  the  com- 
pany for  the  purpose  of  collecting  the  premium  so  that  a  payment 
to  him  was  in  effect  a  payment  to  the  company,  and  that  conse- 
quently there  could  be  no  cancellation  without  a  return  of  the  un- 
earned premium.  This  was  so  determined  in  spite  of  the  fact 
that  the  broker  held  no  written  authorization  from  the  company 
and  in  spite  of  the  fact  that  the  policy  contained  the  clause  that 
no  one  should  be  deemed  an  agent  of  the  company  unless  authorized 
in  writing.^^ 

The  ground  of  decision  in  these  cases  is  usually  the  simple  one 
that  you  cannot  alter  an  established  fact  merely  by  a  clause  in  the 
policy.    And  that  is  the  correct  ground,  for  if  you  have  by  word  or 

(14)   GLOBE   &  RUTGERS   FIRE   INS.    CO.   v.    ROBBINS   &   MYERS    (1904)    43 

Misc.  65;  Affirmed  on  appeal,  109  App.  Div.  530. 
(16)  BINI  V.  SMITH  (1899)  36  App.  Div.  463. 

646 


x\UTHORITY  OF  AgENTS  AND  OFFICERS 

act  authorized  a  man  to  represent  you  as  your  agent  you  cannoi 
effectively  deny  that  fact  even  by  a  clause  in  the  statutory  form  oi 
insurance  policy.  But  at  least  one  decision  falls  back  upon  that 
frequent  refuge  of  the  weakminded — zvaiver.  Where  a  court  can- 
not think  of  any  other  ground  of  holding  in  favor  of  an  assured 
and  against  a  company,  they  say  that  the  company  has  in  some 
way  waived  its  defense.  Most  any  act  or  omission  to  act  can  be 
a  waiver.  If  a  company  receives  and  retains  an  unsworn  and  un- 
signed inventory  of  a  man's  loss  it  may  be  held  to  have  waived 
the  service  of  formal  sworn  and  detailed  proof  of  loss.^^  If  a  com- 
pany puts  into  a  policy  the  ordinary  80  percent  coinsurance  clause, 
it  has  thereby  waived  the  prohibition  against  other  insurance.^^ 
And  so  at  least  one  court  held  that  this  provision  of  the  policy  thaJL 
no  one  be  deemed  the  agent  of  the  company  unless  authorized  in 
writing  could  be  and  was  waived  by  the  company  whenever  the  com- 
pany appointed  an  agent  in  any  other  manner  than  by  written  au- 
thorization. 

-  This  doctrine  of  waiver  has  been  extended  and  developed 
without  much  limit  in  recent  years  as  was  doubtless  pointed  out  in 
the  recent  address  before  you  upon  that  subject.  But  waivers  must 
have  been  well  known  to  the  framers  of  the  policy  and  they  tried 
to  clear  up  the  difficulty  by  inserting  the  second  clause  that  I  have 
quoted  already  and  which  provides  that  all  waivers  must  be  in  writ- 
ing endorsed  on  the  policy.  But  unfortunately  the  courts  have  held 
that  this  provision,  like  all  others,  can  be  waived,  and  that  it  can  ^ 
be  waived  orally  or  merely  by  actions  without  spoken  words.^*  In 
fact  the  law  may  be  stated  broadly  that  an  insurance  company,  or. 
an  individual  for  that  matter,  cannot  by  any  conceivable  form  of 
condition  or  proviso  give  up  or  yield  the  right  to  waive  any  condi-: 
tion  of  the  contract.^^  And  this  must  be  true.  It  would  be  intolera-/ 
able_if  the  law  were  to  say  that  a  contract  once  made  could  no:, 
be  voluntarily  modified  by  consent  of  both  parties. 

(16)  See  GLAZER  v.  HOME  INS.  CO.   (1912)  190  N.  T.  6. 

(17)  POOL  V.  MILWAUKEE  MECHANICS  (1895)  91  Wise.  530;  NESTLER  v 
GERMANIA  FIRE  (1904)  44  Misc.  (N.  Y.)  97.  affirmed  91  N.  T  Sudd  29 
In  the  latter  case  it  is  said  that  the  use  of  the  80%  co-insurance  clause 
permits  other  insurance  only  to  the  extent  of  the  80%  therein  mentioned 
This  limitation  on  the  extent  of  the  waiver  does  not  seem  to  us  proper  W*» 
believe  that  the  only  possible  position  both  legally  and  practically  is  either 
that  the  prohibition  against  other  insurance  is  wholly  waived  or  else  that 
it  is  not  waived  at  all. 

(18)  A  few  very  recent  cases  in  point  are:  NICHOLS  v.  PRUDENTIAL  170  Mo 
App.  437;  BANK  OF  ANDERSON  v.  HOME  INS.  CO.  (Cal.  App  1910)  111 
Pac.  507;  SOUTHERN  STATES  FIRE  INS.  CO.  v.  VANN  (1915  Fla.)  68 
So.  647;  HOME  INS.  CO.  v.  W^ILSON  (1915  Ark.)  176  S.  W  688-  L  LA  G 
v.  GARGILL   (1916  Ark.)   145  Pac.  1134.  '         ^-  *  ^• 

(19)  MacGiilivray  on  Insurance  page  916. 

647 


) 


The  Fire  Insurance  Contract 

Suppose  you  rent  an  apartment  and  in  tlic  lease  you  provide 
that  your  landlord  must  do  certain  painting.  Then  you  find  that  the 
paint  is  not  so  necessary  as  you  thought  so  you  tell  the  landlord  to 
forget  it,  never  mind  it,  that  you  waive  the  provision  as  to  paint- 
ing. You  would  be  indeed  surprised  and  shocked  at  any  rule  of 
law  which  w^ould  step  in  and  say  you  cannot  waive  your  contract 
provision,  and  having  contracted  for  painting  you  must  submit  to 
it  even  although  both  you  and  the  landlord  would  prefer  to  modify 
the  contract  in  this  particular. 

Now  what  is  sensible  as  to  one  condition  is  equally  sensible  as 
to  another.  If  a  company  can  waive  a  gasoline  forfeiture,  it  can 
equally  well  waive  the  provision  that  changes  in  the  contract  must 
be  in  writing  endorsed  on  the  policy.  There  are  a  great  quantity 
of  court  decisions  upon  this  point,  and  they  are  found  in  nearly 
every  state  in  the  Union.  They  all  seem  to  be  agreed  upon  the 
point  of  law  that  the  company  through  its  duly  authorized  agents 
may  waive  this  clause  just  as  easily  and  surely  as  they  can  waive 
other  clauses  of  the  policy.  Mr.  George  Richards  in  his  well 
know^n  and  excellent  work  on  insurance,  takes  up  many  pages  in 
what  might  w^ell  be  treated  as  a  brief  for  the  insurance  companies 
in  support  of  a  strict  construction  of  this  clause  of  the  i)olicy.  He 
urges  that  is  is  perfectly  proper  for  the  companies  to  provide  the 
manner  of  making  waivers,  namely,  by  written  endorsements  on  the 
policies,  and  he  feels  that  the  courts  should  give  strict  effect  to  such 
a  clause.  In  one  decision  cited  by  Mr.  Richards  it  is  stated  that  the 
decisions  are  in  hopeless  conflict,  some  deciding  that  waivers  must 
be  in  writing  and  others  deciding  exactly  the  other  way.  And  then 
again  it  is  said  that  some  decisions  make  a  distinction  between  those 
cases  where  the  alleged  forfeiture  to  be  waived  had  occurred  before 
the  issuance  of  the  policy  and  those  in  which  it  occurred  after- 
wards.^ 

Personally,  I  cannot  see  any  conflict  between  the  cases  in  so 
far  as  they  lay  down  any  legal  doctrine.  They  all  agree  that  this 
clause  as  to  the  mode  of  making  waivers  may  itself  be  waived  by 
any  person  who  has  sufficient  authority  for  that  purpose.  With 
that  point  of  law  in  mind  they  examine  the  particular  facts  in  each 
case  and  then  come  to  a  conclusion  as  to  whether  the  particular 
agent  in  question  had  sufficient  authority  to  make  the  waiver.   Dif- 

(20)  Richards  on  Insurance  (3rd  Ed.)  page  195  et  seq.  and  cases  cited  therein. 

648 


Authority  of  Agents  and  Officers 

ferent  agents  will  have  different  degrees  of  authority  and  that  is 
what  gives  rise  to  the  apparent  differences  in  the  conclusions  of 
the  courts. 

Moreover  this  easy  way  of  getting  rid  of  requirements  that 
waivers  be  in  writing  is  not  confined  to  fire  insurance  policies.  The 
same  rule  is  seen  in  written  leases.  Every  one  of  you  who  has  a 
lease  on  ofiice  or  home  will  probably  find  a  fine  print  condition  say- 
ing that  you  cannot  sublet  without  the  written  consent  of  the  land- 
lord. In  spite  of  this  express  provision  of  the  lease  an  oral  con- 
sent over  the  telephone  is  sufficient  to  permit  a  subletting.  If  the 
landlord  gives  his  consent  orally  it  will  be  deemed  that  he  has 
waived  the  requirements  that  the  permission  be  in  writing.-^ 

To  hold  any  differently  would  be  to  make  the  written  contract 
an  instrument  of  oppression.  An  example  of  the  way  this  thing 
works  out  came  to  my  attention  last  winter.  A  retail  clothing  mer- 
chant in  Passaic  had  a  fire  which  looked  rather  suspicious.  Upon 
investigation  I  found  that  the  building  where  his  store  was  located 
had  been  condemned  by  the  Board  of  Health  and  was  being  re- 
constructed and  rebuilt  piecemeal.  Half  of  the  building  had  been 
torn  down  and  partly  rebuilt  when  the  fire  came.  The  local  agent 
who  wrote  the  policy  passed  the  place  of  business  several  times  each 
day  and  knew  well  all  about  the  work,  but  he  never  endorsed  any 
permit  on  the  policy  and  he  did  not  make  any  effort  to  cancel  the 
policy.  About  a  week  before  the  fire  the  regular  inspector  of  the 
company  looked  over  the  place  and  reported  back  to  the  company 
that  assured  w^as  shortly  to  move  to  new  store  and  advising 
that  the  risk  be  continued  uncancelled  so  as  to  hold  the  line  after 
the  removal  to  a  better  building.  I  think  you  will  all  agree 
with  me  that  it  would  have  been  a  gross  mjustice  for  any 
company  or  any  court  to  say  that  the  insurance  was  forfeited  under 
those  circumstances  simply  because  the  company  and  the  assured 
both  thought  it  unnecessary  to  endorse  the  policy  with  written  waiv- 
ers and  consents  to  the  rebuilding  operations. 

Similarly  where  the  assured  goes  to  the  local  agent  who  is- 
sued the  policy  and  tells  him  that  the  premises  are  vacant  and  un- 
occupied and  the  agent  assures  him  that  the  insurance  is  still  in 
force  and  that  the  company  takes  no  notice  of  the  clause  against 
vacancy.  It  would  not  be  fair  dealing  to  hold  that  the  policyholder 
who  had  relied  upon  such  assurance  of  the  regular  agent  of  the 

(21)  WEISBROD  V.  DEMBOV^SKY.  25  Misc.   (N.  Y.)  485. 

649 


The  Fire  Insurance  Contract 

company  should  lose  his  insurance  merely  because  he  and  the  agent 
had  not  thought  it  necessary  to  reduce  the  understanding  to  writ- 
ing and  attach  it  to  the  policy. 

And  so  we  could  go  through  case  after  case  where  the  insur- 
ance company  through  its  proper  representative  has  by  act  or  words 
waived  conditions  without  endorsing  such  waiver  on  the  policy. 
Wherever  that  occurs  it  would  be  grossly  unjust  and  highly  im- 
proper to  allow  the  company  to  hide  behind  the  fact  that  the  waiver 
was  not  in  writing  on  the  policies.  1  feel  no  hesitancy  in  saying 
to  you  that  the  courts  and  juries  are  going  to  do  justice  in  such 
cases  and  are  going  to  refuse  to  give  eflfect  to  the  strict  terms  of 
the  condition  requiring  waivers  to  be  in  writing.  They  may  base 
the  decisions  on  some  doctrine  of  waiver  or  maybe  they  will  call 
the  legal  theory  by  the  name  of  estoppel,  or  perhaps  they  will  find 
some  new  legal  phraseology  to  fit  it.  ( Under  whatever  name  it  goes 
the  doctrine  will  amount  to  this :  that  where  a  man  has  in  fact  an4 
in  truth  been  appointed  an  agent  without  written  authorization,  the 
courts  will  hold  that  he  is  such  agent  in  spite  of  any  policy  provi- 
sion to  the  contrary;  and  further,  wherever  the  company  has  in 
fact  and  in  truth  waived  a  defense  the  court  will  so  hold  in  spite 
of  any  policy  provisions  to  the  contrary.  There  will  still  be  a  ques- 
tion of  fact  to  decide  in  each  case — it  will  still  be  necessary  to 
decide  whether  the  company's  representative  did  actually  make  the 
waiver,  and  whether  he  was  clothed  with  sufficient  authority  to 
make  such  a  waiver.  Such  question  of  fact  must  depend  upon 
all  the  surrounding  circumstances  and  each  case  will  be  peculiar 
to  itself.  And  in  determining  such  questions  of  fact  and  weighing 
the  evidence  we  must  remember  that  as  the  business  is  done,  the 
ordinary  local  agent  and  other  representatives  of  the  companies 
are  allowed  the  widest  powers  in  practice  and  as  a  matter  of  fact 
are  constantly  giving  unwritten  waivers  which  the  companies  sanc- 
tion or  wink  at  without  objection.^^ 

What  then  is  our  conclusion  as  to  these  two  agency  provisions 
in  the  New  York  Standard  Form  Fire  Insurance  Policy?  It  sim- 
ply amounts  to  this,  that  you  cannot  change  an  unalterable  fact 

(22)  Richards  on  Insurance  (3rd  Ed.)  page  205,  says:  "The  regular  local  or 
commisioned  agents  of  fire  insurance  companies  are  said  to  be  general 
agents,  and  except  as  restrictions  upon  their  authority  are  inserted  in  the 
application  or  policy,  or  otherwise  made  known  to  the  insured,  they  are 
held  to  have  power  to  waive  conditions  and  forfeitures,  and  to  estop  the 
company,  without  written  permit.  This  conclusion  is  based  largely  upon 
the  extent  of  their  actual  authority,  which  embraces  such  acts  as  accepting 
or  rejecting  proposals,  countersigning,  delivering,  canceling,  renewing  pol- 
icies, giving  written  permits,  and  fixing  rates  of  premiums." 

650 


Authority  of  Agents  and  Officers 

by  a  clause  or  condition  put  into  a  written  instrument.^^  If  the 
sky  is  blue~you  cannot  change  its  color  by  saying  in  a  contract 
that  it  shall  not  be  deemed  to  be  blue.  And  likewise  if  you  put 
out  a  local  agent  with  full  authority  to  issue  policies  and  agree 
upon  the  terms  of  the  insurance  you  cannot  alter  the  fact  that  you 
have  given  him  such  full  powers  merely  by  denying  it  in  the  poli- 
cies which  he  writes.  As  Mr.  George  Richards  says  in  his  book, 
these  clauses  are  not  illegal  and  are  all  right  if  not  untrue.  He 
might  well  have  added  that  where  they  are  untrue  they  are  of  no 
effect.  In  thus  practically  nullifying  these  clauses  of  the  policy 
the  courts  and  juries  have  not  applied  any  new  doctrines  of  law 
nor  have  they  discriminated  against  the  insurance  companies.  They 
have  applied  the  same  rules  that  are  applied  to  other  contracts  and 
have  determined  the  facts  in  the  light  of  the  evidence  produced 
before  them. 

(23)  STERNAIVIAN  v.  MET.  LIFE  INS.  CO.  (1902)  170  N.  T.  13,  involved  the 
clause  in  a  Life  Insurance  policy  providing  that  the  examining  physician 
should  be  deemed  the  agent  of  the  assured.  In  holding  that  the  physician 
was  in  fact  the  agent  of  the  company  in  spite  of  that  clause,  VANN,  J. 
said  at  page  19:  "The  power  to  contract  is  not  unlimited  while  as  a  gen- 
eral rule  there  is  the  utmost  freedom  of  action  in  this  regard,  some  restric- 
tions are  placed  upon  the  right  by  legislation,  by  public  policy  and  'by  the 
nature  of  things.  Parties  cannot  make  a  contract  in  violation  of  law  or  of 
public  policy.  They  cannot  by  agreement  change  the  laws  of  nature,  or  of 
logic,  or  create  relations  physical,  legal,  or  moral,  which  cannot  be  created. 
In  other  words,  they  cannot  accomplish  the  Impossible  by  contract." 


651 


XXXIII 

WAIVER  AND  ESTOPPEL 

W.  J.  Nichols 

General,  Adjuster,  North  British  &  Mercantile  Insurance  Co. 

One  cannot  go  far  in  any  walk  of  mercantile  life  without  learn- 
ing of  the  principle  of  law  that  oral  testimony  is  inadmissible  to 
contradict  the  terms  of  a  written  contract.  Tbis  is  referred  to  by 
the  authorities  as  "The  Parol  Evidence  Rule,''  **parol  evidence,"  as 
thus  used,  meaning  evidence  based  on  oral  testimony. 

The  reason  for  this  rule  needs  no  defense;  its  justification  is 
obvious.  Witnesses  may  die,  witnesses  may  lie,  memories  may  fail ; 
but,  in  the  absence  of  fraud  and  mutual  mistake  of  facts  the  writ- 
ten contract,  if  in  existence  when  its  provisions  are  to  be  construed 
or  enforced,  is  the  best  and  properly  the  only  evidence  of  the  meet- 
ing of  the  minds  of  the  parties  thereto. 

In  the  opinion  of  so  competent  a  tribunal  as  the  United  States 
Supreme  Court,  this  rule  should  apply  to  written  contracts  of  in- 
surance just  as  it  applies  to  other  written  contracts. 

We  are  told  that  at  one  time  in  the  history  of  insurance  its 
contracts  had  the  protection  of  this  rule ;  but  today  it  is  often  diffi- 
cult, until  the  matter  has  been  threshed  out  by  the  courts,  to  de- 
termine the  respective  rights  of  the  parties  to  an  insurance  contract. 

The  interpretation  of  the  language  contained  in  the  policy  may 
be  a  perfectly  simple  matter.  To  predict  the  evidence  that  will* 
be  adduced  to  contradict  its  terms,  or  how  far  it  will  be  accepted 
by  a  jury,  is  a  hazardous  undertaking. 

There  is,  as  we  all  know,  one  sure  way  to  determine  whether 
a  given  specimen  is  a  mushroom  or  a  toadstool,  that  is,  to  eat  it. 
If  one  lives,  it  is  a  mushroom;  if  one  die,  it  is  a  toadstool.  The 
happy  characteristic  of  this  problem  is  that  one  may,  if  he  chooses, 
leave  it  unsolved. 

But  the  uncertainties  of  an  insurance  contract  under  which  a 
loss  is  claimed  must  be  solved  somehow.  Except  so  far  as  they 
arise  from  the  use  of  ambiguous  language  in  the  contract  itself, 
these  uncertainties  are  due  to  the  application  to  the  insurance  con- 
tract of  the  doctrine  of  waiver  and  estoppel,  and  it  is  this  doctrine 
that  we  are  now  to  consider. 

652 


Waiver  and  Estoppel 

We  read  sometimes  of  the  doctrine  of  waiver,  sometimes  of 
the  doctrine  of  estoppel;  but  almost  always  we  find  the  two  nouns 
coupled  together,  the  reference  being  to  the  "Doctrine  of  Waiver 
and  Estoppel." 

A  layman  may  be  able  to  say  as  to  some  cases  that  they  in- 
volved the  doctrine  of  Waiver;  and  in  others  that  they  involved 
that  of  Estoppel.  But  he  will  find  many  cases  where  he  is  unable 
to  say  whether  they  turned  on  the  one  or  the  other.  It  seems  un- 
necessary for  our  present  purposes  to  go  into  these  fine  distinctions, 
and  we  shall  make  better  progress  if  we  consider  them  together 
under  the  head,  '^The  Doctrine  of  Waiver  and  Estoppel." 

Webster's  New  International  Dictionary  defines  ''estoppel"  as 
follows : 

"Law.  A  preclusion  or  bar  to  one's  alleging  or  denying  a  fact  be- 
cause of  his  own  previous  action,  allegation,  or  denial  by  which  the  con- 
trary has  been  admitted,  implied,  or  determined.  Estoppels  are  divided 
into  three  classes: 

"Estoppel  by  record,  sometimes  called  'estoppel  by  judgment,' 
which  precludes  the  denial  of  the  truth  of  anything  appearing  in  the 
record  of  a  final  judgment,  so  that  if  the  judgment  is  in  rem  it  is  conclu- 
sive against  the  whole  world,  and  if  in  personam,  upon  the  parties  and 
their  privies  only. 

"Estoppel  by  deed,  which  precludes  a  party  who  has  entered  into 
an  agreement  by  deed,  or  instrument  under  seal,  from  denying,  to  the 
prejudice  of  the  other  party,  anything  stated  therein. 

"Estoppel  in  pais,  or  estoppel  by  conduct,  which,  when  a  party, 
whose  conduct  or  language  has  caused  another  reasonably  to  believe  in 
the  existence  of  a  certain  state  of  things  and  (having  a  legal  right  so 
to  do)  to  act  upon  the  belief,  precludes  him  from  averring  or  setting 
up  to  the  prejudice  of  the  latter  that  a  different  state  of  things  existed 
at  the  time  in  question.  An  intent  to  defraud  or  deceive  is  not  essential 
to  cause  the  estoppel.  Estoppels  by  record  and  by  deed  are  often  called 
'commonlaw,  legal,  or  technical  estoppels,'  as  distinguished  from  the 
estoppel  in  pais,  which  is  often  called  called  'equitable  estoppel,'  because 
it  arose  in  courts  of  equity,  though  it  is  now  applied  by  all  courts." 

The  same  authority  gives  this  definition  for  "waiver" : 

"Law.  Act  of  wai¥,in€^-SQmething;  act  of  waiving,  or  intentionally 
relin^jshing  or  abandoning  some  known  right,  claim,  or  privilege,  Cf. 
Acquiescence." 

In  a  recent  British  work  on  Insurance  Law,  the  author,  Mr. 

MacGillivray,  in  beginning  his  remarks  on  the  subject  of  "waiver," 

quotes  what  he  presumably  considers  the  best  judicial  definition 

of  this  doctrine  as  applied  to  the  insurance  contract.    This  he  finds 

in  the  decision  of  the  Supreme  Judicial  Court  of  Maine,  in  re  Hans- 

com  v.  Insurance  Companies,  90  Maine,  333.    The  court  said  (see 

Volume  27,  Insurance  Law  Journal,  page  23)  : 

"A  waiver  involves  the  idea  of  assent,  and  assent  is  primarily  an  act 
of  the  understanding.  It  pre-supposcs  that  the  person  to  be  affected  has^ 
kntrw^edg•e  of  his  rights,  but  does  not  wish  to  enforce  them:  Jewell   vs. 

653 


The  Fire  Insurance  Contract 

Jewell,  84  Me.,  304.  It  is  an  'intentional  relinquishment  of  a  known 
right'  (Robinson  vs.  Insurance  Co.  (Me.)  38  Atl.,  320),  andls  a  question 
61  fact  whenever  it  is  to  be  inferred  from  evidence  adduced,  or  is  to  be 
established  from  the  weight  of  evidence  (Williams  vs.  Association,  89 
Me.,  158;  Nickerson  vs.  Nickerson,  80  Me.,  100).  Again,  it  may  happen 
that  a  waiver  of  a  breach  of  the  condition  in  the  policy  was  not  actually 
intended;  but  if  the  conduct  and  declarations  of  the  insurer  are  of  such 
a  character  as  to  justify  the  belief  that  a  waiver  was  intended,  and 
acting  upon  this  belief  the  insured  is  induced  to  incur  trouble  and  ex- 
pense, and  is  subjected  to  delay  to  his  injury  and  prejudice,  the  insurer 
may  be  prohibited  from  claiming  a  forfeiture  for  such  a  breach,  upon  the 
principles  of  equitable  estoppel:  Wood,  Inc.,  176,  832,  837,  and  cases 
cited:  May,  Ins.,  503;  Peabody  vs.  Association,  89  Me.,  96." 

It  requires  little  effort  to  conceive  that  an  insurance  com- 
pany that  has  voluntarily  relinquished  a  known  right  under  the 
policy,  is,  by  reason  of  that  relinquishment,  estopped  from  assert- 
ing that  right.  This  view  enables  us  to  consider  the  whole  subject 
as  one  of  estoppel,  and  so,  with  your  permission,  we  shall  regard  it. 

Whenever,  in  this  paper,  the  writer  refers  to  ''the  Company," 
the  insurer  (Insurance  Company)  is  meant. 

Nobody  with  whom  I  have  any  acquaintance  professes  to  know 
the  exact  course  of  the  line  between  danger  of  and  safety  from 
this  source.  The  framers  of  the  Ktw  York  Standard  policy,  with 
which  wt  are  so  familiar,  probably  thought  that  they  had  success- 
fully eliminated  therefrom  every  element  of  this  sort  of  danger, 
when,  at  the  end  of  the  policy,  they  inserted  this  clause: 

"This  policy  is  made  and  accepted  subject  to  the  foregoing  stipula- 
tions and  conditions,  together  with  such  other  provisions,  agreements, 
or  conditions  as  may  be  endorsed  hereon  or  added  hereto,  and  no  officer, 
agent,  or  other  representative  of  this  company  shall  have  power  to  waive 
any  provision  or  condition  of  this  policy  except  such  as  by  the  terms  of 
this  policy  may  be  the  subject  of  agreement  indorsed  hereon  or  added 
hereto,  and  as  to  such  provisions  and  conditions  no  officer,  agent,  or 
representative  shall  have  such  power  or  be  deemed  or  held  to  have 
waived  such  provisions  or  conditions  unless  such  waiver,  if  any,  shall  be 
written  upon  or  attached  hereto,  nor  shall  any  privilege  or  permission 
affecting  the  ir-surance  under  this  policy  exist  or  be  claimed  by  the 
insured  unless  so  written  or  attached." 

This  I  may  refer  to  as  the  General  Anti- Waiver  clause. 

Had  this  clause  achieved  its  manifest  object,  a  large  part  of 
this  paper  would  have  been  spared — you  in  the  hearing,  and  me  in 
its  preparation.  Unfortunately,  the  hopes  of  the  framers  of  the 
policy  were  but  partially  realized.  This  may  have  been  largely 
because  they  at^emptpH  tnn  piuch.  The  courts  seem  very  generally 
to  have  taken  the  view  that  somewhere  must  reside  the  authority 
to  conduct  orally,  on  the  part  of  the  company  negotiations  with  the 
assured  relative  to  waiver;  so  that  in  attempting  to  restrict  even 
the  officers  of  the  company  to  waiver  in  writing,  the  framers  of 

654 


Waiver  and  Estoppel 

the  New  York  Standard  Policy  have,  by  some  courts,  been  held 
to  have  made  the  clause  impossible  of  application  as  intended.  Had 
the  restriction  applied  to  agents  only,  the  clause  might  have  been 
construed,  as  to  them,  according  to  the  intent  of  the  framers. 

It  must  not  be  understood  that  the  doctrine  of  waiver  and 
estoppel  applies  always  in  favor  of  the  insured  and  against  the;. 
Company.  In  some  circumstances  it  applies  against  the  insured 
and  in  favor  of  the  insurer.  But  such  cases  are  so  infrequent  that 
when  the  doctrine  is  referred  to  it  is  almost  always  as  favoring  the 
insured. 

All  but  a  negligible  percentage  of  the  losses  reported  are  ad- 
justed with  no  thought  on  either  side  of  the  necessity  of  precaution 
to  prevent  the  diminution,  by  waiver  or  estoppel,  of  rights  under 
the  policy.  It  is  the  exceptional  case  only  that  calls  for  caution 
in  this  respect  on  either  side.  However,  such  a  case  is  sure  to 
occur  sooner  or  later  in  the  experience  of  anyone  actively  engaged 
in  the  business  of  loss  adjustments. 

When  he  has  such  to  deal  with,  the  adjuster  needs  to  act 
with  circumspection,  not  undertaking  to  ascertain  the  exact  loca- 
tion of  the  brink  of  the  precipice  (this,  by  reason  of  darkness  or 
fog,  or  perhaps  defective  vision,  is  uncertain),  but-  endeavoring 
to  keep  conservatively  within  the  zone  of  safety. 

The  thought 'permeating  this  paper  can  be  summarized  briefly 
as  ''SafetyFirst." 

It  is  not  to  be  expected  that  you  will  receive  a  chart  of  the 
rocks  and  shoals  that  will  serve  you  in  all  jurisdictions.  We  shall 
do  well  if  we  learn  how  we  may  be  reasonably  safe  in  operating 
under  the  New  York  Standard  Policy  or  policies  similar  thereto. 

As  calling  for  careful  consideration  of  our  subject,  we  may 
assume  that  we  are  dealing  with  those  cases  where  wilful  burning 
by  or  at  the  instance  of  the  insured  is  as  certainly  the  cause  of 
loss  as  it  can  be  without  being  demonstrable  to  the  satisfaction 
of  the  jury  in  a  criminal  trial. 

A  policy  of  insurance  may  be  considered  with  reference  to 
three  distinct  periods.  The  first  includes  the  negotiations  for  the 
policy  and  terminates  with  the  completion  of  the  contract,  usually 
with  the  delivery  of  the  policy.  The  second  period  begins  at  the 
termination  of  the  first  and  itself  terminates  with  the,  happening  of^ 

655 


The  Fire  Insurance  Contract 

the  loss.  The  third  period  begins  with  the  happening  of  the  loss 
and  terminates  when  insured  and  insurer  have  settled  all  questions 
at  issue  between  them. 

Let  us  now  consider  the  first  period  outlined  above. 

There  is  an  overwhelming  preponderance  of  opinion  mani-_ 
fested  by  the  courts  of  thg. various  States  to  the  effect  that  the 
Company  is  estopped  from  asserting,  in  defense  of  a  claim  under 
its  policy,  any  fact  of  which  it  had  knowledge  at  the  inception, 
of  the  contract.  This  preponderance  of  opinion  is  based  chiefly 
on  one  argument,  viz:  that  it  would  be  unjust  to  the  insured  to 
deny  him  indemnity  for  a  loss  because  of  facts,  existing  at  the 
inception  of  the  policy,  of  which  the  Company  had  knowledge  at 
the  time.  This  argument  is  put  in  different  ways;  as,  for  instance, 
that  it  would  be  a  fraud  on  the  insured  for  the  Company  to  accept 
the  premium  with  knowledge  that  there  could  be  no  recovery  under 
the  policy  in  event  of  loss;  or  that  by  issuing  its  policy  with 
knowledge  of  a  certain  fact,  the  Company  must  be  deemed  to 
have  waived  any  defense  based  thereon.  But,  however  stated,  the 
argument  is,  in  theory,  persuasive.  In  practice  it  probably  pro- 
motes many  fold  more  injustice  than  it  prevents.  This  is  due  to 
the  ease  with  which  the  average  jury  will  believe  the  statement 
of  the  insured  that,  in  applying  for  the  policy,  he  notified  the  agent 
of  the  fact,  even  though  his  testimony  be  uncorroborated,  and 
flatly  contradicted  by  the  testimony  of  the  Company's  agent. 

So  far  as  relates  to  matters  prior  to  the  inception  of  the 
policy,  a  decided  majority  of  the  State  Courts  have  declined  to  relax 
their  application  of  the  doctrine  of  estoppel,  continuing  to  apply  it 
whenever  a  jury  has  found,  as  a  matter  of  fact,  that  the  agent  of 
the  Company,  during  the  negotiations  for  the  policy,  was  told  by  or 
in  behalf  of  the  insured  of  the  fact  set  up  by  the  Company  as  a 
defense  to  the  insured's  claim. 

That  their  arguments  are  not  impregnable  appears  from  a 
study  of  the  opinion  of  the  United  States  Supreme  Court  in  de- 
ciding, in  favor  of  the  Company,  the  celebrated  case  of  Northern 
Assurance  Company  v.  Grand  View  Building  Association  (183  U.  S. 
308;  31  Insurance  Law  Journal  97).  This  opinion  is  too  long  for 
quotation  here  in  full  but  we  may  well  take  time  for  the  following 
excerpt  therefrom: 

"What,  then,  are  the  principles  sustained  by  the  authorities,  and  ap- 
plicable to  the  case  in  hand? 

656 


Waiver  and  Estoppel 

"They  may  be  briefly  stated  thus:  That  contracts  in  writing,  if  in 
unambiguous  terms,  must  be  permitted  to  speak  for  themselves,  and 
cannot  by  the  courts,  at  the  instance  of  one  of  the  parties,  be  altered  or 
contradicted  by  parol  evidence,  unless  in  case  of  fraud  or  mutual  mis- 
take of  facts;  that  this  principle  is  applicable  to  cases  of  insurance  con- 
tracts as  fully  as  to  contracts  on  other  subjects;  that  provisions  con- 
tained in  fire  insurance  policies,  that  such  a  policy  shall  be  void  and  of 
no  effect  if  other  insurance  is  placed  on  the  property  in  other  companies, 
without  the  knowledge  and  consent  of  the  Company,  are  usual  and  rea- 
sonable; that  it  is  reasonable  and  competent  for  the  parties  to  agree  that 
such  knowledge  and  consent  shall  be  manifested  in  writing,  either  by 
indorsement  upon  the  policy  or  by  other  writing;  that  it  is  competent 
and  reasonable  for  insurance  companies  to  make  it  a  matter  of  condition 
in  their  policies  that  their  agents  shall  not  be  deemed  to  have  authority 
to  alter  or  contradict  the  express  terms  of  the  policies  as  executed  and 
delivered;  that  where  fire  insurance  policies  contain  provisions  whereby 
agents  may,  by  writing  indorsed  upon  the  policy  or  by  writing  attached 
thereto,  express  the  Company's  assent  to  other  insurance,  such  limited 
grant  of  authority  is  the  measure  of  the  agent's  power  in  the  matter, 
and  where  such  limitation  is  expressed  in  the  policy,  executed  and  ac- 
cepted, the  insured  is  presumed,  as  a  matter  of  law,  to  be  aware  of  such 
limitation;  that  insurance  companies  may  waive  forfeiture  caused  by 
non-observance  of  such  conditions;  that  where  waiver  is  relied  on,  the 
plaintiff  must  show  that  the  Company,  with  knowledge  of  the  facts  that 
occasioned  the  forfeiture,  dispensed  with  the  observance  of  the  condi- 
tion; that  where  the  waiver  relied  on  is  an  act  of  an  agent,  it  must  be 
shown  either  that  the  agent  had  express  authority  from  the  Company 
to  make  the  waiver,  or  that  the  Company  subsequently,  with  knowledge 
of  the  facts,  ratified  the  action  of  the  agent." 

Undue  stress  is  sometimes  laid  on  the  fact  that  three  of  the 
nine  Supreme  Court  judges  dissented  from  the  opinion.  The  wis- 
dom and  justice  of  the  principles  therein  set  forth  and  the  logic 
of  the  arguments  therefor  would  be  no  less  if  three  only  of  the 
nine  judges  had  concurred  therein. 

In  illustrating  the  application  of  the  doctrine  of  estoppel  to 
the  insurance  policy,  I  shall  not  take  time  to  seek  or  cite  authori- 
ties for  every  statement  of  opinion.  It  is  easily  possible  that  every 
view  expressed  herein  is  contradicted  by  some  or  other  decisions. 
Yet  the  opinions  are  expressed  in  the  belief  that  they  are  in  line 
with  the  weight  of  authority  as  found  in  the  decisions  of  the  State 
Courts. 

The  large  majority  of  the  State  Courts  seeinJxLagree  in  de- 
claring that  if,  at  the  execution  and  delivery  of  the  policy,  the 
Company  had  knowledge  of  an  existing  condition  which,  in  the 
absence_of  _such  knowledge,  would  make  the  policy  void,  the  Com- 
pany is  estopped  from  setting  up  such  a  condition  as  a  defense  to 
the  insured's  claim;  and  that  the  knowledge  of  the  agent  of  the 
Company  isTo  be  considered  the  knowledge  of  the  Company  itself. 

What  should  we  understand  by  the  pE"rase  "Knowledge  of  the 
agent  at  the  inception  of  the  policy?"     Many  seem  to  think  that  it 

657 


The  Fire  Insurance  Contract 

includes  any  knowledge  that  the  agent  may  at  any  thne  have  had, 
no  matter  how  acquired.  Let  us  consider  what  might  be  the  effect 
of  such  a  construction  of  the  phrase.  Suppose,  for  instance,  tha\ 
m  negotiations  relating  to  insurance  issued  or  refused  by  Company 
A,  its  agent  learns  that  the  buildmg  stands  on  leased  ground.  Later, 
so  much  later  that  the  entire  transaction  has  faded  from  the  agent's 
memory,  the  owner  of  the  same  building  obtains  from  lum  a  policy 
thereon  of  the  New  York  Standard  form,  issued  by  Company  B,  of 
which  he  also  is  the  agent.  No  disclosure  is  made  c^  the  fact  thai 
the  building  stands  on  leased  ground.  Conditions  not  provided  for 
by  the  policy  may  at  the  time  be  such  that,  if  aware  of  them. 
Company  B,  or  perhaps  the  agent  on  his  own  initiative,  would  de- 
cline the  risk  as  undesirable  because  of  the  fact  that  the  building 
stands  on  ground  not  owned  by  the  insured  in  fee  simple.  Is  it 
jusi  that  Company  B  should  be  precluded  from  successfully  as- 
serting the  policy  provision  in  defense  against  the  claim  when  it 
learns,  after  the  fire,  the  facts  as  to  the  ownership  of  the  ground? 

Or  let  us  suppose  a  person  engaged,  as  so  many  are,  in  the 
business  of  Real  Estate  as  well  as  that  of  Insurance.  As  a  Real 
Estate  agent  he  tries  to  effect  a  sale  by  A  to  B  of  a  building  occu- 
pied by  A  for  the  manufacture  of  some  product,  the  process  re- 
quiring the  use  of  gasoline.  While  trying  to  effect  the  sale  he 
learns  of  this  customary  use  of  gasoline.  The  sale  falls  through 
and  A  continues  the  occupancy,  of  his  building.  Some  time  there- 
after, there  being  nothing  to  recall  to  the  agent's  mind  the  fact  that 
gasoline  was  used  in  the  conduct  of  A's  business,  A  applies  to  him 
for  insurance  on  the  building.  The  policy  describes  the  building 
truly,  but  not  exhaustively,  as  ''occupied  for  manufacturing  pur- 
poses." Had  disclosure  then  been  made  to  the  agent  of  the  use 
of  gasoline,  he  would  either  have  declined  to  issue  the  policy,  or 
have  attached  a  properly  restricted  gasoline  permit  to  both  policy 
and  daily  report,  with  the  result  that  the  Company,  with  that  knowl- 
edge of  the  risk  to  which  it  is  always  entitled,  would  have  had  op- 
portunity to  order  the  cancelation.  Is  the_Company,  itself  ignor- 
ant of  the  existence  of  the  gasoline  hazard,  to  be  estopped  from 
denying  liability  because  of  the  knowledge  obtained  by  its  agent 
at  a  time  long  past,  in  a  matter  wherein  he  was  engaged  not  as  its 
agent,  not  as  the  agent  of  any  other  insurance  company,  not  even 
in  the  insurance  business  at  all,  but  in  a  business  wholly  separate 

658 


Waiver  and  Estoppel 

^id  distinct?  Too  many  people  seem  to  think  these  and  Hke  ques- 
tions should  be  answered  affirmatwely. 

Aly  belief  is  that,  in  order  to  be  chargeable  to  the  Company, 
the  knowledge  attributed  to  the  agent  must  be  proved  to  have  been 
either  acquired  by  him  in  the  negotiations  leading  up  to  the  issue 
of  the  policy  or  present  in  his  mind  when  the  policy  was  issued. 

In  the  decisions  I  have  read  involving  estoppel  because  of  the 
agent's  knowledge  prior  to  issue  of  the  policy,  little  is  found  to  in- 
dicate that  this  view  of  the  law  has  been  called  to  the  attention  of 
the  several  courts.  It  seems  generally  to  have  been  assumed  that 
the  knowledge  was  acquired  as  indicated  in  the  preceding  para- 
graph, or  that  the  time  and/or  manner  of  its  acquirement  were 
immaterial ;  in  other  words,  that  knowledge  acquired  by  a  man  at 
one  time  and  for  a  particular  purpose  is  to  be  considered  his  knowl- 
edge for  all  times,  however  late,  and  for  all  purposes,  however 
foreign  to  the  original. 

I  believe  the  view  of  the  law  above  designated  as  the  proper 
one  should  be  urged  upon  the  court  in  any  case  that  involves  this 
feature  of  an  agent's  knowledge. 

It  has  been  contended  that  the  Company  is  estopped  from  as- 
serting a  defense  to  a  claim  under  its  policy,  because  of  conditions 
antef^^tinp-  the  1at|pr  rnr\i;-ftYnin^  which  no  inquiry  was  made  of  the 
injured,  the  existence  of  which  would  have  been  disclosed  by  an 
examination,  in  advance  of  the  issue  of  the  policy  of  the  public 
records.  We  find  what  seems  to  be  a  proper  statement  of  the  law 
in  the  opinion  of  the  Wisconsin  Supreme  Court,  in  deciding  the 
case  of  Wilcox  v.  Continental  Insurance  Company,  85  Wis.  193. 
This  was  an  action  to  recover  for  loss  by  fire  of  a  horse  covered  by 
a  policy  containing  the  usual  conditions  against  other  insurance  and 
chattel  mortgage.  The  complaint  alleged,  in  addition  to  the  loss 
sustained,  the  issue  of  the  policy  without  inquiry  as  to  title,  or  as  to 
other  insurance;  it  also  set  forth  the  policy  conditions  above  re- 
ferred to,  and  the  existence  at  the  inception  of  the  policy  of  the 
other  insurance  and  the  chattel  mortgage.  The  Company  demurred 
to  the  petition,  and  the  court  sustained  the  demurrer. 

So  far  as  I  have  been  able  to  learn  by  inquiry,  this  question 
has  not  been  decided  by  the  New  York  Courts.  I  believe  our  New 
York  Court  of  Appeals  would  hold  as  did  the  Wisconsin  Supreme 
Court  in  the  Wilcox  case,  were  it  asked  to  decide  the  same  ques- 
tion. 

659 


The  Fire  Insurance  Contract 

The  provisions  of  the  New  York  Standard  Fire  Insurance 
F^olicy,  which  declare  that  in  certain  circumstances  it  shall  be  void, 
are  contained  in  lines  7  to  v30  inclusive.  The  framers  of  the  policy 
have  undertaken  to  draw  a  distinction  between  those  provisions  in 
lines  7  to  10  inclusive,  and  those  in  lines  11  to  30  inclusive. 

The  former  paragraph  provides,  unconditionally,  that  the 
policy,  in  certain  circumstances,  shall  be  void;  the  latter,  that  in 
certain  other  circumstances  the  policy  shall  be  void  unless  other- 
wise provided  by  agreement  endorsed  thereon  or  added  thereto. 
This  distinction  is  very  plainly  indicated  in  the  General  Anti-Waiver 
Clause  which,  as  we  have  seen,  attempts  not  only  to  restrict  waiver 
to  waiver  in  writing,  but  also  to  restrict  even  written  waiver,  to  such 
conditions  as,  by  the  terms  of  the  policy,  may  be  the  subject  of 
agreement  endorsed  thereon  or  added  thereto.  It  was  evidently  the 
intention  of  the  framers  of  the  policy  to  put  lines  7  to  10  inclusive 
absolutely  beyond  the  power  of  the  local  agent  to  waive. 

The  language  in  lines  8  and  9,  "or  if  the  interest  of  the  in- 
sured in  the  property  be  not  truly  stated  herein,"  seems  to  me  to 
be  necessarily  construed  as  if  it  read,  "be  untruly  stated  herein;" 
for  manifestly  a  policy  issued  without  any  statement  whatever  as 
to  the  interest  of  the  insured,  must  be  valid  if  that  interest  con- 
forms to  the  requirement  of  the  policy  (see  Hues  11,  16,  and  17)  ; 
that  is,  be  the  sole  and  unconditional  ownership. 

It  is  conceivable  that  the  insured's  interest  in  the  property 
might  be  untruly  stated  in  the  policy,  and  that  a  jury  might  find 
that  in  applying  for  the  insurance  the  insured  had  truly  stated  to 
the  agent  the  nature  of  his  interest  in  the  property.  Probably  in 
the  majority  of  the  State  Courts  the  doctrine  of  estoppel  would 
in  such  a  case  be  applied  by  a  court  of  law  in  an  action  under  the 
policy,  in  spite  of  the  fact  that  the  language  quoted  is  uncondi- 
tional. 

The  last  provision  in  this  paragraph  is  that  in  lines  9  and  10: 

"Or  in  case  of  any  fraud  or  false  swearing  by  the  insured  touching  any 
matter  relating  to  this  insurance,  or  the  subject  thereof,  whether  before 
or  after  a  loss." 

"Before  a  loss"  includes  also  before  the  execution  of  the  con- 
tract, and  it  is  my  understanding  that  out  of  considerations  of 
public  policy  a  defense  based  upon  fraud  or  false  swearing  can 
not  be  waived  by  the  agent,  whether  at  the  inception  of  the  policy 
or  later.     Even  so,  any  company  representative  having  knowledge 

660 


Waiver  and  Estoppel 

of  such  fraud  or  false  swearing  by  an  insured  as  would  avoid 
the  policy,  should,  until  those  higher  in  authority,  with  knowledge 
of  the  facts,  instruct  him  otherwise,  carefully  abstain  from  any 
word  or  act  that  might  afford  any  pretext  for  the  application  of 
the  doctrine  of  w^aiver  and  estoppel.     ''Safety  First." 

Let  us  now  consider  the  doctrine  of  estoppel  as  applied  be- 
cause of  the  agent's  knowledge  at  the  inception  of  the  contract 
to   the   conditions   of   the  policy  contained   in  lines    11   to   30  in 
elusive. 

Othe:r  Insurance. 

"THIS  ENTIRE  POLICY,  UNLESS  OTHERWISE  PROVIDED 
BY  AGREEMENT  ENDORSED  HEREON  OR  ADDED  HERETO 
SHALL  BE  VOID  (LINE  11)." 

"If  the  insured  now  has  or  shall  hereafter  make  or  procure  any 
other  contract  of  insurance,  whether  valid  or  not,  on  property  covered 
in  whole  or  in  part  by  this  policy"  (lines  11  to  13). 

Knowledge  by  the  agent  of  the  amount  of  other  insurance, 
existing  at  th€  inception  of  the  policy,  while  not  warranting  the 
insured  in  adding  to  it,  is  tantamount  to  a  permission  to  maintain 
other  insurance  to  that  extent  during  the  life  of  the  policy,  even 
though  after  its  inception  such  other  insurance  be  diminished  in 
amount  and,  later,  restored  to  its  original  amount.  But  knowl- 
edge of  part  only  of  the  other  insurance  does  not  estop  the  Com- 
pany from  setting  up,  as  a  defense  to  the  claim,  the  other  insur- 
ance of  which  it  had  no  knowledge.  (Philadelphia  Underwriters, 
etc.,  V.  Bigelow,  33  Ins.  Law  Journal  948,  37  S.  R.  210.) 

Manui^acturing  Es'tabushments  Operated  Ov^rtim^. 

"Or  if  the  subject  of  insurance  be  a  manufacturing  establishment  and  it 
be  operated  in  whole  or  in  part  at  night  later  than  ten  o'clock  (lines 
13  and  14)." 

The  better  doctrine  seems  to  be  that  knowledge  by  the  Com- 
pany's agent,  at  the  inception  of  the  policy,  of  an  intended  viola- 
tion thereof  does  not  estop  the  Company  from  defending  on  the 
ground  of  the  violation  after  it  has  occurred. 

But  this-  does  not  seem  to  apply  in  case  of  an  intention  to 
continue,  in  violation  of  terms  of  the  policy  rendering  it  void  ab 
initio,  a  condition  existing,  to  the  knowledge  of  the  Company's 
agent,  at  the  inception  of  the  contract.  So,  if  the  agent  of  the 
Company  issues  the  policy  with  knowledge  that  the  subject  of  in- 
surance is  a  manufacturing  establishment  and  is  then  being  op- 
erated in  whole  or  in  part  at  night  later  than  ten  o'clock,  the  as- 

661 
22 


The  Fire  Insurance  Contract 

sured  may  continue  to  operate  at  night  later  than  ten  o'clcnk  <u 
least  until  the  time  comes  when  it  ceases  to  be  operated,  even 
though  not  longer. 

Unconditional  and  Soi.k  Ovvne:rship. 

"Or  if  the  interest  of  the  insured  be  other  than  unconditional  and  sole 
ownership  (lines  16  and  17)." 

This  language  seems  to  apply  only  to  a  case  where  the  in- 
sured has  an  insurable  interest  in  the  property.  If  the  agent 
knows  at  the  inception  of  the  policy  that  this  interest  is  less  than 
unconditional  and  sole  ownership,  the  Company  is  thereby  e«+opped 
from  denying  liability  on  that  account.  I  know^  of  no  case  where 
the  doctrine  of  estoppel  has  been  invoked  to  give  life  to  a  policy 
issued  to  one  or  more  with  no  insurable  interest  whatever  in  the 
property.  Such  an  effort  would,  I  think,  be  in  vain  as  the  policy 
would  at  its  inception  be  a  wager  contract  which,  so  far  as  I  know, 
the  courts  uniformly  refuse  to  enforce  on  grounds  of  public  policy. 

Building  on  Ground  Not  Own^d  by  the:  Insured 

In  Fee:  Simple:;  Chatte:l  MortgagiC;  Illuminating 

Gas  Vapor;  and  Memorandum   Articles. 

"Or  if  the  subject  of  insurance  be  a  building  on  ground  not  owned  by 
the  insured  in  fee  simple  (lines  17  and  18); 

"Qr  if  the  subject  oi  insurance  be  personal  property  and  be  or  become 
incumbered  by  a  chattel  mortgage   (line   18); 

"Or  if  illuminating  gas  or  vapor  be  generated  in  the  described  building 
(or  adjacent  thereto)  for  use  therein  (lines  22  and  23); 
"Or  if  (any  usage  or  custom  of  trade  or  manufacture  to  the  contrary 
notwithstanding)  there  be  kept,  used,  or  allowed  on  the  above  described 
premises,  bezine,  benzole,  dynamite,  ether,  fireworks,  gasolene,  Greek 
fire,  gunpowder  exceeding  twenty-five  pounds  in  quantity,  naphtha,  nitro- 
glycerine or  other  explosives,  phosphorus,  or  petroleum  or  any  of  its 
products  of  greater  inflammability  than  kerosene  oil  of  the  United  States 
standard  (which  last  may  be  used  for  lights  and  kept  for  sale  according 
to  latv  but  in  quantities  not  exceeding  five  barrels,  provided  it  be  drawn 
and  lamps  filled  by  daylight  or  at  a  distance  not  less  than  ten  feet  from 
artificial  light),     (lines  23  to  28)." 

Each  of  these  provisions  relates  to  conditions  existing  at  the 
inception  of  the  contract  as  well  as  to  those  arising  thereafter,  and. 
as  a  rule,  is  subject  to  the  operation  of  the  doctrine  of  estoppel  in 
case  of  knowledge  on  the  part  of  the  agent. 

Certain  of  the  conditions  in  lines.  11  to  30  inclusive  of  the  New 
York  Standard  policy  have  no  application  to  the  inception  of  the 
policy,  but  affect  only  the  time  subsequent  thereto  and  prior  to  the 
loss.    They  are  as  follows: 

662 


Waiver  and  Estoppel 

Incre:ase  of  Hazard;  Foreclosure  Proceedings;  Change  In 

Interest,  Title,  or  Possession  ;  and  Assignment 

OF  Policy  Before  Loss. 

"Or  if  the  hazard  be  increased  by  any  means  .VMJthin  thp  ronrrol.jaj:i:no-VvL 

edge  of  the  insured  (lines  14  and  15); 

"Or  if,  with  the  knowledge  of  the  insured,  foreclosure  proceedings  be 

commenced  or  notice  given  of  sale  of  any  property  covered  by  this  policy 

by  virtue  of  any  mortgage  or  trust  deed  (lines  18  to  20); 

"Or  if  any  change,  other  than  by  the  death  of  an  insured,  take  place  in 

the  interest,    title,  or    possession   of  the    subject   of    insurance    (except 

change  of  occupants  without  increase  of  hazard)  whether  by  legal  process 

or  judgment  or  by  voluntary  act  of  the  insured,  or  otherwise   (lines  20 

to  22) ; 

"Or  if  this  policy  be  assigned  before  a  loss  (line  22)." 

Discussion  of  these  conditions  has  manifestly  no  place  in  this 
part  of  this  paper. 

We  have  now  mentioned  or  discussed,  as  of  the  time  up  to 
and  including  the  inception  of  the  contract,  all  conditions  contained 
in  lines  11  to  30  inclusive,  except  the  following: 

Cessation  of  Operation  of  Manufacturing  Establishment; 

Employment  of  Mechanics;  and  Vacancy  or 

Unoccupancy. 

"Or  if  the  subject  of  insurance  be  a  manufacturing  establishment  and  it 
cease  to  be  operated  for  more  tUan  ten  consecutive  days  (lines  13  and  14); 
"Or   if   mechanics   be   employed    in    building,    altering,    or   repairing- the 
within  described  premises  for  more  than  fifteen   days  at  any  one  time— 
(lines  15  and  16); 

"Or  Ji^  a  building  herein  described,  whether  intended  for  occupancy  by 
owner  or  tenant,  be  or  become  vacant  or  unoccupied  and  so  remain  for 
ten  days  (lines  28  and  30)." 

As  bearing  on  the  effect  of  the  knowledge  of  the  agent  at  the 
inception  of  the  contract,  so  far  as  these  three  conditions  are  con- 
cerned, let  me  call  to  your  attention  a  very  interesting  opinion — 
that  of  the  Wisconsin  Supreme  Court  in  re  England,  et  al.  v. 
Westchester  Fire  Insurance  Company,  81  Wis.  583,  21  Insurance 
Law  Journal  808.  The  policy  involved  contained  a  ten-day  vacancy 
permit  similar  to  that  in  the  New  York  Standard  Policy  and  was 
issued  with  knowledge  on  the  part  of  the  Company's  agent  that  it 
covered  on  a  vacant  building.  The  vacancy  continued  to  the  time 
of  the  fire,  more  than  ten  days  after  the  inception  of  the  policy. 
The  Company's  defense  to  the  action  was  the  vacancy  beyond  the 
period  covered  by  the  vacancy  permit.  PlaintiflFs  contended  that, 
because  of  the  issue  of  the  policy  with  knowledge  on  the  part  of 
the  agent  that  the  building  was  vacant,  the  Company  was  estopped 

663 


The  Fire  Insurance  Contract 

from  setting  up  the  vacancy  in  defense  to  the  claim.  The  court 
held  that  there  was  no  estoppel;  that  the  Company  had  a  right  to 
assume  that  the  assured  would  comply  with  their  duty  to  provide  an 
occupant  for  the  building,  within  ten  days,  and  that  the  Company 
was  not  liable  for  the  loss. 

If  this  opinion  is  good  law,  as  it  probably  is,  it  construes  for 
us,  with  reference  to  the  doctrine  of  estoppel,  not  merely  the  ten 
days'  vacancy  permit,  but  equally  the  ten  days  permit  for  cessation 
from  operation  of  a  manufacturing  establishment  (see  line  14)  and 
the  fifteen  days  mechanics  permit  (see  lines  15  and  16  of  the 
New  York  Standard  Policy). 

From  the  foregoing,  we  may  conclude  that,  according  to  the 
majority  of  the  State  Courts,  the  knowledge  of  the  agent  at  the  in- 
ception of  the  contract  may  work  great  havoc  in  the  policy  as  issued, 
and  the  contract  as  understood  by  the  Company  at  the  time  the 
issue  of  the  policy  is  reported  to  it  and  it  is  called  upon  to  decide 
whether  the  policy  is  to  be  allowed  to  continue  because  desirable, 
or  is  to  be  canceled  as  undesirable. 

Let  us  now  consider  the  second  period — the  period  from  the 
inception  of  the  contract  to  the  happening  of  the  loss. 

Of  the  conditions  arising  during  this  period  that  may  possibly 
invoke  the  doctrine  of  estoppel,  four  seem  to  justify  our  considera- 
tion: 

1.  Notice  to  the  agent  of  a  violation  of  a  policy  condition. 
As  to  this,  a  few  jurisdictions  only  have  held  that  if  such  knowl-' 
edge  comes  to  an  agent  it  becomes  the  Company's  duty  to  cancel 
the  policy ;  failing  to  do  which,  the  Company  is  held  to  be  estopped 
from  setting  up  the  violation. 

2.  Collection  of  the  premium  by  an  agent,  with  knowledge  of 
a  violation.  This  would  be  held  by  all,  or  nearly  all,  of  the  State 
Courts  to  invoke  the  doctrine  of  estoppel  on  the  theory  that  the 
Company  would  not  accept  the  premium  on  a  policy  which  had  been  ' 
void  from  its  inception,  except  with  the  intention  of  treating  it 
thereafter  as  a  valid  contract,  so  far  as  its  validity  depended  on 
facts  of  which,  at  the  time,  it  had  knowledge. 

I  am  not  referring  to  the  propriety  of  this  ruling — merely  its 
probability. 

3.  Notice  of  cancelation,  in  accordance  with  lines  51  to  55, 
inclusive,  of  the  policy,  whereby  the  policy  is  to  cease  and_deter- 

664 


Waiver  and  Estoppel 

mine  at  the  expiration  of  five  days  from  receipt  by  the  assured 
of  the  cancelation  notice.  It  seems  inevitable  that  from  the  time 
of  the  service  of  the  cancelation  notice  to  the  expiration  of  the 
five  days,  the  policy  is  declared  by  the  Company  to  be  valid,  so 
far  as  it  has  any  knowledge  of  the  facts.  For,  if  the  Company, 
by  reason  of  a  knov^n  violation  of  its  policy,  were  exempt  from 
liability,  there  would  be  no  reason  in  its  parting  with  unearned 
premium  which  it  could  safely  earn  by  the  simple  expedient  of 
withholding  cancellation  notice. 

4.  Knowledge  by  the  agent  of  the  violation  of ~a  policy  con-, 
dition  at  the  time  of  the  making  of  an  endorsement  on  the  policy, 
or  a  correction  thereof  in  writing: 

Reading  of  precedents  leads  to  the  conclusion  that  when  a 
policy  once  issued  is  changed  by  an  authorized  representative  of  the^ 
Company  having  knowledge  of  all  material  facts,  whether  the  >• 
change  be  by  way  of  correction  or  of  amendment,  the  rights  of  the. 
parties  are  the  same  from  that  instant  as  if,  with  this  knowledge,  the 
policy  had  been  canceled  and  a  new  policy,  conforming  to  the 
original  policy  plus  the  correction  or  amendment,  had  been  issued.  ^ 

The  effect  of  the  agent's  lack  of  knowledge  in  such  a  case 
may  not  be  the  same  as  in  the  case  of  the  issue  of  a  new  policy. 
For  instance,  suppose  a  policy  to  be  void  because  of  a  violation 
of  the  provision  regarding  increase  of  hazard,  no  other  provision 
of  the  policy  being  affected.  If,  without  knowledge  of  such  in- 
crease of  hazard,  an  endorsement  other  than  consent  to  an  assign- 
ment be  made  upon  the  policy,  such  endorsement  would  not  neces- 
sarily validate  the  policy.  Whereas,  if  the  policy  expires  or  is 
canceled,  and  is  succeeded  by  another  policy  identical  in  terms, 
the  effect  of  the  provision  against  increase  of  hazard  is  lost,  the 
hazard  having  existed  at  the  inception  of  the  policy. 

We  come  now  to  the  consid€ratien--e^tke-th4r4- period,  in  the 
life  of  a  policy — the  period  beginning  with  the  happening  of  the 
loss  and  ending  with  the  time  when  the  rights  of  the  parties  are 
adjusted.  To  this  period  we  must  give  most  careful  attention,  as 
every  error  is  costly. 

To  catalogue  for  you  all  the  ways  in  which  estoppel  may  arise 
during  this  period  would  be  impossible.  I  hope,  however,  to  in- 
dicate the  most  fruitful  sources  of  trouble  in  this  regard,  and  it  is 
quite  possible  that  a  study  of  these  will  shed  light  on  such  as  may 
escape  attention  at  this  time. 


The  Fire  Insurance  Contract 

Formal  Notick  of  Loss. 

"If  fire  occur  the  insured  shall  give  immediate  notice  of  any  loss  thereby 
in  writing  to  this  Company  (line  67)." 

This  clause,  at  first  reading,  seems  to  accord  the  Company  a 
definite  and  valuable  protection.  In  practice,  the  benefits  are 
shadowy. 

The  word  ''immediate"  is  of  very  indefinite  significance;  its 
meaning  in  any  particular^  case  depending,  to  a  great  extent,  on 
the  peculiar  circumstances  thereof.  For  instance,  the  insured  can 
not  be  penalized  for  not  notifying  the  insurer  of  a  loss  of  which 
he  is  ignorant.  And  when  he  has  learned  of  the  loss  he  must 
be  allowed  a  reasonable  time  within  which  to  give  notice  to  the 
insurer. 

If  the  insured  is  present  at  the  outbreak  or  during  the  progress 
of  the  fire,  he  must  obviously  give  the  Company  earlier  notice  than 
if,  by  reason  of  his  absence  from  home,  illness,  or  any  other  dis- 
ability, his 'knowledge  of  the  fire  is  delayed.  The  earlier  he  learns 
of  the  fire,  the  earlier,  other  things  being  equal,  he  must  give  the 
Company  notice. 

So,  if  he  should  happen  to  learn  of  the  loss  in  such  circum- 
stances as  to  allow  his  giving  the  Company  notice  within,  say,  an 
hour  of  its  occurrence,  he  should  give  it  within  the  hour.  Where- 
as, if  he  receives  word  in  the  depths  of  a  wilderness,  quick  action  in 
delivery  of  the  notice  to  the  Company  can  not  reasonably  be  ex- 
pected of  him. 

In  certain  circumstances  the  insured  is  relieved  of  giving  no- 
tice in  writing;  as  when  an  authorized  representative  accepts  oral 
notice  as  satisfactory,  particularly  if  the  Company  takes  action 
thereon. 

In  certain  circumstances,  too,  the  insured  is  relieved  of  giving 
any  notice  whatever;  as  when  the  Company  learns  of  the  loss  in- 
dependently of  the  insured,  particularly  if  it  takes  such  action 
as  indicates  that  it  is  advised  in  the  premises. 

As  a  practical_proposhion,  circumstances  are  seldopi,  if  ever, 
found  where  a  Company  could  have  a  valid  defense  based  solely 
on  failure  of  the  insured  to  comply  with  this  requirement  of  the 
policy.  Failure  to  comply  with  the  policy  in  this  respect  is  almost 
certain  to  be  associated  with  failure  to  comply  with  the  policy  in 
other  respects.  In  other  words,  a  Company  is  not  likely  to  have 
a  defense  based  upon  failure  of  or  delay  in  notice,  without  having 

666 


Waiver  and  Estc^ppel 

a  very  much  better  defense  on  sonic  (^iher  ground.  In  such  ca^e, 
however,  failure  of  or  delay  in  notice  may  be  of  material  value 
to  the  Company  as  an  added  defense. 

^On  receipt  of  notice  of  a  loss  the  most  natural  and  usual  thing 
for  a  Company  to  do  is  to  send  some  person  of  adequate  experience 
to  the  place  of  the  fire  to  ascertain  conditions  as  then  appearing. 
And  this  is  true,  even  though  at  the  time  the  Company  may  be 
fully  advised  of  a  violation  of  the  policy. 

In  a  very  few  States  it  is  held  that  even  so  slight  an  act  as 
the  mere  sending  of  a  person  to  inspect  the  place  of  the  fire  is 
sufficient  to  estop  the  Company  from  setting  up  its  defense,  even 
though  no  questions  are  asked  of  the  insured,  and  the  latter  is  put 
to  no  trouble  or  expense. 

This  is  an  extreme  application  of  the  doctrine  and,  that  it  is 
unreasonable,  may  be  presumed  from  the  fact  that  it  has  obtained 
little  currency.  It  is  conceded  in  nearly  all  jurisdictions  that  the 
representative  of  a  Company  has  the  same  freedom  of  action  in  ex- 
amining  the  place  of  the  fire  accorded  to  the  casual  passerby,  with 
no  greater  interest  than  that  of  curiosity.  And  as  the  casual  pass- 
erby may  use  his  eyes  even  to  the  extent  of  entering  upon  the 
premises  to  secure  a  better  point  of  view,  provided  it  be  accessible, 
so,  in  nearly  every  State  in  the  Union,  may  the  Company  repre- 
sentative do  the  same  with  no  greater  peril  to  himself  and  with  none 
to  his  employer's  rights  under  the  policy.  So,  too,  outside  of  the 
few  States  referred  to,  may  he  gratify  his  curiosity  by  making  all 
the  inquiries  he  wishes  of  such  people  as  are  willing  to  be  in- 
terrogated. 

Protection  and  Separation. 

"Ifjfir^. occur  the  insured  ^Jj^ll  *  *  *  proteiU_.y:i:e.-I«:opextxir-Om  further 
damage,  forthwith  separate  the  damaged  and  undamaged  personal  prop- 
erty, etc.     (lines  67  and  68)." 

This  clause  in  the  policy  is  usually  more  honored  in  the  breach 
than  in  the  observance;  at  least,  so  far  as  Metropolitan  losses  are 
concerned.  The  reason  for  this  lies  in  the  fact  that  the  adjuster's 
demand  for  proper  protection  and  separation  is  met  by  the  state- 
ment, however  absurd,  that  the  protection  and  separation  already 
accorded  the  goods  are  the  best  possible  under  the  circumstances. 

Arguing  these  questions  means  delay,  and  delay  very  fre- 
quently means  deterioration  of  the  damaged  property  with  a  serious 
consequent  loss,  which,  while  it  should  of  right,  be  borne  by  the 
insured,  it  may  be  difficult  to  make  him  bear. 

667 


The  Fire  Insurance  Contract 

A  denial  of  liability  waives  the  right  of  separation,  and,  prob- 
ably, the  insured's  obligation  to  protect  the  property  from  further 
damage. 

An  ascertainment  of  sound  value  and  loss  by  the  insured  and 
the  Company  w^ithout  resort  to  appraisal,  is  probably  a  waiver  of 
the  Company's  right  to  a  separation,  but  apparently  leaves  the  in- 
sured under  obligation  to  protect  the  property  from  further  dam- 
age, as  the  Company  appears  to  have  a  right,  according  to  lines  4 
and  5,  to  take  all,  or  any  part,  of  the  articles  at  their  ascertained 
value. 

Discussion  of  this  feature  of  the  policy  is  hardly  important  as 
conditions  can  rarely  arise  in  such  a  case  which  would  make  it 
to  the  interest  of  the  Company  to  take  any  of  the  property  at  its 
ascertained  value. 

Exhibition  of  Property. 
In  lines  81  and  82  it  is  provided  that  the  insured,  as  often 
as  required,  shall  exhibit  to  any  person  designated  by  this  Com- 
pany all  that  remains  of  any  property  described  in  the  policy. 
/  To  avoid  a  waiver  of  this  right  it  should  be  exercised  within  a  rea- 
sonable time.  One  can  not  lay  down  a  universal  rule  to  determine 
in  every  case  how  soon  such  exhibition  should  be  demanded.  Un- 
doubtedly each  case  will  have  to.  be  judged  by  itself,  and  what 
will  be  a  reasonable  time  in  one  case,  may  be  an  unreasonable  time 
in  another.  Manifestly,  perishable  goods  such,  for  instance,  as 
fresh  vegetables,  could  not  possibly  be  held  for  examination  so 
long  as  less  perishable  property,  such  as  piece  goods ;  and,  in  turn, 
piece  goods  so  charred  or  wet  as,  in  time,  to  became  offensive, 
could  not  reasonably  be  held  for  examination  so  long  as,  let  us 
say,  crockery. 

To  avoid  not  merely  a  waiver,  but  the  possibility  of  a  waiver, 
all  needed  examinations  of  the  property  should,  preferably,  be  made 
as  promptly  as  possible. 

Examination  Under  Oath. 
In  line  82,  we  find  that  the  insured  is  required  to  sulDmit  to 
examinations  under  oath  by  any  person  named  by  the  Company 
and  subscribe  the  same.  If  the  Company  desires  to  preserve  this 
right,  the  safest  way  is  to  make  a  demand  for  such  examination, 
as  early  as  possible.  Here  again  the  circumstances  of  the  individual 
case  must,  to  a  large  degree,  determine  how  late  in  the  negotiations 
a  demand  for  examination  under  oath  may  be  made. 

668 


Waiver  and  Estoppel 

That  there  is  no  definite  period  within  which  a  demand  may 
properly  be  made,  and  beyond  which  it  may  be  safely  ignored  by 
the  insured,  is  evidenced  by  the  fact  that,  as  often  occurs,  the 
necessity  or  desirability  of  an  examination  under  oath  does  not 
become  manifest  until  the  sixtieth  day  after  receipt  of  proofs,  or,  in 
special  cases,  even  later;  and  that  demands  therefor  made  thus  late 
in  the  day  are  almost  always  acceded  to  by  the  insured,  even  when 
acting  in  accordance  with  legal  advice. 

The  right  to  examine  the  insured  may  be  waived  by  a  denial  of 
liability ;  or  by  a  promise  to  pay,  unless  the  Company  is  induced  to 
make  such  promise  by  fraud,  misrepresentation  or  concealment. 

Examination  o?  Books  oi^  Account,  Etc. 

In  lines  83  to  85  of  the  policy,  we  find  it  stated  that  the  in- 
sured, as  often  as  required,  shall  produce  for  examination  all 
books  of  account,  bills,  invoices,  and  other  vouchers,  or  certified 
copies  thereof  if  originals  be  lost,  at  such  reasonable  place  as  may 
be  designated  by  the  Company,  or  its  representative,  and  shall 
permit  extracts  and  copies  thereof  to  be  made. 

Like  the   examination  of   the   insured   under   oath,   the   pro- 
duction of  books,  bills,  invoices,  etc.,  should  be  demanded  as  early _ 
as  practicable,  the  time  within  which  such  demand  may  properly 
be  made,  depending,  of  course,  upon  the  circumstances  of  the  par- 
ticular case. 

This  right  also  may,  of  course,  be  waived  by  a  denial  of  lia- 
bility. In  the  absence  of  fraud  on  the  part  of  the  insured,  it  prob- 
ably expires  when  the  amount  of  loss  is  conclusively  ascertained 
and  determined  by  the  insurer  and  all  parties  in  interest.  And, 
likewise  in  the  absence  of  fraud,  misrepresentation  or  conceal- 
ment, it  terminates  upon  an  adjustment  and  promise  to  pay. 

Appraisal. 

This  right  may  be  waived  in  several  ways.  Most  frequent 
among  them  are:  Denial  of  Liability;  promise  to  pay;  delay  on 
the  part  of  the  Company  In  demanding  the  appraisal;  delay  on  its 
part  In  proceeding  with  the  preliminaries  after  demand  has  been 
made;  and  by  interference  with  the  appraisers  in  the  discharge 
of  their  duties. 

The  appraiser  designated  by  the  Company  may,  by  his  Im- 
proper conduct,  entitle  the  Insured  to  repudiate  the  appraisal  agree- 

669 


The  Fire  Insurance  Contract 

m^nt,  in  which  case  he  may  very  reasonably  be  considered  as  ex- 
cused from  entering  upon  another. 

The  subject  of  appraisal  has  been  so  fully  treated  elsewhere 
in  this  series  that  it  seems  inappropriate  that  I  should  take  up  more 
time  with  this  branch  of  the  subject. 

We  shall  have  frequent  occasion  to  refer  to  something  writ- 
ten, spoken,  or  done  by  the  adjuster.  In  ev^ry  case  please  under- 
stand this  as  meaning  something  written,  spoken,  or  done  by  some 
authorized  representative  of  the  Insurance  Company,  with  knowl- 
edge of  one  or  more  violations  of  the  conditions  of  the  policy. 

We  shall  use  the  word  ''adjuster"  in  referring  to  the  Com- 
pany's representative,  as,  in  the  majority  of  cases,  the  person  deal- 
ing on  behalf  of  the  Company  with  the  insured  is  properly  so  de- 
scribed. To  be  strictly  accurate,  perhaps  we  should  distinguish 
the  independent  adjuster  whose  employment  by  the  Insurance  Com- 
pany is  always  with  reference  to  the  particular  loss  from  the  rep- 
resentative possessing  general  authority  on  behalf  of  the  Com- 
pany. The  distinction  would  rest  upon  whatever  distinction  is 
drawn  by  the  courts  between  the  two  kinds  of  employment.  The 
effect  of  the  distinction,  when  made,  is  to  hold  that  the  independent 
adjuster,  employed  each  time  for  a  particular  loss,  is  supposed, 
where  no  greater  authority  in  him  is  proved,  to  be  authorized  only 
to  ascertain  the  circumstances  of  the  loss  and  to  agree  with  the 
insured  as  to  the  sound  value  of  the  property  and  the  loss  thereon. 

It  has  been  held  that  an  adjuster  so  employed  is  without 
authority  to  waive  defenses,  whether  by  denial  of  liability,  by  de- 
mand for  proofs  of  loss  with  knowledge  of  a  defense,  or  by  a 
promise  to  pay.  But  for  the  practical  purposes  of  this  paper,  we 
may  assume  that  the  independent  adjuster  needs  to  be  as  careful 
to  avoid  danger  from  the  doctrine  of  estoppel  as  he  who  is  em- 
ployed by  the  Company  on  a  salary  and  as  a  General  Adjuster. 

In  referring  to  knowledge,  actual  knowledge  is  meant,  how- 
ever obtained.  Mere  supposition,  or  a  statement  in  such  terms  or 
from  such  source  that  one  would  not  be  justified  in  risking  any- 
thing thereon  is  generally  understood  not  to  be  such  knowledge  as 
suffices  for  the  application  of  the  doctrine  of  estoppel. 

But  when  knowledge  of  a  violation  is  actually  acquired  by  the 
adjuster,  he  cannot,  without  risk,  proceed  along  any  line  which 
could  be  considered  as  consistent  only  with  an  intention  to  recog- 
nize the  policy  as  a  valid  and  subsisting  contract. 

670 


Waiver  and  Estoppel 

In  every  case,  whether  the  Company  expects  to  resist  the  claim 
or  to  pay  it,  it  is  always  advisable  to  ascertain  and  determine  the 
amount  of  loss,  so  that  that  factor  may  be  permanently  eliminated 
from  any  controversy  that  may  arise  between  Company  and  in- 
sured. This  is  to  the  interest  of  both,  the  insured  being,  in  event 
of  contest,  relieved  from  the  necessity  of  proving,  at  great  expense, 
the  amount  of  loss,  and  the  Company  from  disproving,  at  great 
expense,  the  amount  of  loss  testified  to  on  behalf  of  the  plaintiff. 

The  advantages  of  the  ascertainment  and  determination  of 
loss  are,  as  a  rule,  fully  as  great  to  the  insured  as  they  possibly 
can  be  to  the  Company.  Of  course,  if  the  loss  is  so  great  that 
the  Company,  if  liable  at  all,  is  liable  for  the  face  of  its  policy, 
the  advantage  of  an  ascertainment  disappears.  And  if  the  facts 
of  the  case  are  such  that  the  insured  cannot  by  any  possibility  main- 
tain a  claim,  the  ascertainment  of  the  loss  may  be  dispensed  with. 
I>ut  one  needs  to  be  very  sure  of  one's  facts  and  the  law  relating 
thereto  before  he  can,  justifiably,  leave  the  sound  value  and  loss 
open  for  determination  at  some  indefinitely  future  time. 

For  this  reason  it  is,  as  a  rule,  preferable  that  the  adjuster's 
knowledge  of  a  violation  of  the  policy  be  deferred  till  after  the 
loss  has  been  definitely  ascertained  and  determined,  because  without 
imputable  knowledge  there  can  be  no  waiver  or  estoppel.  It  is, 
therefore,  always  well  to  defer,  till  after  ascertainment  and  de- 
termination of  loss,  the  search  for  knowledge  that  cannot  possibly 
escape  one,  as  for  instance,  knowledge  to  be  obtained  from  ex- 
amination of  the  public  records.  Sometimes  the  know^ledge  comes 
unsought,  but  unmistakable. 

Then  the  adjuster  seeks  freedom  to  act  without  danger  of 
estoppel  under  a  non-waiver  agreement  with  the  insured;  failing 
in  which,  he  or  someone  higher  in  authority,  must  decide  for  the 
Company  on  one  of  three  courses : 

First,  to  rest  on  the  defense  which,  according  to  its  informa- 
tion, is  available  to  it,  and  desist  from  further  negotiations  with 
the  insured  in  order  that  there  may  be  no  appearance  on  its  part 
of  recognizing  the  validity  of  the  policy; 

Second,  to  try  to  steer  between  Scylla  and  Charybdis  in  an 
eftort  to  limit  the  loss  without  jeopardizing  a  known  defense;  and 

Third,  to  proceed  along  whatever  line  seems  best  adapted  for 
the  limitation  of  the  loss,  regardless  of  the  peril  of  estoppel. 

671 


The  Fire  Insurance  Contract 

Demand  Upon  the  Insured  For  Proof  of  Loss. 

One  of  the  earliest  nuggets  of  knowledge  that  an  adjuster 
acquires  from  practical  experience  is  that,  with  knowledge  of  a 
defense,  it  is  dangerous  to  make  demands  upon  an  insured,  the 
(langer  being  that  the  adjuster's  action  will  be  construed  as  a 
recognition  of  the  validity  of  the  policy.  This  danger  extends  in 
most  jurisdictions  to  a  demand  for  proof  of  loss. 

Mr.  George  Richards,  in  his  valuable  work  on  Insurance  Law, 
third  Edition,  Page  180,  says: 

"Demanding  the  usual  verified  proofs  of  loss  in  itself  effects  no  waiver 
or  estoppel.  No  matter  how  many  grounds  of  forfeiture  the  Company 
may  suspect  or  believe  to  exist,  it  is  entitled  to  insist  upon  the  contract 
provisions  framed  for  the  very  purpose  of  enabling  it  to  pass  upon  and 
estimate  intelligently  the  nature  and  amount  of  the  loss." 

If  Mr!  Richards  intended  this  language  to  apply  only  to  the 
cases  where  the  Company  entertained  a  suspicion  or  belief  with- 
out, however,  being  actually  in  possession  of  knowledge  and  with- 
out having  been  put  upon  its  inquiry  as  to  the  facts,  I  should^ 
accept,  without  question,  the  opinion  quoted;  for  elsewhere  in  this 
paper  it  is  indicated  that  knowledge,  as  a  basis  for  estoppel,  means 
actual  knowledge.  But  I  think  Mr.  Richards  means  us  to  under- 
stand that  the  Company,  even  with  actual  knowledge  of  the  viola- 
tion of  a  policy  condition,  may,  without  waiving  the  forfeiture  or 
being  estopped  from  asserting  it,  demand  such  proof  of  loss  as  is 
required  in  lines  67  to  76  of  the  policy.  For,  on  page  182,  in  support 
of  the  opinion  quoted  above,  Mr.  Richards  says: 

"Opposed  to  the  formidable  array  of  authorities  upon  this  practical  point 
as  cited  in  the  notes  we  find,  however,  numerous  court  opinions  and 
text-books  in  which  the  statement  is  made  broadly  that  calling  for  proofs 
of  loss  waives  any  known  forfeiture,  or  estops  the  insurer  from  insisting 
upon  it,  but  in  most  of  such  opinions  by  the  judges  it  will  be  found 
that  the  remark  was  a  mere  dictum,  and  that  in  the  facts  of  the  case  the 
Company  was  shown  to  have  put  the  insured  to  an  unreasonable  burden 
of  trouble  and  expense  by  calling  for  additional  or  extraordinary  proofs 
over  and  above  what  the  policy  prescribes  as  necessary  without  special 
demand." 

The  Supreme  Court  of  California  (McCormick  v.  Spring- 
field F.  &  M.  Ins.  Co.,  66  Calif.  681;  Wheaton  v.  North  British 
&  Mercantile  Ins.  Co-.,  7(i  Calif.  431;  McCormick  v.  Orient,  86 
Calif.  260),  and  the  Supreme  Court  of  Tennessee  (Boyd  v.  Van- 
derbilt  Ins.  Co.,  90  Tennessee  212)  have,  indeed,  ruled  on  this 
question  in  accordance  with  Mr.  Richards'  opinion.  But  my  own 
observation  leads  me  to  share  the  belief  held  by  a  large  number 
of  experienced  adjusters  and  specialists  in  insurance  law,  that  in 
nea-lv  all  iurisdictions  it  is  always  with  peril  to  a  known  defense 

672 


Waiver  and  Estoppel 

that  a  Company  demands  proofs  of  loss,  even  if  only  those  which 
by  the  terms  of  the  policy  must  be  rendered  as  a  condition  prece- 
dent to  the  maintenance  of  a  claim. 

The  Supreme  Court  of  Tennessee,  in  giving  a  decision  similar 
to  the  California  decisions  just  referred  to,  says: 

"The  cases  of  Insurance  Co.  v.  Norton  (96  U.  S.,  234),  and  Titus  v. 
Insurance  Co.  (81  N,  Y.,  410)  cited  by  counsel  for  appellant,  were  cases 
involving  conduct  after  forfeiture,  but  before  a  loss  had  occurred.  They 
do  not  support  the  assignment.  The  other  cases  cited  are  not  accessible. 
It  is  inconceivable,  though,  that  they  should  be  authority  for  the  position 
that,  if  the  insurer  after  a  loss  requires  proof  of  loss,  it  thereby  waives 
all  right  to  set  up  as  a  defense  that  it  is  not  liable  by  reason  of  the  fact 
that  it  never  had  a  valid  contract  at  all.     (Boyd  v.  Vanderbilt  Ins.  Co.)" 

One  might  reasonably  hesitate  to  demand  any  proofs  of  loss 
even  in  Tennessee  as  by  this  time  the  court's  library  may  have 
been  enlarged. 

Prudence  dictates  the  advisability  of  refraining  from  making 
any  demands  upon  the  insured  after  one  is  chargeable  with  knowl- 
edge of  the  violation  of  a  policy  condition. 

Opinions  in  various  parts  of  the  country  seem  to  differ  as  to 
the  effect  of  a  demand  ignored  by  the  insured.  Some,  having  ex- 
perience and  judgment,  believe  that  a  demand,  say  for  proofs  of 
loss,  in  the  face  of  a  known  violation  of  a  policy  condition,  is  a 
recognition  by  the  Company  of  liability,  so  far  as  that  particular 
policy  is  concerned.  Failure  to  comply  with  the  demand  for  proofs 
of  loss  might  or  might  not  be  an  available  defense  according  to  cir- 
cumstances. 

Others  hold  that  a  demand  for  proofs  of  loss,  with  knowl- 
edge of  a  violation,  works  no  estoppel  as  to  any  of  the  Company's 
rights,  unless  the  demand  be  complied  with  by  the  insured. 

Demand  For  Appraisal. 

Were  it  not  for  a  special  provision  in  the  policy,  which  might 
be  referredlb~as  the^^'Special  Anti-Waiver  Clause,"  a  demand  for 
an  appraisal,  or  for  any  examinatibh  provided  for  in  the  policy^ 
would  without  doubt  be  attended  with  the  same  risks  as  those  \ve 
have  just  discussed  as  attending  the  demand  for  proofs  of  loss. 
The  Special  Anti-Waiver  Clause  is  found  in  lines  92  and  93  of 
the  policy  and  reads  as  follows : 

"This  Company  shall  not  be  held  to  have  waived  any  provision  or  con- 
dition of  this  policy  or  any  forfeiture  thereof  by  any  requirement,  act 
or  proceeding  on  its  part  relating  to  the  appraisal,  or  to  any  examination 
herein  provided  for." 

673 


The  Fire  Insurance  Contract 

This  language  appears  to  be  clear  and  unmistakable,  and  it 
is  difficult  to  see  how  it  could  be  improved  upon.  It  should  be  an 
absolute  protection  to  the  Company  within  the  scope  of  its  mani- 
fest intent.  But  adjusters  of  experience,  knowing  the  ability  of 
courts  to  discover  unexpected  meanings  in  language  apparently 
clear  and  unambiguous,  hesitate  somewhat  to  demand  an  appraisal 
or  any  examination  provided  for  in  the  policy  if  they  are  aware 
of  any  defenses  to  the  claim  which  they  desire  to  preserve.  This 
special  Anti- waiver  Clause  may  mean  just  what  it  says.  But  we 
shall  never  feel  quite  confident  that  it  does  until  some  Insurance 
Company  with  more  than  usual  courage  or  impelled  by  extra- 
ordinary need  carries  the  clause  to  the  Court  of  Appeals  for  con- 
struction and  obtains  a  decision  that  supports  the  manifest  mean- 
ing of  the  language  quoted. 

Waiver  of  Proof  of  L;oss. 

The  duty  of  the  insured  to  render  a  sworn  statement  of  loss  is 
created  by  the  conditions  contained  in  lines  67  to  7(i,  inclusive,  of 
the  New  York  Policy. 

Reference  is  made  in  the  policy  to  "proof  of  loss,"  a  phrase 
familiar  to  us  all. 

The  Court  of  Appeals  of  New  York,  in  the  case  of  McAllester 
V.  Niagara  Fire  Insurance  Company,  has  construed  this  phrase 
as  including  nothing  more  than  the  sworn  statement  of  loss  pro- 
vided for  by  lines  67  to  76. 

There  are  three  ways  in  which  the  insured  may  be  relieved 
of  the  necessity  of  rendering  the  so-called  proof  of  loss  as  a  con- 
dition precedent  to  a  right  of  action.  They  are :  Denial  of  liability ; 
an  adjustment  and  promise  to  pay;  and  an  examination  under  oath, 
covering  the  subjects  concerning  which  the  insured  is,  by  the  policy, 
required  to  make  disclosure  in  his  proof  of  loss. 

Waivkr  of  Defects  in  Proof  of  Loss. 

If  the  Company  knows  of  no  defenses  to  the  claim  and  de- 
sires the  information  which  it  would  receive  if  the  defects  were 
remedied,  it  may  with  reasonable  safety  call  attention  to  the  de- 
fects and  demand  that  they  be  supplied.  In  the  majority  of  cases, 
however,  no  irretrievable  loss  accrues  to  the  Company  if  it  waives 
its  right  to  call  for  the  information  omitted.  But  whether  the 
omission  to  ask  for  the  completion  of  proofs  is  intentional  or  the 

674 


Waiver  and  Estoppel 

result  of  carelessness,  it  is  the  almost  universal  rule  that  reten- 
tion of  defective  proofs,  without  objection,  is  a  waiver  of  any  de- 
fense based  upon  the  defects. 

Defects  in  the  proof  may  be  waived  by  a 

De:nial  of  Liability. 

A  lesson  early  learned  in  the  hard  school  of  experience,  if  not 
before,  is  that  a  denial  of  liability  gives  an  immediate  right  of  action. 
Just  how  much  of  the  policy  is  waived  by  a  denial  of  liability  de- 
pends upon  the  time  when,  and  the  manner  in  which  the  denial 
of  liability  is  made.  If  made  without  assignment  of  any  ground 
therefor,  or  if  it  contains  specific  reference  to  every  defense  of 
which  the  Company  is  aware,  a  denial  of  liability  probably  waives 
compliance  on  the  part  of  the  insured  with  every  requirement  relat- 
ing to  matters  subsequent  to  a  loss,  except  such  requirements  as  in 
themselves  contribute  to  the  defenses  because  at  the  time  of  the 
denial  they  have  not  been  complied  with,  the  time  within  which 
compliance  is  required  having  elapsed.  As  to  the  requirements  re- 
lating to  matters  subsequent  to  a  loss  with  which  the  insured  at 
the  time  of  the  denial  still  has  time  for  compliance,  the  denial  of 
liability  is  without  doubt  a  waiver. 

Opinions  differ  as  to  whether  a  Company,  denying  liability 
on  one  or  more  specific  grounds,  thereby  waiv.es  its  right  to  assert 
any  other  defenses  of  which  at  the  time  of  denial  it  is  aware. 
Precedents  can  be  found  for  holding  that  failure  to  specify  a 
known  defense,  when  denying  liability  specifically  on  other  grounds, 
is  no  waiver  of  the  defense  of  which  mention  is  omitted.  But 
I  believe  the  weight  of  authority  to  be  against  this  view.  Cer- 
tainly the  principle  of  "safety  first"  is  the  better  sustained  if,  in 
the  denial  of  liability,  either  no  reference  is  made  to  any  par- 
ticular defense,  or  specific  reference  is  made  to  each  known  de- 
fense. 

RitjitcTioN  OF  Proofs  of  Loss. 

There  seems  to  be  a  widespread  superstition  among  adjusters, 
including  special  agents  and  Company  representatives  generally, 
that  if  a  proof  of  loss  rendered  to  the  Company  by  the  insured 
is  found,  on  examination,  to  contain  erroneous  statements,  whethei 
relating  to  sound  value,  loss  or  damage,  or  any  other  material  fact 

675 


The  Fire  Insurance  Contract 

the  proofs  must  be  "objected  to"  or  "rejected."  Perhaps  this  is 
the  best  opportunity  one  can  have  for  doing  a  Httle  missionary 
work  in  this  respect. 

The  desire  to  reject  the  proofs  is  generally  explained  on  the 
ground  thaf^'^he  retention  of  the  proofs  without  objection,  the 
Company  concedes  the  truth  of  the  statements  therein  contained, 
including  those  as  to  sound  value  and  loss.  The  fact  is,  however, 
that  retention  of  proofs  of  loss  without  objection  waives  nothing 
at  all,  except  the  right  to  defend  on  the  ground  that  they  were 
not  in  the  form  required  by  the  policy. 

'  The  courts  seem  to  be  unanimous  in  this:  That  when  an 
Insurance  Company  receives  a  document  which  is  evidently  an 
attempt  on  the  part  of  the  insured  to  comply  with  the  require- 
ments of  the  policy  as  to  proof  of  loss  (see  lines  67  to  76)  it  must, 
within  a  reasonable  time,  call  the  attention  of  the  insured  to  any 
defect  which  it  wishes  him  to  remedy,  and  that  failing  so  to  do,^ 
ita  right  to  object  to  the  proof  as  not  in  proper  form  is  waived. 
But  objections  to  proof  of  loss  may  properly  be  restricted  to 
matters  of^form  only.  In  fact  it  seems  desirable  that  they  should 
be  so  restricted. 

Proofs  of  Loss  As  Evidence. 

Proofs  of  loss  by  themselves  are  admissible  only  for  the  pur- 
pose of  proving  that  they  were  rendered  to  the  Company.  When, 
on  the  trial  of  an  action  under  the  policy,  the  proofs  of  loss  are 
introduced  in  evidence  by  the  plaintiff's  attorney,  the  attorney 
for  the  defendant  usually  objects  to  their  introduction  as  evidence 
for  any  other  purpose  than  that  just  specified.  If,  against  the  de- 
fendant's objection,  the  court  admits  the  proofs  of  loss  as  evi- 
dence on  any  other  point,  this  ruling  of  itself  requires  the  court 
above  to  reverse  the  decision  or  remand  the  case  for  a  new  trial. 

Some  courts  go  even  further,  and  hold  that  even  though  the 
defendant's  attorney  makes  no  objection  when  the  proofs  are  offered 
in  evidence,  they  may  not  be  considered  as  evidence  of  any  other 
fact  than  that  they  were  rendered  by  the  assured  to  the  Company. 

In  a  certain  reported  case  witnesses  for  the  defendant  testified 
on  the  trial  that  the  schedule  attached  to  the  proof  of  loss  was 
correct  as  to  description  and  quantities  of  the  articles  therein  set 
forth  and  as  to  the  loss  and  damage  thereto.  The  court  held  that 
in  the  light  of  this  testimony  the  schedule  was  admissible  as  evi- 
dence of  the  amount  of  loss. 

676 


Waiver  and  Estoppel 

This  may  seem  an  exception  to  the  rule  above  stated,  but  on 
reflection  it  will  be  seen  that  no  greater  evidential  value  was  ac- 
corded to  this  schedule  than  would  have  been  accorded  to  any  other 
schedule  that  might  be  thus  offered  in  evidence. 

It  is  rarely  of  any  advantage  to  the  Company  to  object  to  a 
prooi  of-loss  on  the  ground  of  defect  in  form,  and  in  many  cases 
it  is  a  source  of  danger,  particularly  when  the  proofs  may  be  re:' 
garded  as  hostile.  Hostile  proofs  are  usually  prepared  by  the  in- 
sured's attorney,  or  by  some  other  competent  adviser,  who  knows 
perfectly  well  how  to  comply  with  the  requirements  of  the  policy 
if  it  is  his  desire  so  to  do.  Usually,  in  preparing  the  proofs,  he  has 
the  advantage  of  knowledge  of  any  violation  by  the  insured  of  the 
conditions  of  the  policy,  and  he  may  be  confident  of  his  ability  to 
prove  that  at  the  time  the  proof  was  rendered  the  Company  was 
chargeable  with  knowledge  of  the  violation.  Any  defect  in  form 
of  a  proof  so  rendered  may  be  intentional,  and  designed  to  entrap 
the  Company  into  making  objection  thereto.  For,  were  the  Com- 
pany so  to  object,  the  remedying  of  the  objection,  which  would 
surely  follow,  would  estop  the  Company  from  asserting  any  de- 
fense of  which  it  could  be  proved  to  have  had  knowledge  when 
the  objection  was  made. 

Due  regard  for  the  Company's  protection  suggests  that  the 
proofs  be  accepted  without  objection  and  that  the  missing  informa- 
tion be  obtained  in  some  other  way.  It  is,  of  course,  possible  that 
owing  to  peculiar  conditions  a  Company  may  feel  the  need  of  ob- 
taining the  insured's  statement  in  writing  and  so  would  rather 
waive  a  known  defense  than  waive  the  defect  in  the  proofs ;  but  such 
cases  are  unusual. 

PromisiS  To  Pay. 

Many  a  Company  representative  has  been  astonished  and 
grieved  at  learning  from  the  plaintiff's  testimony  in  a  suit  brought 
to  recover  a  loss  that,  whereas  he  had  supposed  that  he  was  merely 
agreeing  with  the  insured  as  to  the  amount  of  loss,  he  had,  as  a 
matter  of  fact,  adjusted  the  loss  and  made  a  definite  promise  that 
it  should  be  paid.  However  far  the  finding  of  the  jury  in  this  re- 
spect may  be  from  the  truth,  the  finding  usually  governs. 

An  ascertainment  of  the  loss,  coupled  with  a  promise  to  pay, 
is,  in  the  absence  of  fraud,  misrepresentation  or  concealment,  a_ 
settlement  of  all  questions  arising  under  the  policy,  the  only  por- 

677 


The  Fire  Insurance  Contract 

tion  of  which  then  remains  effective  being  the  conditions,  if  any, 
as  to  time  and  mode  of  payment;  for  it  is  safe  to  assume  that  a 
promise  to  pay,  without  any  stipulation,  means  a  promise  to  pay  at 
the  time  specified  in  the  poHcy. 

Waiver  By  Oi'FER  To  Rebuild  ok  Replace. 

The  contract  is,  as  we  l<now,  a  contract  of  indemnity,  and 
there  is  but  one  way  in  which  the  Company  can  be  compelled  to 
do  anything  other  than  to  pay  in  money  the  amount  of  its  in- 
debtedness when  the  same  shall  have  been  properly  ascertained. 
The  exception  referred  to  is  this:  That  the  Company  may  have 
notified  the  insured  of  its  intention  to  repair,  rebuild  or  replace^ 
For  the  New  York  Standard  Policy  provides  that  it  shall  be  op- 
tional with  the  Company  to  take  all  or  any  part  of  the  articles 
at  their  ascertained  or  appraised  value,  and  also  to  repair,  rebuild, 
or  replace  the  property  lost  or  damaged  with  other  of  like  kind 
and  quality  within  a  reasonable  time  on  giving  notice  within  thirty 
days  after  the  receipt  of  the  proof  required  by  the  policy  of  its 
intention  so  to  do  (see  lines  4,  5,  and  6). 

If  the  Company  gives  notice  of  its  election  to  repair,  rebuild  or 
replace,  the  contract  ceases  to  be  one  of  indemnity.  And  whatever 
it  has  elected  to  do,  it  must  do,  no  matter  how  great  the  cost.  So 
long  as  the  contract  remains  one  of  indemnity  (and  only  the  Com- 
pany can  convert  it  into  anything  else),  the  amount  of  insurance 
under  the  policy  is  the  maximum  limit  of  the  Company's  liability. 
But  when  the  contract  has  been  converted  into  one  to  repair,  rebuild 
or  replace,  the  face  of  the  policy  ceases  to  have  any  limiting  effect. 
Furthermore,  in  the  absence  of  fraud,  concealment,  or  misrepresen- 
tation, the  conditions  of  the  policy  governing  it  as  a  contract  of  in- 
denanity,  cease  to  apply. 

Waiver  oe  Right  To  Take,  Repair,  Rebuild,  or  Replace. 

The  right  to  take  all,  or  any  part,  of  the  property  at  its 
ascertained  or  appraised  value,  as  also  that  to  repair,  rebuild  or 
replace  the  property  lost  or  damaged  with  other  of  like  kind  and 
quality,  whether  relating  to  personalty  or  realty,  expires  by  lapse 
of  time,  in  accordance  with  the  terms  of  the  provision  which  cre- 
ates it. 

The  Company  loses  the  right  by  a  denial  of  liability,  or  by 
an  adjustment  and  promise  to  pay,  whether  in  the  case  of  per- 
sonalty or  of  realty. 

678 


Waiver  and  Estoppel 

It  seems  evident  from  the  language  of  the  poUcy  that  the 
right  to  take  or  replace  must  survive  the  ascertainment  and  de- 
termination of  the  loss,  whether  made  by  the  insured  and  the  Com- 
pany, or  by  appraisers,  as  in  the  policy  provided. 

The  Court  of  Appeals  of  the  State  of  New  York,  in  the  case 
of  McAllester  v.  Niagara  Fire  Insurance  Company,  proves  to  us 
that  this  is  not  the  case  as  to  a  building.  This  decision  attracted 
so  much  attention  when  it  was  handed  down,  and  it  is  still  so  full 
of  peril  for  any  adjuster  who  is  not  acquainted  with  it,  that  it  may 
be  well  to  refer  briefly  to  its  effect. 

The  Company  and  the  insured,  it  seems,  were  unable  to  agree 
as  to  the  amount  of  the  loss  and,  therefore,  referred  the  question 
at  issue  to  appraisers,  as  required  by  the  policy.  When  the  award 
was  rendered  the  Insurance  Company  felt  that  it  was  for  an  ex- 
cessive amount  and  decided  to  avail  itself  of  its  right,  as  it  so 
considered  it,  to  restore  the  building,  which,  it  is  to  be  supposed, 
it  could  do  for  a  sum  materially  less  than  the  amount  of  the  award. 

Three  weeks  after  the  award  was  served,  the  Company  noti- 
fied the  insured  of  its  intention  to  rebuild,  and  thirteen  days  later 
notified  tke  insured  that  on  the  day  of  the  notice  it  had  sent  its 
builder  to  commence  rebuilding  the  house.  Eleven  days  after  this 
notice  the  insured  wrote  to  the  Company  as  follows : 

"As  we  have  already  notified  you,  your  right  to  rebuild  is  now  gone. 
Anything  you  do  in  that  direction  is  at  your  own  peril.  We  shall  not 
accept  the  house  and  shall  sue  you  for  the  insurance  money  as  soon  as 
we  can  legally  do  so," 

The  court  in  its  opinion  holds  in  effect  that  the  sworn  state- 
ment rendered  by  the  insured,  in  accordance  with  the  requirements 
in  lines  67  to  76  of  the  policy,  constituted  the  proof  referred  to 
in  line  5,  and  that  the  notice  of  the  Company's  election  to  rebuild, 
though  given  three  weeks  only  after  the  service  of  the  award, 
was  not  given  till  five  and  one-half  months  after  the  receipt  of 
the  proof  required  by  the  policy.  It  also  holds,  however,  that 
as  to  a  building,  an  agreement  for  the  ascertainment  of  loss  by 
appraisal  is  an  election  to  pay  the  loss  in  money  and  a  waiver  of 
its  right  to  rebuild. 

There  is  no  doubt  that  the  same  court  would  have  been  dis- 
posed to  rule  the  same  way,  if  it  could,  had  the  subject  of  insur- 
ance been  personal  property  instead  of  a  building.  But  such  a 
ruling  is,  apparently,  not  to  be  feared.  Let  us  re-read  a  part  of 
lines  4  and  5 : 

679 


The  Fire  Insurance  Contract 

"It  shall  be  optional,  however,  with  this  Company  to  take  all,  or  any  part, 
of  the  articles  at  such  ascertained  or  appraised  value,  and  also  to  repair, 
rebuild,  or  replace  the  property,"  etc.,  etc. 

It  is  not  only  possible  for  a  Company  to  take  personal  prop- 
erty at  its  appraised  value,  but  companies  quite  frequently  do  so. 
It  seems  impossible,  therefore,  for  any  court  to  hold  that  an  agree- 
ment to  ascertain  by  appraisal  the  loss  on  personal  property  is 
equivalent  to  an  election  to  pay  only  the  loss  so  ascertained,  the 
insured  retaining  the  property. 

Waiver  oip  Maturity. 

In  lines  93,  94  and  95  it  is  provided  that  the  loss  shall  not 
become  payable  until  sixty  days  after  the  notice,  ascertainment, 
estimate,  and  satisfactory  proof  of  the  loss  herein  required  have 
be^n  received  by  this  Company,  including  an  award  by  appraisers 
when  appraisal  lias  been  required. 

This  right  of  the  Company  to  defer  payment  until  sixty  days 
after  the  happening  of  the  specified  events  may  be  waived  by 
denial  of  liability,  which,  as  we  know,  gives  an  immediate  right  of 
action ;  likewise  by  an  authorized  promise  to  pay  at  an  earlier  date. 

It  often  happens  that  when  the  amount  of  a  loss  which  has 
been  the  subject  of  dispute  is  agreed  upon  by  compromise,  pay- 
ment is  made  forthwith.  This  probably  is  because  the  Company 
feels  that  during  the  negotiations  it  has  learned  all  the  facts  ma- 
terial to  the  case  and  has  no  expectation  of  learning  anything  more 
if  payment  be  deferred,  rather  than  because  of  any  obligation  to 
pay  before  the  expiration  of  sixty  days. 

Protection  of  Insurer's  Rights. 

So  long  as  our  courts  persist  in  making  fish  of  insurance 
contracts  and  fowl  of  contracts  of  other  kinds,  I  see  no  better 
way  of  safeguarding  the  rights  of  insurers,  in  part  at  least,  than 
by  the  adoption  of  one  or  both  of  the  following  reforms: 

(a)  Resuming  the  old  practice  (not  yet  wholly  discontinued, 
I  believe),  of  basing  the  policy  on  a  signed  application  of  proper 
form,  referred  to  in  the  policy  and  made  part  thereof. 

(b)  Making  the  policy  a  bilateral  contract,  in  duplicate,  signed 
by  all  parties — by  insured  as  well  as  by  insurer,  and  by  beneficiaries 
also,  if  such  there  be.       ^ 

The  decisions  relating  to  false  statements  contained  in  appli- 
cations for  insurance  seem  in  an  astonishingly  large  number  of 

680 


Waiver  and  Estoppel 

cases  to  have  developed  as  to  each,  the  fact  as  found  by  the  jury, 
that  the  plaintiff  had  given  the  true  answer  to  each  question  and 
that  the  company's  solicitor  or  agent  had  inserted  the  false  answer ; 
wherefore  it  was  held  by  the  court  as  a  matter  of  law,  that  the 
application  was  not  that  of  the  assured — that  instead  of  his  being 
bound  by  the  false  answer  in  writing  over  his  signature,  the  Com- 
pany was  bound  by  the  true  answer  given  by  him  to  its  solicitor  or 
agent — according  to  assured's  testimony  and  the  finding  of  the  jury 
as  to  the  facts. 

One  will  search  long  for  a  recorded  instance  of  a  jury's  find- 
ing that  an  assured  had  given  a  false  answer  to  a  question  in  an 
application  blank.  The  solicitor  or  agent  seems  to  have  been  in 
nearly  every  case  a  man  willing  to  defraud  some  one,  be  it  insurer 
or  insured,  in  order  that  he  might  obtain  his  commission.  The 
problem,  then,  would  be  how  to  prevent  the  applicant  from  sign- 
ing an  application  without  first  seeing  that  all  answers  are  truly 
set  down. 

If  the  companies  ever  undertaj^e  reform  by  returning  to  the 
signed  application,  I  hope  they  will  give  consideration  to  these 
suggestions: 

That  a  true  copy  of  the  application  be  attached  to  each  policy 
even  in  the  States  where  this  is  not  required  by  statute: 

That  the  application  be  printed  in  easily  legible  type;  and 

That  in  bold  faced  type,  the  most  prominent  on  the  sheet, 

enclosed  in  indexes  and  printed  immediately  above  the  space  for 

signature,  so  that  it  cannot  possibly  escape  the  eye,  should  appear 

the  following: 

'^  "Before  signing,  the  applicant  should  carefully  examine  the  foregoing 
questions,  answers,  statements  and  warranties,  as  they  are  material  to 
the  risk,  and  will  be  relied  on  by  the  Company  in  accepting  or  rejecting 
this  application.'"^ 

It  seems  that  any  court  of  average  fairness  would  probably 

hold,  as  a  matter  of  law,  that  the  company  adopting  this  form  of 

application  had  done  all  in  its  power  to  prevent  an  applicant  from 

signing  an  untrue  statement;  and  that  any  person  signing  such  an 

application   without   first  peeing  that  all  errors   were   eliminated, 

must  be  deemed  to  have  done  so  at  his  own  risk  and  not  entitled 

to  relief  from  responsibility  therefor  on  the  stereotyped  plea. 

Waivkr  of  Exemption  From  Abandonment. 

It  is  provided  in  lines  5  and  6  that  there  can  be  no  abandon- 
ment to  the  Company  of  the   property   described.     It   sometimes 

681 


The  Fire  Insurance  Contract  . 

happens  that  the  representative  of  the  Company  takes  charge  of 
what  remains  of  the  stock  and  proceeds  to  handle  it  for  account 
of  the  loss,  or  for  account  of  whom  it  may  concern.  It  is  quite 
probable  that  by  so  doing  the  Company  is  held  to  have  waived 
its  exemption  from  abandonment  provided  in  the  language  just 
quoted,  and,  with  it,  almost  any  other  of  the  conditions  of  the 
policy  from  the  operation  of  which  the  insured  desires  to  be  re- 
lieved. 

Exclusions. 

From  the  foregoing  it  is  evident  that,  according  to  the  major- 
ity of  the  State  courts,  the  knowledge  of  the  agent  at  the  inception 
of  the  contract  may  work  great  havoc  in  the  policy  as  issued  and 
the  contract  as  understood  by  the  Company  at  the  time  the  issue 
of  the  policy  is  reported  to  it  and  it  is  called  upon  to  decide  whether 
the  policy  is  to  be  allowed  to  continue  because  desirable  or  is  to 
be  cancelled  as  undesirable. 

But  there  are  some  rights  that  I  believe  are  preserved  to  the 
Company,  in  spite  of  the  agent's  knowledge.  In  lines  31  to  35 
inclusive,  we  find  that  certain  kinds  of  loss  are  specially  excluded 
from  the  scope  of  the  policy,  regardless  of  the  kind  of  property 
they  may  involve.  In  lines  38  to  42  inclusive,  we  find  that  certain 
kinds  of  property  are  specially  excluded  from  the  scope  of  the 
policy,  no  matter  from  what  cause  they  are  damaged  or  destroyed. 
I  am  unable  to  conjecture  how  knowledge  by  the  Company's  agent 
at  the  inception  of  the  policy  can  be  held  to  bring  any  of  the  ex- 
cluded causes  of  loss  or  any  of  the  excluded  kinds  of  property 
within  the  scope  of  the  policy. 

It  should  ever  be  borne  in  mind  that  no  one  has  ground  for 
the  expectation  that  any  two  cases  involving  the  Doctrine  of  Waiver 
and  Estoppel  will  be  exactly  alike.  Therefore,  each  case  must  be 
carefully  studied  to  learn  its  distinguishing  characteristics  so  that 
the  application  thereto  of  the  Doctrine  of  Estoppel  may  be  in- 
telligently determined. 


682 


XXXIV 

ADMINISTRATOR:  RIGHTS  OF  ADMINISTRATORS 
AND  EXECUTORS  OVER  REAL  PROPERTY 

In  Connection  mth  the  Standard  Policy 

F.  0.  Affeld,  Jr. 

Of  Richards  &  Affeld,  Lawyers 

The  general  principle  is  that  an  executor  or  administrator  has 
no  interest  in  the  real  estate  of  the  deceased,  except  so  far  as  may 
be  given  to  him  by  statute,  or,  in  the  case  of  executors,  by  the 
will  of  the  deceased.  An  executor,  as  you  know,  is  a  person 
appointed  by  the  testator  to  carry  out  the  terms  and  requests  in 
his  will,  and  to  dispose  of  the  property  after  his  decease  accord- 
ing to  his  testamentary  provisions.  An  administrator  is  one 
appointed  by  the  Probate  or  Surrogate's  Court  to  administer  the 
estate  of  a  deceased  person  who  left  no  will.  He  resembles  an 
executor,  but  being  appointed  by  the  court  and  not  by  the  de- 
ceased, he  has  to  give  bond  for  the  faithful  discharge  of  his  duties. 

The  title  to  real  estate  vests  directly  in  the  heirs  immediately 
upon  the  death  of  the  owner,  and  the  heirs  may  exercise  all  their 
rights  without  any  administration.  It  is  only  as  legislation  or  the 
will  of  a  testator  may  have  conferred  an  express  power  upon  an 
administrator  or  executor  that  he  can  exert  it  in  respect  to  the 
real  estate. 

When  the  will  does  not  devise  to  an  executor  the  devisee 
is  the  only  person  who  has  the  right  to  the  possession  of  the  real 
estate.  The  devisee,  in  other  words,  takes  directly  under  the  will 
and  not  through  the  executor.  Where  there  is  no  will  the  general 
rule  of  descent  applies,  namely,  that  the  real  property  of  a  person 
who  dies  without  devising  the  same  descends  first  To  his  lineal 
descendants,  second  To  his  father,  third  To  his  mother,  fourth  To 
his  collateral  relatives.  In  other  words,  an  administrator  as  such 
has  no  authority  or  control  over  the  real  estate  of  the  deceased, 
and  an  executor  has  none  unless  given  to  him  by  the  will,  though, 
if  necessary,  the  real  property  may  be  ordered  sold  to  pay  debts. 
In  New  York  the  legislation  on  the  subject  is  that  real  property 
may  be  mortgaged,  leased  or  sold  under  order  of  the  court  for 
any  or  all  of  the  following  purposes : 

683 


The  Fire  Insurance  Contract 

1.  For  the  payment  of  the  debts  of  the  dece(*ent,  including  judg- 
ment or  other  liens,  excepting  mortgage  liens,  existing  thereon  at  the 
time  of  his  death. 

2.  For  the  payment  of  his  funeral  expenses,  including  therein  suit- 
able church  or  other  services,  a  burial  lot  and  a  headstone  erected  thereon. 

3.  For  the  payment  of  the  reasonable  expenses  of  administration 
as  allowed  by  the  surrogate. 

4.  For  the  payment  of  any  transfer  tax  assessed  upon  the  transfer 
of  such  property. 

5.  For  the  payment  of  any  debt  or  legacy  charged  thereupon. 

No  mortagage,  lease  or  sale  shall  be  ordered  for  the  purpose  of  any 
of  the  foregoing  payments,  if  there  be  personal  property  applicable  to 
the  full  payment  and  discharge  thereof. 

Such  real  property  may  also  be  sold: 

6.  For  the  payment  and  distribution  of  their  respective  shares  to 
the  parties  entitled  theerto,  where  any  or  all  of  said  parties  are  infants, 
proven  or  adjudged  incompetents,  absentees,  or  persons  unknown,  when- 
ever in  his  discretion  the  surrogate  may  so  direct. 

With  these  preliminary  remarks  let  us  consider  the  rights  of 
executors  and  administrators  under  the  standard  policy  conditions, 
the  subject  of  insurance  being  real  property.  Neither  the  word 
executor  nor  administrator  appears  in  the  policy,  and  as  those 
words  have  to  do  with  persons  whose  authority  and  powers  arise 
after  death  we  naturally  look  for  the  word  ''death"  and  find  in  line 
20  that  the  policy  is  void  if  any  change,  other  than  death  of  an 
insured,  takes  place  in  the  interest,  title  or  possession  of  the  sub- 
ject of  insurance,  except  change  of  occupants  without  increase  of 
hazard. 

So  death  does  not  void  the  policy,  and  at  line  108  we  find  that 
wherever  the  word  "insured"  occurs  in  the  policy  it  shall  be  held 
to  include  the  legal  representatives  of  the  insured.  Who  then  is 
the  insured  at  the  time  of  loss  where  the  fire  occurs  after  the 
death  of  the  original  insured?  Who  is  the  legal  representative 
of  the  insured  where  the  subject  of  insurance  is  real  estate?  Who 
may  sue  for  a  building  loss  that  occurs  after  the  death,  but  during 
the  term  of  the  insurance? 

These  questions  have  been  considered  by  our  courts  in  some 
very  interesting  cases.  One  of  the  earliest  was  the  case  of  Wy- 
man  v.  Wyman,  in  the  26th  of  New  York,  a  case  as  well  known 
to  the  students  of  insurance  law  as  is  the  case  of  Jarndice  v. 
Jarndice  to  the  readers  of  Dickens.  As  it  sets  forth  numerous 
and  leading  doctrines  of  insurance  law  I  will  quote  from  it  quite 
fully. 

684 


Administrators  and  Executors 

Wyman,  the  deceased,  died  in  January,  1859,  seized  of  a  houl 
building  on  which  he  had  elTeclcd  insurance  to  the  extent  oi 
$3,000.  The  poHcies  ran  to  Wynian,  his  executors,  administrators, 
or  assigns.  Wyman  died  wholly  insolvent,  leaving  a  widow,  the 
plaintiff,  who  took  out  Letters  of  Administration,  and  two  chil- 
dren, his  heirs  at  law,  who  were  the  defendants.  In  October  fol- 
lowing Wyman's  death  the  property  was  destroyed  by  fire.  The 
Company  adjusted  the  loss  and  made  payment  to  the  guardian  of 
the  infant  heirs  under  a  stipulation  entered  into  by  all  the  parties 
concerned  that  the  guardian  should  hold  the  money  subject  to 
the  direction  of  the  court,  the  fund  being  claimed  by  the  heirs,  by 
the  administratrix,  and  by  certain  creditors,  who  before  the  death 
had  recovered  judgment  against  the  insured,  which  was  a  lien 
on  the  insured  property  for  an  amount  exceeding  its  vakie.  The 
decision  of  the  court  below  was  that  the  administratrix  of  Wyman 
was  entitled  to  the  money,  and  not  the  heirs  at  law.  The  guardian 
of. the  heirs  appealed.  The  Court  of  Appeals  said  that  while  it 
was  not  required  to  determine  whether  an  action  could  have  been 
sustained  against  the  insurance  company  by  either  of  the  parties 
named,  yet  the  controversy  between  them  could  not  be  determined 
except  by  ascertaining  the  legal  or  equitable  rights  to  the  amount 
due  under  the  policy. 

The  court  said: 

"Policies  of  insurance  against  fire  are  personal  contracts  with  the 
insured.  They  are  agreements  to  indemnify  him  against  loss,  and  not 
guarantees  of  the  immunity  of  the  property  insured.  Such  contracts  do 
not  attach  to  the  realty,  nor  do  they  pass  as  incident  to  a  conveyance 
or  transfer  of  the  title  to  lands.  In  the  present  instance,  as  ordinarily 
with  us,  in  policies  of  insurance  against  fire,  the  contract  is  made  with 
the  assured,  'his  executors,  administrators  and  assigns.'  Both  by  force 
of  these  words,  and  from  the  nature  of  the  contract  itself,  the  right  of 
action  upon  the  policy  at  the  death  of  Wyman  vested  in  his  personal 
representatives.  It  is  not  easy  to  see  how  any  one  but  his  administra- 
trix could  have  sustained  actions  on  these  policies  which  had  been  issued 
to  Wyman,  for  any  loss  whether  it  had  occurred  before  or  after  his  death. 
It  would  have  been  a  sufficient  answer  to  any  such  action  by  the  heirs, 
upon  a  policy  of  insurance,  that  it  was  a  personal  contract  to  which  they 
were  not  parties,  and  that  the  right  of  action  which  it  gave  passed  upon 
the  death  of  the  original  assured  to  his  legal  representative,  who  not  only 
succeeded  to  all  his  mere  rights  of  action,  but  was  specifically  named  in 
this  contract  itself." 

The  heirs  contended  that  the  administratrix  could  not  have 

maintained  an  action  because  she  had  no  interest  in  the  property 

insured,  and  the  court  continued: 

"It  is  unquestionable  that  the  insured  must  have  an  insurable  inter- 
est in  the  premises  covered  by  the  insurance  at  the  time  of  the  loss.  But 
in  the  present  case  the  title  and  interest  in   the  land?,,  and  with   it   the 

685 


The  Fire  Insurance  Contract 

ownership  of  the  building,  pass  to  the  heirs,  yet  as  vvc  have  seen,  the 
right  of  action  upon  the  contract  vested  in  the  administratrix.  These 
parties  are  not  strangers  to  each  other,  however,  but  both  of  them  de- 
rive title  from  the  intestate  by  a  devolution  or  transfer,  which  is  not  only 
not  forbidden  but  is  recognized  by  the  policy.  The  policy  does  not 
avoid  the  contract  upon  the  transfer  of  the  title  to  the  property  by  de- 
scent to  the  heir,  and  the  devolution  of  the  right  of  action  to  the  admin- 
istratrix, but  expressly  preserves  the  right  of  action  and  continues  and 
extends  the  privileges  of  the  agreement  to  the  executors  and  adminis- 
trators of  the  assured.  An  action  may  be  brought  upon  the  contract  of 
insurance  by  the  latter  as  the  successor  of  the  original  party,  and  as 
named  in  the  instrument  itself,  to  recover  damages  for  the  destruction 
or  injury  of  the  interest  of  the  former  in  the  property  insured.  Thus  the 
contract  of  insurance  by  the  death  of  Wyman  became  by  its  terms  a 
contract  with  his  administratrix  for  the  protection  of  the  interest  of  his 
heirs.  So  that  the  right  of  action  became  vested  in  one  person,  while  the 
interest  in  the  property  insured,  which  was  requisite  to  sustain  the  action, 
belonged  to  another.  The  administratrix  would  thus  have  sustained  her 
action  upon  the  policy  as  a  person  with  whom  a  contract  is  made  for  the 
benefit  of  another.  She  would  have  been  regarded  as  a  party  to  whom, 
as  a  trustee  of  an  express  trust,  the  right  to  sue  in  her  owm  name  is 
preserved  under  the  Code." 

"But  it  is  difficult  to  reconcile  the  claim  of  the  administratrix  to 
hold  this  insurance  money,  as  part  of  the  personal  assets  of  the  deceased. 
The  doctrine  contended  for  by  her  counsel  that  not  only  the  right  .of 
action,  but  the  beneficial  interest  in  the  contract  with  the  insurers,  passed 
to  the  administratrix  at  the  death  of  Wyman,  fails  when  it  is  put  to  the 
test.  She  had  no  legal  estate  and  no  beneficial  interest  in  the  premises. 
The  title  to  the  contract,  and  to  a  recovery  upon  it,  was  vested  in  her 
by  the  operation  of  law,  and  not  by  express  assignment  or  transfer.  She 
is,  of  course,  a  trustee  for  creditors  of  the  assets  in  her  hands,  but  not 
of  the  lands  of  the  deceased,  nor  of  a  contract  like  this,  which  is  for  the 
indemnity  of  those  who  have  the  beneficial  interest  in  the  lands.  Upon 
the  reason  of  the  matter  it  is  equally  evident  that  the  beneficial  interest 
in  such  a  contract  of  insurance  belongs  to  the  heir  and  not  the  personal 
representative  of  the  deceased.  The  heir  is  the  absolute  owner  of  the 
property,  entitled  to  its  income  and  its  enjoyment  and  damnified  by  its 
destruction.  He  only  can  bring  an  action  for  any  damage  done  to  it  after 
the  title  has  passed  to  him  from  his  ancestor.  If  the  destruction  of 
this  building  by  fire  had  been  the  result  of  the  malice  or  carelessness  of 
another,  the  heirs  of  Wyman  would  have  had  their  action  against  such 
person  and  recovered  damages  for  the  very  loss  against  which  this  con- 
tract is  an  indemnity.  They  could  have  destroyed,  removed  or  sold  the 
building  at  any  time,  and  neither  for  such  an  act  nor  for  any  injury  by  a 
third  person,  could  the  administratrix  have  sued  at  all.  Her  rights  rest 
upon  the  cotract  of  the  insurers  exclusively;  and  that  is  a  contract,  as  I 
have  already  said,  riot  of  guaranty  against  the  destruction  of  the  prop- 
erty, but  of  indemnity  against  a  loss  to  the  person  injured  by  such  de- 
struction. It  follows  that  it  is  a  contract  which,  even  if  made  or  con- 
tinued with  her,  is,  in  truth,  for  the  benefit  of  the  parties  to  whom  that 
property  belonged.  The  building  which  was  burned  was  real  estate.  As 
such  it  vested  in  the  heirs  immediately  upon  the  death  of  the  intestate, 
and  its  subsequent  injury  by  fire  could  not  convert  it  into  personal  es- 
tate, so  as  to  divest  the  right  of  the  heirs  or  give  a  new  direction  or 
character  to  the  money  payable  by  way  of  indemnity  for  their  loss. 
Again,  it  was  a  part  of  the  contract  of  insurance  in  this  case,  as  is  usual 
in  policies  of  insurance  against  fire,  that  upon  the  destruction  or  injury 
of  the  property  the  insurers,  if  they  chose,  might  repair  or  restore  it  in 
specie.  If  they  had  elected  to  take  that  course  the  expenditure  which 
would  have  been  made  would,  of  course,  have  been  entirely  for  the  benefit 
of  the  heirs.     The  building  repaired  or  replaced  would  have  been  theirs, 

686 


Administrators  and  Executors 

because  standing  upon  their  lands.  The  theory  of  the  payment  of  money 
in  lieu  of  such  actual  reparation,  is  that  the  party  is  thus  enabled  to 
replace  what  has  been  destroyed  for  himself  instead  of  its  being  done 
by  the  insurers.  This  is  very  plain  in  the  case  of  a  partial  loss  where 
there  is  only  an  injury  and  not  a  destruction  of  the  premises  insured,  but 
it  is  equally  so  in  all  c9ses.  It  would  be  a  singular  result  if  the  election 
of  the  insurers  could  determine  whether  the  heirs  or  the  administratrix 
should  take  the  benefits  of  their  contracts;  whether  they  would  make 
compensation  in  money  to  the  latter,  or  in  kind  to  the  former.  And  it  is 
a  strong  implication  from  the  existence  of  such  a  feature  in  the  contract 
that  its  benefits  must,  in  any  event,  and  in  either  form  of  performance 
inure  to  those  who  would,  in  the  case  of  its  literal  performance,  reap  its 
fruits." 

So  far  the  court  considered  the  rights  of  the  administratrix 
and  the  heirs  and  their  rights  as  against  each  other,  holding  that 
the  heirs  were  equitably  entitled  to  the  fund,  but  it  appeared  that 
there  were  other  equities  which  had  precedence  over  those  of  the 
heirs,  namely,  those  of  the  creditors.  There  was  a  judgment 
against  Wyman  which  was  a  lien  against  his  real  estate,  and  was 
held  by  persons  not  parties  to  the  suit,  and  the  court  continued : 

"Although  this  insurance  money  is  to  be  treated  as  proceeds  of  real 
estate,  it  is  nevertheless  subject,  as  is  the  real  estate  itself  under  our 
laws,  to  the  payment  of  the  debts  of  the  ancestor.  *  *  *  A  court  having 
control  of  such  funds  should  not  allow  them  to  pass  into  the  hands  of 
irresponsible  and  infant  heirs,  leaving  the  creditors  of  the  deceased  to 
pursue  them  by  the  dilatory  remedy  of  a  new  and  distinct  proceeding. 
Having  possession  of  the  fund  it  is  proper  to  retain  it  for  the  purpose 
of  a  just  administration  among  the  parties  entitled  to  it.  It  is  usual  in 
cases  where  the  proceeds  of  real  estate  come  into  the  hands  of  the 
court,  and  it  is  shown  that  there  are  debts  which  the  real  estate  was 
liable  to  pay,  or  to  be  sold  in  the  hands  of  the  heir  to  satisfy,  to  order 
the  money  paid  over  to  the  personal  representative  (that  is  the  admin- 
istrator or  executor,  as  the  case  may  be),  for  distribution  so  far  as  may 
be  necessary,  holding  him  to  account  for  any  balance  or  resulting  residue 
to  the  heirs." 

The  court  held  that  the  judgment  below  awarding  the  money 
to  the  administratrix,  and  not  to  the  heirs,  should  be  modified  so 
as  to  provide  for  the  satisfaction  of  the  dower  interests  of  the 
widow  in  the  moneys  in  question;  for  the  payment  of  the  surplus 
to  her  as  the  administratrix,  to  be  applied  by  her  in  satisfaction 
of  the  debts  entitled  to  payment  out  of  such  assets  in  the  order 
and  manner  established  by  law,  and  that  the  residue,  if  any,  should 
be  divided  among  the  heirs  at  law  of  the  deceased. 

In  the  same  year,  1863,  the  case  of  Herkimer  v.  Rice,  27  N.  Y. 
163,  was  decided.  As  in  the  Wyman  case,  a  sum  was  paid  into 
the  hands  of  the  surrogate,  being  proceeds  of  certain  insurance 
policies  on  buildings  formerly  belonging  to  Rice,  the  deceased. 
Herkimer,  one  of  the  plaintiffs,  and  the  administrator,  was  also  a 
creditor,  and  claimed  that  the  money  should  be  distributed  among 

687 


The  Fire  Insurance  Contract 

the  creditors.  The  defendants  were  five  infants,  the  children  and 
heirs-at-law  of  the  deceased,  and  their  general  guardian,  Tracy. 
Rice  died  in  1856  intestate,  and  seized  of  real  estate  on  which  there 
were  buildings  which  had  been  insured  againgt  fire.  The  policies 
were  in  force  at  the  time  of  the  death,  but  expired  early  the  fol- 
lowing year.  They  were  all  renewed  by  the  local  agents  by  re- 
newal receipts  stating  the  premium  to  have  been  received  from  the 
estate  of  John  Rice,  deceased.  At  the  expiration  of  the  periods 
mentioned  in  these  renewal  receipts  two  of  the  policies  were  again 
renewed  by  receipts  given  by  said  agents,  one  of  these  last  re- 
ceipts running  to  the  estate  and  the  other  to  Tracy,  who  after 
the  death  of  Rice  obtained  a  new  policy  for  $1,000,  in  which 
George  Herkimer,  administrator  of  John  Rice,  deceased,  was  named 
as  the  insured.  When  this  policy  was  about  to  expire  it  was  re- 
newed on  the  application  of  Tracy  pursuant  to  instructions  from 
Herkimer,  the  administrator,  the  receipt  stating  that  the  premium 
had  been  paid  by  Tracy.  It  was  during  the  running  of  the  last 
mentioned  renewals  in  1858  that  the  property  was  destroyed. 

It  was  found  as  a  fact  that  the  administrator  had  given  the 
instructions  for  the  renewal  of  the  policies,  and  that  they  were 
renewed  from  time  to  time  for  the  administrator.  But  Tracy 
during  all  these  transactions  was  the  general  guardian  of  the  in- 
fant heirs.  The  money  which  he  had  paid  to  obtain  the  renewals 
and  for  the  premium  on  the  additional  policy  was  the  money  of 
the  infant  children  in  his  hands  as  their  guardian,  and  he  charged 
the  same  in  the  accounts  which  he  kept  with  them  as  such  guar- 
dian. This  guardian  filed  proofs  as  general  guardian,  claiming  that 
the  money  belonged  to  the  children.  The  companies  paid  him  and 
took  his  receipt  as  general  guardian,  and  he  deposited  the  money 
in  a  bank  to  his  credit  as  guardian,  where  it  remained  until  turned 
over  to  the  surrogate. 

The  Estate  of  Rice  was  insolvent,  and  it  was  believed  by  the 
administrator  to  be  so  when  these  renewals  were  arranged  for.  The 
administrator  applied  to  the  surrogate  and  obtained  an  order  for 
the  sale  of  all  real  estate,  and  the  proceeds  were  applied  to  the 
payment  of  debts,  leaving  debts  still  unpaid  to  an  amount  exceeding 
the  insurance  moneys.  The  administrator  applied  to  Tracy  the 
guardian  to  pay  the  money  over  to  the  surrogate.  This  was  eventu- 
ally done,  and  the  court  below  in  this  action  held  that  the  residue 
of  the  fund  should  be  distributed  to  the  creditors  in  the  same  man- 

688 


Administrators  and  Executors 

ner  as  though  the  same  were  the  proceeds  of  real  estate  sold  under 
the  order  of  the  surrogate,  and  the  infants  and  their  guardian  ap- 
pealed.    These  were  the  facts. 

The  Appellate  Court  said : 

"Counsel  for  administrator  and  creditors  maintains  that, 
though  it  should  be  considered  that  the  contracts  of  insurance 
which  were  in  force  at  the  time  of  the  loss  were  effected  by,  and 
were  the  property  of,  the  heirs,  the  insurance  moneys  should  still 
in  consequence  of  the  events  which  have  happened,  be  applied 
toward  the  payment  of  the  debts  of  the  intestate.  These  moneys, 
it  is  argued,  are  a  substitute  for  so  much  of  the  real  estate  as  has 
been  destroyed  by  the  fire,  and  inasmuch  as  the  whole  real  estate 
would  have  been  chargeable  with  the  debts  if  no  accident  had 
happened,  the  conversion  of  a  part  of  it  into  money  by  that  for- 
tuitous circumstance  ought  not  to  exempt  it  from  the  charge  to 
which  the  law  had  subjected  it.  This  would  plainly  have  been 
the  result  if  the  contract  of  indemnity  had  been  made  by  the  de- 
ceased in  his  life  time  as  was  held  in  Wyman  v.  Wyman.  In 
that  case  the  fire  occurred  before  the  expiration  of  the  policy 
which  had  been  effected  by  the  deceased,  and  it  was  decided  that 
the  indemnity  took  the  place  of  the  real  estate,  and  belonged  to 
the  heirs,  subject  to  the  charges  which  would  have  existed  against 
it  in  their  hands.  But  when  the  land  vests  in  the  heirs  by  the 
death  of  an  ancestor  they  do  not  owe  any  duty  to  the  creditors 
to  insure  the  buildings  against  accidental  injury  from  the  elements, 
and  if  they  do  contract  with  others  for  an  indemnity  against  such 
accidents,  and  pay  the  premium,  and  the  contingency  happens,  the 
promised  indemnity  belongs  to  them,  and  not  to  the  creditors  who 
are  strangers  to  the  contract.  If  the  defeasible  nature  of  the  es- 
tate of  the  heirs  on  account  of  the  existence  of  debts  owing  by 
the  ancestor  were  known  to  the  insurers  it  is  to  be  supposed  that 
they  would  only  insure  a  sum  commensurate  with  the  limited  in- 
terest of  the  heirs.  But  whether  the  amount  insured  is  so  actually 
measured  or  not,  the  interest  at  risk  for  which  the  indemnity  is 
promised,  is  their  estate,  and  not  that  of  parties  holding  paramount 
rights,  capable  of  being  enforced  in  such  a  manner  as  to  divest  the 
title  of  the  heirs,  and  to  create  a  title  in  some  other  person.  By 
resorting  to  the  statutory  proceeding  for  a  sale  under  a  surro- 
gate's order,  as  was  actually  done,  the  land  must  of  course  be 
sold  in  the  condition  in  which  it  is   found  when   the   sale  takes 

689 


The  Fire  Insurance  Contract 

.  place,  and  a  prior  loss  from  an  accidental  fire  must  be  borne  by  the 
creditors  and  not  by  the  heirs,  who  had  enjoyed  it  from  the  testator's 
death  to  the  time  of  the  sale." 

''These  conditions  show  that  if  the  heirs  insure,  during  the  con- 
tinuance of  their  title  and  enjoyment,  the  insurance  is  upon  their 
interest  and  for  their  benefit  solely,  and  that  neither  the  creditors 
nor  administrators  who  represent  them,  have  any  privity  with  or 
interest  in  the  contract  of  insurance." 

The  court  below  assumed  that  the  contracts  of  insurance  were 
made  by  the  heirs  with  the  insurance  companies,  and  that  the  ad- 
ministrator had  no  such  insurable  interest  as  would  warrant  a 
policy  in  his  name  for  the  benefit  of  the  creditors.  The  Court 
of  Appeals,  however,  after  reviewing  the  facts  relating  to  the  re- 
newals, held  that  the  renewals  were  made  not  in  the  name  of  the 
heirs,  or  their  guardian,  but  by  the  guardian  as  the  agent  of  the 
administrator,  and  for  the  benefit  of  the  estate,  and  the  fact  that 
the  guardian  had  charged  the  premiums  in  his  account  as  guardian 
was  in  no  way  controlling. 

This  case  of  Herkimer  v.  Fice  is  also  interesting  and  import- 
ant because  it  further  established  the  propositions  that  not  only 
the  creditors  of  an  insolvent  estate  had  an  insurable  interest  in 
the  buildings,  but  that  the  administrator  also  had  as  their  repre- 
sentative. The  creditors  had  a  pecuniary  interest  in  the  preserva- 
tion of  the  building,  and  could  in  a  proper  case  borrow  upon  it, 
have  it  leased  or  sold.  The  court  said,  "The  law  does  not  require 
that  the  assured  should  have  an  estate  or  a  property  in  the  sub- 
ject of  insurance.  It  is  sufficient  if  he  have  a  direct  pecuniary  in- 
terest in  its  preservation.  Creditors  have  no  other  means  of  en- 
forcing their  debts,  but  having  a  direct  and  a  certain  right  to  subject 
the  real  estate  to  a  sale  for  their  benefit,  have  an  interest  as  posi- 
tive and  absolute  as  one  having  a  specific  lien,  or  even  as  the  owner 
himself."  The  court  further  intimated  that  if  the  creditors  had  in- 
sured, and  had  been  compelled  to  sue  the  insurance  companies,  their 
recovery  would  no  doubt  have  been  limited  to  the  amount  of  their 
debts,  and  if  such  suit  had  been  brought  before  the  sale  of  the 
lands  the  creditors  might  have  been  compelled  to  assign  their  de- 
mands to  the  insurers,  in  analogy  to  a  case  of  a  mortgagee  efifecting 
insurance  upon  the  building  covered  by  the  mortgage.  Some  of 
the  considerations  which  led  the  court  to  hold  that  administrators 
could  insure  were  that  it  was  wholly  convenient  that  they  should 

690 


Administrators  and  Executors 

pos.scss  llic  power;  that  as  they  were  tlie  parties  io  \slu>iii  tlie 
creditors  must  resort  in  the  first  instance  they  necessarily  be- 
came accurately  informed  as  to  the  amount  of  the  indebtedness, 
and  having  also  title  to  and  possession  of  the  personal  assets  they 
were  first  to  know  whether  the  real  estate  would  have  to  be  re- 
sorted to;  that  the  creditors  were  generally  numerous  and  had  no 
opportunity  of  concerted  action  except  through  the  executor  or 
administrator  and  that  under  our  statutes  the  executors  or  ad- 
ministrators have  certain  rights  affecting  the  real  property.  While 
they  have  no  power  to  sell  the  real  estate  without  an  order  of  the 
court,  it  is  material  to  the  value  of  the  powxr  and  to  the  objects 
contemplated  by  the  statutes  that  the  estate  should  be  protected 
from  injury  in  the  interim,  and  until  the  proceedings  could  be 
efifected,  and  that  where  the  value  consists  to  any  extent  in  com- 
bustible structures  the  known  and  universal  method  of  obtaining 
such  protection  is  by  an  insurance  against  the  hazard  of  fire. 

These  two  cases  were  decided  in  1863  and  are  today  leading 
cases  on  the  points  mentioned.  They  arose  under  policies  run- 
ning to  the  insured,  his  executors  and  administrators.  Under  the 
standard  policy  and  the  forms,  as  usually  attached,  the  insured 
alone  is  named  and  the  policy  conditions  provide  that  death  shall 
not  void  the  insurance,  and  that  wherever  the  word  "insured"' 
appears  it  shall  be  held  to  mean  the  legal  representatives  of  the 
insured. 

In  1896  an  action  was  brought  to  recover  upon  a  standard 
policy  of  fire  insurance  issued  to  the  decedent  in  his  life  time  for 
a  loss  of  certain  real  and  personal  property  occurring  after  his 
death,  and  the  Appellate  Division  said, 

"The  action  was  properly  brought  by  the  administrators  of  the  de- 
ceased. They  were  fiis  legal  representatives  within  the  meaning  of  the 
law.  The  company  claimed  that  they  were  only  his  legal  representatives 
as  to  the  personalty,  and  that  the  heirs  are  his  legal  representatives  as 
to  the  real  estate.  Upon  this  it  contends  that  two  actions  should  have 
been  brought,  one  by  the  heirs  for  damage  to  the  real  estate  and  one 
by  the  plaintiffs  for  the  damage  to  the  personalty.  This  contention  fails 
to  distinguish  between  the  right  of  action  proper  and  the  right  to  share 
in  the  recovery.  If  the  policy  had  simply  named  the  deceased  and 
stopped  there  the  right  of  action  would  have  passed  upon  his  death  to 
his  executor  or  administrator.  The  provision  in  the  policy  that  wherever 
the  word  'insured'  occurs  therein  it  shall  be  held  to  include  the  legal 
representatives  of  the  insured,  was  nothing  but  a  recognition  of  the  or- 
dinary rule.  So  far  as  the  contracting  parties  were  concerned  there  was 
no  intention  to  vary  the  rule  -with  regard  to  the  vestment  of  the  right  of 
action  upon  the  death  of  the  insured.  As  between  them  the  real  estate 
incident  was  of  no  especial  importance,  and  it  was  quite  immaterial 
whether  the  loss  in  case  of  fire  should  be  paid  directly  to  the  heirs  or 
to  the  legal   representatives    (as  ordinarily  understood)   in   the   right  of 

691 


The  Fire  Insurance  Contract 

the  heirs.  The  contract  as  to  both  real  estate  and  personalty  was  with 
Lawrence.  The  plaintiffs  are  his  successors.  As  such  the  defendant's 
contract  obligation  runs  to  them  directly.  They  could  maintain  the 
action  because  of  this  direct  contract  obligation.  They  so  maintain  it 
in  their  own  right  as  to  the  personalty,  in  the  right  of  the  heirs  as  to 
the  real  estate,  as  was  held  in  the  Wyman  case.  They  may  be  regarded, 
as  was  said  in  that  case,  as  parties  to  whom  as  trustees  of  any  express 
trust,  the  right  to  sue  in  their  own  name  is  preserved  under  the  code. 
(Co'de  of  Civil  Procedure  449).  Thus  the  contract  right  and  the  insurable 
interest  are  interwoven. 

"What  equity  may  require  the  plaintiffs  to  do  with  the  recovery  is 
another  question.  The  heirs  can  take  care  of  themselves.  What  the 
company  must  do  is  to  comply  with  its  contract,  namely,  pay  the  loss  to 
the  persons  to  w^hom  its  legal  obligation  thereunder  runs." 

Lawrence  v.  Niagara  Ins.  Co.,  2  App.  Div.,  267. 

In  this  case  the  heir  did  not  sue  and  it  was  held  that  action 
may  be  brought  by  personal   representatives — the  administrators. 

In  the  same  year,  1896,  the  very  interesting  case  of  Matthews 
V.  Ins.  Co.,  was  decided  by  the  Appellate  Division,  9  App.  Div. 
339.  Interesting  because,  owing  to  a  contest,  the  executor  was  not 
appointed  until  two  years  after  the  fire,  and  then  proofs  were 
filed  and  suit  brought.  In  August,  1889,  a  policy  in  the  standard 
form  was  issued  to  Mrs.  S.  insuring  her  dwelling,  barn  and  pro- 
duce for  three  years.  In  December,  1891,  Mrs.  S.  died,*  leaving 
a  will  by  which  she  devised  her  farm,  on  which  the  insured  build- 
ing stood,  to  her  executor  for  five  years,  then  to  be  sold  and  the 
avails,  after  the  payment  of  debts,  to  be  divided  among  her  three 
children.  Probate  was  opposed  and  in  April,  1892,  when  the  con- 
test was  still  on  before  the  surrogate,  a  fire  occurred  destroying 
part  of  both  realty  and  personalty.  In  May,  1894,  the  contest 
over  the  will  resulted  in  its  admission  to  probate,  and  the  appoint- 
ment of  plaintiff  as  executor.  In  July,  1894,  two  yea/s  after  the 
fire,  proofs  were  sworn  to  by  the  executor  and  mailed  and  re- 
ceived July  23rd,  1894,  and  retained  without  objection.  Loss  not 
having  been  paid  suit  was  brought  in  October,  1894.  The  de- 
fenses were  that  the  action  was  not  begun  within  twelve  months, 
that  no  immediate  notice  of  loss  was  given,  and  that  proofs  were 
not  served  within  sixty  days.  The  Appellate  Division  held  that 
there  was  no  excuse  for  the  delay  in  complying  with  policy  con- 
ditions, saying,   • 

"For  although  an  executor  may  not  maintain  an  action  before  letters 
testamentary  are  issued,  yet  he  derives  his  title  from  the  wnll  and  not 
from  the  letters,  and  he  is  empowered  to  do  anything  and  everything 
for  the  protection  of  the  estate  before  letters  are  issued.  He  possessed 
the  power  (and,  if  he  intended  to  accept  the  trust  and  qualify,  it  was  his 
duty)  to  have  proceeded  to  furnish  the  proofs  of  loss,  so  as  to  preserve 
and  protect  the  estate  and  the  interests  of  creditors,  legatees  and  all 
others  whom  he  represented.  Consequently  there  was  no  legal  excuse 
for  the  omission  to  comply  with  this  condition." 

692 


Administrators  and  Executors 

"Again,  it  would  seem  that  the  devisee  of  the  land,  being  the  real 
party  in  interest — and  if  there  is  no  deficiency  of  personal  assets  for 
satisfaction  of  creditors,  the  sole  party  in  interest — would  have  the  right 
to  furnish  proofs  of  loss,  and  the  company  would  be  bound  to  accept 
them.  If  the  personal  assets  are  ample  for  payment  of  debts  the  heir 
or  devisee  is  entitled  to  the  proceeds  of  the  insurance  policy;  if  insuffi- 
cient, then  he  would  be  entitled  to  the  surplus,  if  any,  remaining  after 
the  payment  of  the  debts." 

In  referring  to  the  Wyman  case  the  court  said, 

"It  was  not  decided  whether  heir  or  devisee,  as  the  real  party  (and 
perhaps  the  only  party)  in  interest,  could  sue  upon  the  policy."  "It 
seems  not,"  said  the  court. 

Remember 'that  in  the  Wyman  case  the  policy  ran  to  Wyman, 

his  executors,  administrators  and  assigns,  while  in  the  Matthews 

case,  under  a  standard   form,  it  ran  to  Mrs.  S.,  and  the  words, 

"legal  representatives"   were  by  the  Appellate  Division  seemingly 

held  to  exclude  the  heir  in  that  case  from  the  right  to  sue,  though 

including  him  among  those  who  might  file  a  proof.     In  referring 

to  the  rights  of  the  heir,  the  Court  of  Appeals,  however,  when  the 

Matthews  case  came  before  it,  154  N.  Y.  449,  said, 

"As  the  fire  occurred  after  the  death  of  Mrs.  S.  the  insured  at  the 
date  of  the  loss  was  either  the  person  who  in  the  course  of  time  should 
be  appointed  by  the  surrogate  to  administer  upon  her  estate,  or  the  per- 
sons interested  in  her  estate  who  expected  to  share  therein." 

"As  legal  representatives  are  equivalent  to  executors  and  admin- 
istrators, where  the  subject  matttr  or  context  do  not  control  the  mean- 
ing, we  will  first  proceed  upon  the  assumption  that  on  the  death  of  the 
testatrix  the  words  "the  insured"  as  used  in  the  policy  referred  to  the 
legal  representative  to  be  appointed  by  the  surrogate." 

The  court  then  proceeded  to  show  that  there  was  no  good 

reason  for  the  failure  of  the  executor  to  act  and  continued, 

"Upon  the  assumption  that  the  legal  representatives  of  the  insured 
referred  to  in  the  policy  included  the  heirs  at  law,  next  of  kin,  legatees 
or  devisees,  as  may  be  the  case,  the  situation  of  the  plaintiff  is  not  im- 
proved, because  according  to  that  theory  there  was  no  time  when  com- 
petent persons  sustaining  one  or  more  of  those  relations  to  the  decedent 
could  not  have  given  the  preliminary  notice  and  furnished  the  proof  of 
.loss. 

"Therefore,  whether  the  policy  rneans  by  legal  representative  the 
appointee  of  the  surrogate  or  some  person  directly  interested  in  the 
estate  or  both,  there  was  a  failure  to  comply  with  its  provisions  with  no 
excuse  for  non-compliance." 

Beach,  in  his  work  on  insurance,  says, 

"The  right  of  action  on  an  insurance  policy  for  the  destruction  of 
property  after  the  death  of  the  insured  lies  either  in  the  heir  or  in  the 
administrators."     2  Beach   1282. 

The  Indiana  court  said, 

"There  is  some  conflict  in  the  authorities  as  to  whether  an  admin- 
istrator can  sue  on  a  policy  of  insurance  on  real  estate  issued  to  the 
decedent  in  cases  where  the  property  is  burned  after  his  death." 

Pfister,  Administrator,  vs.   GerwMg,   122  Ind.   567. 

Black  in  his  Law  Dictionary  defines  'legal  representatives" 
as  follows: 

693 
23 


The  Fire  Insurance  Contract 

"Primarily  the  term  meant  those  artificial  representatives  of  a  de- 
ceased person,  the  executor  and  administrator,  who  by  law  represent  the 
deceased  in  distinction  from  the  heirs,  who  were  the  'natural'  representa- 
tives. But  ♦  ♦  ♦  the  phrase  has  lost  much  of  its  original  distinctive  force 
and  is  now  used  to  describe  either  executor  and  administrator  or  chil- 
dren, descendants,  next  of  kin  or  distributees." 

Our  Court  of  Appeals  has  also  referred  to  these  words  as 
being  "words  of  doubtful  meaning"  and  the  courts  of  many  other 
states  have  referred  to  the  phrase  as  being  ''an  ambiguous  term." 

While  the  words  "legal  representatives"  mean  administrator 
or  executor,  they  may  refer  to  heirs  or  next  of  kfn.  Davidson  v. 
Jones,  112  App.  Div.  254  at  257. 

While  the  strict  technical  meaning  of  the  words  "legal  repre- 
sentatives" is  administrators  or  executors,  and  they  must  be  so 
construed  in  the  absence  of  anything  showing  a  different  intent ; 
as  they  are  not  always  used  in  this  sense,  it  is  the  province  of 
construction  in  any  case  to  ascertain  the  sense  in  which  they  were 
used,  and  for  that  purpose  the  subject  matter  and  the  surrounding 
circumstances,  as  well  as  the  language  used,  may  be  considered. 
Griswold  V.  Sawyer,  125  N.  Y.  411. 

Our  subject  matter  is  the  building.  Assume  that  the  insured 
dies  and  that  his  estate  is  solvent,  not  insolvent.  The  executor,  in 
the  absence  of  a  provision  in  the  will  to  the  contrary — or  if  there 
be  no  will  the  administrator — has  no  interest  in  the  building.  The 
heir  has  the  title;  he  is  the  owner  and  may  go  into  immediate 
possession;  he  alone  could  sue  the  railroad  company  if  it  injured 
the  property.  Is  he  not  in  that  case  the  real  insured?  If  a  fire 
occur  he  may  file  proofs,  and  is  he  not  the  one  whom  the  com- 
pany would  desire  to  examine  under  oath?  Is  he  not  the  one  the 
company  would  desire  to  bind  as  owner  by  an  appraisal,  having 
been  in  possession  since  the  death  of  the  original  insured?  Is  he, 
not  the  one  who  could  best  file  a  proof  satisfactory  to  the  com- 
pany? In  other  words,  where  the  heir  or  devisee  is  the  only  party 
interested  in  the  real  estate  is  he  not,  after  the  death  of  the  per- 
son to  whom  the  policy  was  originally  issued,  the  insured  within 
the  meaning  of  the  policy,  and  should  he  not  be  allowed  to  sue  in 
his  own  name?  I  think  these  questions  should  be  answered  in  tho 
affirmative. 

Our  Code  of  Civil  Procedure  provides  (Section  449)  : 

"Every  action  must  be  prosecuted  in  the  name  of  the  real  party  in 
interest,  except  that  an  executor  or  administrator,  a  trustee  of  an  express 
trust,  or  a  person  expressly  authorized  by  statute,  may  sue,  without 
joining  with  him  the  person  for  whose  benefit  the  action  is  prosecuted. 

694 


Administrators  and  Executors 

A  person  with  whom  or  in  whose  name  a  contract  was  made  for  the 
benefit  of  another,  is  a  trustee  of  an  express  trust  within  the  meaning 
of  this  section." 

But  while  under  this  section  an  executor  may  sue  without 
joining  the  beneficiaries,  it  does  not  forbid  an  action  by  them,  or 
by  him  with  them.     Hubbell  v.  Medbury,  53  N.  Y.  98. 

This  section  of  the  code  is  permissive  merely.  The  action 
may  be  by  the  trustee  of  the  express  trust.  There  is  no  prohibi- 
tion against  the  real  party  in  interest  bringing  it,  or  being  joined 
as  pla^atifT.     Cassidy  v.  Sauer,  114  App.  Div.  673. 

'i.,c  question  naturally  arises,  How  should  insu-rance  be  re- 
newed where  the  policy  on  real  estate  expires  after  the  death  of 
the  insure  J?  This  depends  upon  the  interests  sought  to  be  pro- 
tected. If  the  broker  is  acting  for  the  heirs  the  insurance  should 
be  taken  out  in  their  names  as  owners,  and  it  will  not  inure  to 
the  benefit  of  the  creditors.  If  he  is  acting  for  the  executors  or 
administrators,  the  first  question  would  be,  what  interest  have  they 
in  the  real  estate?  If  they  know  at  the  time  that  the  estate  is 
solvent  they  have  no  interest,  unless,  for  example,  the  will  leaves 
the  real  estate  in  trust,  in  which  event  the  insurance  should  run 
to  the  trustee.  If  it  is  doubtful  whether  the  estate  is  solvent  the 
policy  may  run  to  John  Doe  as  executor  or  administrator,  or  if 
a  more  elastic  term  is  desired  insurance  may  be  taken  in  the  name 
of  the  "Estate  of"  John  Doe.  That  term  has  been  referred  to  by 
the  Court  of  Appeals  in  the  following  language. 

"It  is  an  indeterminate  word,  the  precise  meaning  of  which  is  to  be 
ascertained  from  the  circumstances  under  which  it  is  used.  It  may  be 
used  to  represent  the  interest  of  administrators  in  the  personal  estate,  or 
of  the  interest  of  widows  and  heirs  in  the  real  estate  or  in  the  interest  of 
all  these  in  both  personal  and  real  estate,  and  the  scope  to  be  given  to 
it  will  depend  largely  upon  the  persons  who  procure  the  policy  and  the 
purpose  for  which  it  is  procured." 

Weed  V.  Insurance  Co.,  133  N.  Y.  394. 

From  what  has  preceded  it  will  be  seen  that  the  following  gen- 
eral propositions  may  be  stated: 

1.  That  executors  have  no  interest  in  the  real  property  unless  the 
will  provides  to  the  contrary  or  unless  the  personal  property  is  insuffi- 
cient to  pay  the  debts  and  that  administrators  have  no  interest  in  the 
real  property  unless  the  personal  property  is  insuflficient  to  pay  the  debts. 

2.  That  upon  the  death  of  one  who  has  effected  insurance  on  his 
house  against  fire,  the  ir^lerest  in  the  policy  devolves  upon  his  heirs  at 
law,  and  in  case  of  loss  the  damages  accrue  to  them,  but  the  executors 
or  administrators  of  the  insured  may  maintain  an  action  for  those  bene- 
ficially interested  in  the  real  estate;  that  the  proceeds  recovered  in  such 
action  stand  in  the  hands  of  the  administrator  or  executor  not  as  per- 
sonal property,  but  as  realty,  subject  to  the  dower  of  the  widow  and 
the  lien   of  judgment  creditors  bcf<.'  -c  distribution   to  the  heirs. 

695 


The  Fire  Insurance  Contract 

3  That  an  executor  or  administrator  of  an  insolvent  estate  has  an 
insurable  interest  in  the  real  property. 

4.  That  the  rights  of  creditors  to  resort  to  the  sale  of  the  real 
property  for  the  payment  of  debts  gives  them  a  sufficient  insurable  in- 
terest to  support  a  contract  of  insurance,  and  when  made  by  an  admin- 
istrator it  is  for  their  benefit  so  far  as  required  to  pay  the  debts.  If  the 
insurance  moneys  exceed  the  amount  of  the  debts  the  administrator  holds 
the  proceeds  in  trust  for  the  heirs. 

5.  That  upon  the  death  of  the  ancestor  the  heirs  may  insure  for 
their  own  benefit,  notwithstanding  the  defeasible  nature  of  their  estate 
in  consequence  of  its  liability  to  sale  for  the  ancestor's  debts. 

6.  That  the  words  "legal  representatives,"  as  used  in  the  standard 
policy  refer  to  the  executor  or  administrator  unless  the  subject  matter 
leads  to  a  different  conclusion. 

7.  That  the  heir  as  the  real,  and  perhaps  the  only,  party  in  interest, 
has  the  right  to  furnish  proofs,  and  the  insurance  company  would  be 
bound  to  accept  them. 

8.  That  while  the  words  "legal  representatives"  usually  refer  to 
executors  or  administrators,  that  term  is  sufficiently  broad  to  include  in 
a  proper  case  heirs  at  law,  next  of  kin,  legatees  or  devisees. 

In  conclusion  it  is  respectfully  submitted  that  the  facts  may 
be  such  that  an  heir,  after  the  death  of  the  original  insured,  may 
become  a  substituted  insured,  entitled  to  file  proofs,  to  agree  on 
the  amount  of  damage  and  to  sue  in  his  own  name  for  the  recov- 
ery of  his  loss. 


X  • 


696 


XXXV 

THE  CO-INSURANCE  CLAUSE 

W.  J.  Nichols 

General  Adjuster,  North  British  &  Mercantile  Insurance  Co. 

The  phrase  "co-insurance  clause"  has  two  jneanings,  one  gen- 
eral  and  one  specific.  The-fjormer.  applies  in  a  general  way  to  sev- 
eral different  clauses  intended  to  restrict  the  liability  of  an  insur- 

ancecompanv  under  a  fire  insurance  policy  to  that  proportion-oi 

the  loss  which  its  amount  at  risk  bears  to  a  ^iven  perr<;>ptaprp  nf 
the  value  of  the  property  at  th^  time  nf  the  firp.  Clauses  designed 
to  secure  such  result  are  of  various  wordings,  some  well  and  some 
poorly  adapted  to  the  common  purpose.  Each  kind  bears  a  name 
supposed  to  be  descriptive ;  but,  in  a  general  way,  all  are  referred 
to  as  co-insurance  clauses.  It  is  according  to  this  general  signi- 
ficance that  the  phrase  is  used  in  the  title,  and  according  to  this 
significance  we  may  use  it  until,  later  on,  we  undertake  to  dis- 
tinguish the  different  kinds  of  clause.  Thenceforward  we  shall 
use  it  only  in  its  restricted  sense. 

In  view  of  the  admitted  importance  of  the  co-insurance  clause, 
it  would  seem  strange  that  so  many  of  us  fall  short  of  its  full 
comprehension,  were  it  not  for  the  peculiar  ways  in  which  it  lends 
itself  to  the  limitless  combinations  appearing  in  the  apportionments 
of  which  it  is  a  factor. 

But  one  need  not  be  discouraged  by  the  seeming  infinitude  of 
its  ramifications.  Without  actually  exhausting  the  subject  one 
may  have  a  good  working  knowledge  of  it ;  and  we  may  profitably 
study  its  elementary  features. 

There  is,  as  many  of  us  know,  great  opposition  to  the  co- 
insurance  clause  in  many  parts  of  the  country;  some' States  seeking, 
apparently,  to  discourage  its  use  by  loading  it  down  with  incon- 
veniences; some  prohibiting  it  except  in  all  but  a  limited  class  of 
cases;  while  some  prohibit  it  altogether. 

In  view  of  this  disfavor,  why  is  its  use  not  abandoned?  The 
best  reason  assignable  is  that^it  is  the  only  fa^^toii-tbaj^will  secure 
iustic£To_aj]jD_ihje.  mal^^  And  many  of  us  believe  that 

in  the  fullness  of  time,  every  State,  even  those  now  prohibiting 
it,  will  permit  and  perhaps  ordain  its  use.     The  realization  of  this 

697 


The  Fire  Insurance  Contract 

belief  will  depend  on  the  inherent  justice  of  the  principle  involved 
And  it  seems  proper  to  consider  its  justice  before  we  proceed  to 
study  its  practical  application. 

Comprehension  of  the  justice  of  the  principle  is  more  easily 
acquired  than  communicated  to  another;  much  more  easily  com- 
municated to  one  with,  than  to  one  without  practical  experience  in 
underwriting  or  the  adjustment  and  apportionment  of  losses. 

Many  explanations  have  been  formulated  for  the  conversion 
of  the  average  property-owner  to  the  recognition  of  the  necessity 
of  the  co-insurance  clause  for  the  maintenance  of  justice  as  be- 
tween all  policy-holders;  but  while  they  are  sound  and  logical, 
the  fact  remains,  as  evidenced  by  the  laws  above  referred  to,  ham- 
pering or  preventing  the  use  of  the  co-insurance  clause,  that  ^11_ 
unwilling  listeners  have  not  yet  been  convinced. 

I  have  noted  carefully  and  with  profit  the  remarks  relative 
thereto  contained  in  the  paper  read  by  Mr.  E.  G.  Richards  at 
the  annual  meeting  in  October,  1908,  of  the  Fire  Underwriters' 
Association  of  the  Northwest ;  also  that  portion  of  the  report  trans- 
mitted to  the  legislature  of  the  State  of  New  York  on  February  1, 
1911,  by  the  Joint  Committee  of  the  Senate  and  Assembly  of  that 
State;  generally  known,  I  believe,  as  the  "Merritt  Committee.*' 
Each  paper  presents  an  argument  that  should  convince  any  in- 
telligent and  fairminded  legislature  of  the  justice  of  the  universal 
application  of  the  principle  of  co-insurance.  We  may  profitably 
consider  both  papers,  and,  not  inappropriately  in  the  order  in  which 
they  were  promulgated.  It  is  interesting  to  note  the  dififerent  lines 
of  thought  along  which  the  arguments  run,  as  well  as  the  harmony 
of  their  conclusions. 

Mr.  Richards  views  the  principle  involved  as  analogous  to 
that  of  taxation.  He  refers  to  the  necessity  of  uniformly  just 
valuations  of  property  as  the  basis  of  taxation. 

All  will  admit  that  it  would  be  both  unjust  and  absurd  to  rely 
for  purposes  of  taxation  of  real  estate  on  valuations  made  by  the 
owners,  each  for  his  own.  All  estimates  would  not  be  honestly 
made,  and  the  dishonest  would  escape  in  great  part  the  burdens 
of  taxation,  much  of  the  burden  properly  accruing  to  them  being 
transferred  to  those  whose  estimates  approached  more  nearly  to 
the  proper  standard. 

Manifestly,  therefore,  just  as  the  valuations  for  real  estate 
taxation  must  be  uniformly  proportionate  to  actual  values  in  order 

698' 


The  Co-Insurance  Clause 

that  each  shall  make  his  proper  contribution  to  defray  the  cost  of 
benefits  expected,  so  should  valuations  for  purposes  of  insurance^ 
be  uniformly  proportionate  to  actual  or  sound  values  so  that  each  ^ 
policyholder  shall  make  his  proper  contribution  to  defray  the  cost 
of  benefits  expected. 

Manifestly,  also,  he  does  nQlLJiY£.-UD_to  this  obligation  unless 
he  does  one  of  two  things : 

(a)  Purchase  insurance  to  a  proper  percentage  of  the  value  of  his 
property;  or 

'^  C^)  Accept  a  policy  for  a  less  sum  which  must  provide  that  in  event 
of  Joss  lie  shall  receive  no  greater  sum  as  indemnity  therefor  than  will 
be  p^foportionate  to  the  amount  of  insurance  he  holds  on  the  property. 

The  provision  first  designed  to  accomplish  this  result  under 
Fire  Insurance  policies  was  denominated  the  Co-insurance  Clause, 
and  made  the  insured  a  co-insurer  to  the  extent  of  the  deficit  in_ 
the  amount  of  his  insurance  as  compared  with  the  amount  of  in- 
surance needed  to  conform  to  the  proper  standard.  This  will  be 
considered  in  detail  later. 

Rates_9xe,  we  understand,  based  on  the  supposition,  that,  prop- 
erty  owners  will  protect  themselves  by  insurance  to  80  percent  of 
the  values  of  their  respective  properties.  Therefore,  80  is  desig- 
nated as  the_pjercentage  of  value  in  the  Co-insurance  Clause  to  be 
attached  to  a  policy  issued  at  the  rate,  made,  as  above  indicated, 
in  contemplation  of  insurance  to  that  extent. 

Mr.  Richards,  it  will  be  seen,  deals  with  fundamental  princi- 
ples. 

Of  the  Merritt  Committee  report,  that  portion  relating  to  co- 
insurance deals  with  illustrations,  based  in  part  on  statistics,  show- 
ing among  other  things  that  the  principle 

on  which  the  co-insurance  clause  is  founded  is  not  only  sound  but 
is  absolutely  requisite  if  the  equities  of  the  insured  are  to  be  preserved. 

The   Merritt  Committee   report  contains  a  statement  of  the 

average  100  losses  shown  by  statistics  to  occur  to  every  $100  worth 

of  buildings  of  a  certain  class,  the  losses  being  divided  into  ten 

groups :  the  first  group  comprising  those  less  than  10  percent  of  the 

values  of  the  properties  involved;  the  second,  those  exceeding  10 

percent  and  less  than  20  percent ;  and  so  on,  10  per  cent  at  a  step, 

the  last  group  consisting  of  losses  exceeding  90  percent.     It  goes 

on  to  show  that 

Every  100  fires  burn  altogether  $916  worth  of  property,  supposing 
the  properties  in  each  case  to  have  had  a  value  of  $100. 

These  statistics  not  convenient  of  quotation  here,  show  that 
if  on  each  building  just  $10  of  insurance  had  been  carried  for  every 

699 


The  Fire  Insurance  Contract 

$100  of  value,  the  100  losses  would  have  cost  the  Companies  $34-1 

(34.4  percent  of  the  insurance)  : 

That  if  the  insurance  had  been  $20  for  each  $100  of  value  the  cost 
to  the  companies  would  have  been  $488  being  24.4%  of  the  insurance. 

If  $30,  $593,  being  19.77%  of  the  insurance; 


40, 

673,       ' 

'       16.8?% 

50, 

738,      ' 

'       14.76% 

60, 

793,      ' 

'       13.22% 

70, 

838,      ' 

'       11.97% 

80, 

873,      ' 

"       10.91% 

90, 

898,      • 

9.98% 

100, 

916,      ' 

9  ]6?o 

We  quote  from  the  report : 

The  principle  that  is  here  established  is  that  the  rate  in  iire  insur- 
ance must  equitably  depend  not  only  upon  the  class  of  risk,  but  upon  the 
percentage  of  insurance  carried,  and  that  for  example  a  rate  of  ninety- 
three  cents  which  might  be  right  if  80  percent  of  insurance  were  carried 
would  be  much  too  low  if  only  30  percent  were  carried. 

It  clearly  appears  from  the  able  arguments  presented  by  these 
authorities  that  if  rates  are  based  on  the  assumption  that  insur- 
ance to  a  certain  percentage  of  the  value  will  be  carried,  the  rate 
is  right  only  where,  in  event  of  loss,  the  Company  is  called  on 
to  pay  only  that  proportion  of  the  loss  which  its  policy  bears  to_ 
the  percentage  of  the  value  contemplated  in  the  rate,  whether  this' 
limit  on  its  paying  power  results  from  the  amount  of  insurance 
carried  or  from  the  presence  in  the  policy  of  the  appropriate  co- 
insurance clause. 

If  a  poHcy  written  at  a  given  rate  must  pay,  up  to  its  amount 
at  risk,  for  any  loss  regardless  of  whether  the  percentage  of  in- 
surance to  value  be  large  or  small,  one  of  two  things  is  true ;  eithex. 
the  insured  is  overcharged  if  the  percentage  of  insurance  to  value 
be  high,  or  undercharged  if  it  be  low. 

Because  one  who  insures  to  a  small  percentage  only  of  his 
value  may  suffer  a  large  uncollectible  loss  if  the  percentage  of 
loss  be  high,  the  extent  of  such  inequity  as  between  policyholders 
is  somewhat  restricted.  But  the  best  that  can  be  said  of  thif; 
restraining  influence  is  that  its  results  are  less  unjust  than  would 
be  those  of  a  law  granting  to  the  property  owner  the  right  to  de- 
mand at  the  rates  current  under  present  conditions,  and  a//er  the 
fire,  insurance  to  meet  his  needs  as  then  developed. 

Losses  are  not  met  by  the  premiums  charged  for  the  policies 
under  which  the  losses  occur.  In  life  insurance  every  risk  is  ex- 
pected to  be  a  total  loss  sooner  or  later,  and  the  rate  charged  is 
regulated  accordingly.     If  in  fire  insurance  the  policies  under  which 

700 


The  Co-Insurance  Clause 

no  claim  is  ever  made  were  less  than  a  great  majorty  of  the  p^j\. 
cies  written,  the  rates  charged  would  need  to  be  increased  many 
fold.  It  is  approximately  true  that  losses  are  paid  by  the  premium 
on  the  policies  under  which  no  loss  occurs — in  fact  the  premium 
on  policies  under  which  losses  occur  would  not  be  anywhere  near 
sufficient'  to  pay  the  expense  of  conducting  the  business,  to  say 
nothing  of  losses — and  unless  there  is  some  influence  at  work  to 
keep  the  revenue  from  these  policies  at  current  rates  up*  to  a  proper 
level,  the  receipts  therefrom  will  fall  so  as  to  require  the  rates  to 
be  materially  increased.  This  influence  is  only  partially  supplied 
by  the  fear  of  loss  equal  to  or  approaching  the  value  of  the  prop- 
erty. It  must  in  fairness  to  all — Companies  and  policyholders  alike 
, — be  supplemented  by  some  provision  in  the  policy  contract  restrict- 
ing the  Company's  liability  for  loss  to  that  proportion  thereof 
which  its  policy  bears  to  the  percentage  of  the  value  which  was 
contemplated  in  the  rate. 

Now,  I  submit  that  the  foregoing  arguments  should  suffice 
to  convince  any  well  informed  and  fairroinded  body  that,  regard- 
less of  justice  to  the  Insurance  Companies,  equity  as  between 
policyholders  demands  the  application,-  to  all  policies,  of  the  prin- 
ciple of  co-insurance.  But  the  fact  remains  that  the  Solons  of 
several  States  have  not  yet  seen  the  light.  Bearing  in  mind  that 
"fools  rush  in  where  angels  fear  to  tread"  a  mere  adjuster  might 
well  hesitate  to  attempt  to  supplement  the  able  arguments  already 
presented  with  any  of  his  own.  And  yet,  remembering  that  a  straw, 
applied  at  the  critical  moment,  has  broken  a  camel's  back,  I  ven- 
ture to  present,  for  consideration  as  a  possible  straw,  an  argu- 
ment differing  from,  but  consistent  with  those  already  noticed. 

The  great  majority  of  fire  losses  are  on  property  susceptible 
io  any  degree  of  loss,  however  large  or  however  small.  Some 
-classes  of  property  there  are  whose  destructibility  in  event  of  fire 
is  extreme.  As  an  example,  we  may  che  kerosene  or  gasoline  in 
the  simple  form  of  tank  with  no  provision  for  the  removal  to  a 
place  of  safety  of  part  of  the  contents.  Almost  if  not  quite  as 
striking  an  illustration  is  hay  in  stack.  Many  classes  of  unpro- 
tected property  are  doomed  to  a  total  loss  if  fire  occur. 

On  the  other  hand,  there  are  classes  of  property  which,  owing 
to  one  cause  or  another,  or  to  combinations  of  causes,  are  prolific 
in  small  losses  and  only  in  exceptional  cases  are  subject  to  heavy 
or  total  loss. 

701 


;) 


The  Fire  Insurance  Contract 

But  in  the  great  majority  of  cases  the  property  (building  or 
contents,  or  both)  is  of  such  a  nature  that  neither  an  insured  nor 
his  insurer  can  reasonably  pin  his  faith  to  any  special  percentage 
of  loss  in  event  of  fire.  And  it  is  this  great  majority  of  cases  to 
which  our  argument  is  directed. 

As  a  foundation,  let  me  state  what  I  believe  must  be  conceded 
to  be  a  fundamental  truth:  That  if  two  policies,  each  for  the  same 
amount,  are  issued  on  the  same  property,  the  first  to  cover  till  ex- 
hausted and  without  contribution  from  any  other  insurance,  on 
any  loss  that  the  property  may  sustain,  the  other  to  apply  to  sg 
much  of  the  loss  as  exceeds  the  amount  of  the  first  policy,  the 
first  policy  is  equitably  entitled  to  a  higher  rate  than  the  second. 
This  granted,  let  us  assume  that,  as  must  often  be  the  case,  the 
difference  in  rate  between  two  such  policies,  each  for  $1,000  on 
property  worth  $2,500,  is  one-third  of  the  greater.  That  is  to  say, 
if,  in  such  a  case,  60  cents  per  $100  is  the  proper  rate  for  the  first, 
40  cents  per  $100  will  be  the  proper  rate  for  the  second,  the  pre- 
miums being  $6  and  $4  respectively. 

Next,  let  us  consider  instead  of  these  two  policies  a  policy  for 
their  aggregate  amount,  $2,000,  so  written  as  to  cover  till  exhausted 
and  without  contribution  from  any  other  insurance  on  any  loss 
that  the  property  may  sustain.  This  policy  will  yield  in  any  con- 
ceivable case  exactly  the  indemnity  th?^  would  be  yielded  by  the 
two  $1,000  policies  previously  considered;  exactly  that  and  no 
more.  Therefore,  it  is  worth  exactly  as  much  as  should  be  charged 
for  the  two  $1,000  policies.  The  premium  on  the  $2,000  policy 
should  therefore  be  $10  and  the  rate,  in  consequence,  50  cents  per 
$100. 

Let  us  apply  first  the  two  $1,000  policies,  and  then  the  $2,000 
policy  to  a  loss  of  $1,500. 

The  first  $1,000  policy  will  pay  $1,000;  the  second  will  pay 
$500. 

On  the  othei  hand,  the  $2,000  policy  will  pay  $1,500. 

Suppose  it  were  desirable  to  issue  two  policies  for  $1,000  on 
the  property  in  question  each  at  the  rate,  50  cents  per  $100,  that 
had  been  found  to  be  equitable  on  the  $2,000  policy.  In  order 
for  the  rate  to  be  as  fair  for  each  of  the  $1,000  policies  as  it  was 
for  the  $2,000  policy,  it  is  manifest  that  provision  must  be  made 
whereby,  just  as  the  $2,000  policy  pays  the  whole  of  any  loss  not 
exceeding  $2,000,  so  each  $1,000  policy  will  pay  one-half  of  any 
loss  not  exceeding  $2,000. 

702 


The  Co-Insurance  Clause 

It  may  be  asked  why  it  is  necessary  to  make  such  provision, 
as  each  of  the  poHcies  will  pay  its  proportion  (one-half)  according 
to  the  contribution  clause.  The  answer  is  that  either  policy  may 
be  canceled  at  any  time,  leaving  the  other  the  only  insurance  on 
the  property.  Without  the  special  provision  indicated  as  necessary, 
it  would  then  have  to  pay  the  whole  of  any  loss  up  to  $1,000  in- 
stead of  one-half  of  any  loss  up  to  $2,000.  'This  would  be  in- 
equitable as,  for  a  50  cent  rate,  it  would  be  carrying  all  the  burden 
of  the  underlying  $1,000  policy,  for  which  the  fair  rate  we  know 
to  be  60  cents. 

Therefore,  if  the  $1,000  policy  is  to  be  sold  at  a  50  cent  rate, 
it  must  be  relieved  of  all  burdens  except  those  contemplated  by 
that  rate.  This  can  only  be  done  by  a  provision,  however  worded, 
whereby  liability  under  the  policy,  which,  of  course,  can  never 
exceed  its  amount  at  risk,  is  limited  to  that  proportion  of  the  loss 
which  its  amount  at  risk  bears  to  80  percent  of  $2,500,  the  value 
of  the  property. 

In  presenting  the  above  argument,  we  have  considered  poli- 
cies for  40  percent  and  80  percent  respectively  of  the  sound  value 
of  the  subject  of  insurance;  it  has  been  assumed  that  the  proper 
rate  for  the  underlying  policy  was  60  cents,  and  that  for  a  40  per- 
cent excess  policy  40  cents ;  and  we  have  seen  how  it  followed  that, 
in  these  circumstances,  the  proppr  rate  for  an  ordinary  policy  sub- 
ject to  the  80  percent  clause  was  50  cents.  But  these  particular 
factors  were  taken  merely  for  convenience.  The  argument  will 
hold  good  though  other  percentages  of  value  be  substituted  for 
40  percent  and  80  percent  and  though  other  rates  be  assumed  than 
60  cents  per  $100  and  40  cents  per  $100.  The  conclusion  will  al- 
ways be  that,  as  to  property  susceptible  of  any  degree  of  loss,  large 
or  small,  the  lower  the  percentage  in  the  co-insurance  clause,  the 
higher  must  be  the  rate. 

To  sum  up  the  arguments  in  favor  of  the  co-insurance  clause : 

In  any  State  that  forJ)ids  its  use,  the  rate  for  insurance  being 
based  entirely  on  the  comparative  hazard  of  the  risk,  one  of  two 
things  must  happen  while  both  may  happen;  either  the  property 
owner  who  takes  out  insurance  for  80  percent  or  more  of  the  value 
of  his  property  will  pay  too  high  a  rate,  or  the  one  who  insures 
against  loss  on  the  same  class  of  property  for  a  smaller  percentage 
of  its  value  will  obtain  it  at  too  low  a  rate.  Let  not  the  State  de- 
lude itself  into  the  belief  that  it  is  not  concerned  if  one  of  its  citi- 

703 


The  Fire  Insurance  Contract 

zens  obtains  spmething  for  nothing  or  for  a  sum  less  than  cost.  . 
Nothing  can  be  truer  than  the  '^the  consumer,  he  pays  the  tax," 
later  if  not  sooner. 

The  States  that  are  so  opposed  to  the  co-insurance  clause  are 
noticeably  apt  to  favor  anti-discrimination  laws  In  the  matter  of 
rates. 

But  as  one  kind  of  discrimination  in  the  cost  of  insurance  is 
as  unfair  as  another,  let  us  consider  whether  discrimination  is 
inhibited  by  statutes  which  provide  that  rates  must  be  proportioned 
to  the  comparative  liabilities  of  various  properties  to  loss  by  fire, 
while,  at  the  same  time,  they  forbid  the  use  of  co-insurance  or 
average  clauses. 

If  1  percent  is  the  proper  flat  rate  for  A's  property,  and  the 
hazard  of  B's  property  to  that  of  A's  is  as  5  is  to  4,  B's  property 
must  be  rated  at  1^  percent  flat.  Now,  according  to  the  anti- 
dis'.crimination  statute,  it  would  be  reprehensible  for  an  insurance 
company  to  issue  a  policy  on  B's  property  at  a  rate  less  than  1^ 
percent,  yet  if  B  because  of  the  greater  hazard  of  his  property, 
deems  it  prudent  to  maintain  insurance  up  to  80  percent  of  his 
value  while  A  insures  up  to  40  percent  only  of  his  value,  B's  in- 
surance involves  a  less  risk  to  the  insurers  and,  to  avoid  dis- 
crimination, should  bear  a  rate  lower  than  A's  rate;  yet  under  the 
so-called  "anti-discrimination  law,"  B  must  not  be  permitted  to  ob- 
tain his  insurance  at  a  rate  less  than  ljf4  percent,  no  matter  how 
much  he  may  decrease  the  risk  to  the  insurer  by  increasing  its 
amount. 

To  one  who  is  influenced  by  the  arguments  we  have  consid- 
ered, this  seems  as  great  a  discrimination  against  B  as  it  would  be 
if  policies  to  80  percent  of  the  value  on  property  of  like  hazard  to 
that  of  his  were  issued  at  the  rate  of  1  percent,  while  the  charge 
to  him  therefor  remained  at  the  1^  percent  rate. 

It  is  to  be  hoped  that  a  realization  by  those  opposed  to  dis- 
crimination, that  the  prohibition  of  co-insurance  produces  rather 
than  prevents  it,  will  lead  to  the  abolition  of  discrimination,  so 
far  as  possible,  in  the  only  known  (or  conceivable)  way,  viz.: 
Proper  adjustment  of  rates,  based  in  each  case  upon  some  assured 
percentage  of  insurance  to  value,  and  the  requirement  of  a  co- 
insurance clause  based  upon  the  same  percentage  of  insurance  to 
value. 

Let  «s  pass  now  to  the  consideration  of  the  operation  of  the 
clause : 

704 


The  Co-Insurance  Clause 

As  has  already  been  called  to  your  attention,  the  phrase  "co- 
insurance clause,"  in  the  foregoing  portions  of  this  paper,  has 
been  held  to  include  not  only  the  co-insurance  clause  proper,  but 
also  other  clauses,  differing  in  form  but  likewise  denominated  co- 
insurance clauses  and  still  other  forms  of  clause  known  as  the 
"reduced  rate  average  clause,"  or,  as  in  New  York  City,  the  "av- 
erage clause." 

A  careful  analysis  of  the  various  forms  of  clause  in  use 
throughout  the  United  States  shows  that  they  may  be  properly 
analyzed  as  follows: 

First :  The  co-insurance  clause  proper  providing,  with  little, 
if  any,  variation,  that  the  insured  shall  maintain  insurance  upon 
the  property  hereby  insured  to  the  extent  of  at  least  ....  percent 
of  the  actual  cash  value  at  the  time  of  the  tire,  and  failing  so  to 
do,  shall,  to  the  extent  of  such  deticit,  bear  his,  her,  or  their  pro- 
portion of  any  loss. 

Second:  The  percentage  co-insurance  clause,  reading  sub- 
stantially as  follows : 

If  at  the  ttme  of  fire  the  whole  amount  of  insurance  on  the  prop- 
erty covered  by  this  policy  shall  be  less  than percent  of  the  actual 

cash  value  thereof,  this  Company  shall  in  case  of  loss  or  damage  be  liable 
fxir  only  such  portion  of  such  loss  or  damage  as  the  amount  insured  by 

this  policy  shall  bear  to  the  said percent  of  the  actual  cash  value  of 

such  property. 

This,  as  will  later  appear,  was  a  long  step  in  the  right  direc- 
tion. It  is  a  reasonable  guess  that  the  author  or  authors  thereof 
supposed  that  it  did  away  with  the  inequities  (iniquities)  of  the 
Co-insurance  Clause,  by  giving  the  insurer  the  benefit  of  what  we 
now  know  as  the  Average  Clause,  whenever,  by  reason  of  insuffi- 
cient insurance,  the  benefit  was  needed. 

Third :     The  average^dause,  reading  substantially  as  follows : 

This  Company  shall  not  be  liable  for  a  greater  proportion  of  any 
loss  or  damage  to  the  property  herein  described  than  the  sum  hereby  in- 

suxed  bears  to percent  of  the  actual  cash  value  of  said  property  at 

the. time  such  loss  shall  happen. 

Fourth :  The  reduced  rate  clause,  reading  substantially  as  fol- 
lows: 

In  consideration  of  the  reduced  rate  at  which  this  policy  is  written, 
it  is  expressly  stipulated  and  made  a  condition  of  the  contract  that,  in 
evejit   of  loss,   this    Company   shall  be   liable   for  no  greater   proportion 

thereof   than   the   amount    hereby   insured   bears    to percent    of   the 

actual  cash  value  of  the  property  described  herein  at  the  time  this  loss 
shall  happen,  nor  for  more  than  the  proportion  which  this  policy  bears  to 
the  total  insurance  thereon. 

705 


The  Fire  Insurance  Contract 

It  will  be  seen  that  this_^lause  is  substantially  tjie  same  as  the 
average   clause,   except    for   the   fact   that   a   consideration   for^k^ 
incorporation   in  the  policy   is  expressed,   the   consideratiQrL_being. 
the  reduced  rate  at  which  the  policy  is  written. 

In  the  foregoing  quotations  I  have  included  only  the  princi- 
pal paragraph  of  each  clause.  Combined  with  each  is  usually  found 
a  provision  restricting,  to  some  extent,  the  application  of  the  clause 
to  losses  less  than  5  percent  of  the  insurance,  or  value;  and  fre 
quently  also  another  making  the  clause  apply  specifically  to  each 
item  of  a  multiple  item  policy. 

The  original  .form  of  co-insurance  clause,  at  least  so  far  as 
the  writer  knows,  was  that  first  above  set  forth. 

This,  so  far  as'  1  recall,  worked  very  well  for  a  time.  Sooner 
or  later  it_ was  discovered  that  the  owner  of  a  plant  comprising 
subjects  of  insurance  of  different  degrees  of  fire  hazard  and,  con- 
sequently, differently  rated,  could  circumvent  the  clause.  As  an  illus- 
tration, suppose  a  manufacturing  plant,  of  the  value,  in  the  aggre- 
gate, of  $100,000,  a  part,  valued  at  $50,000,  being  rated  at  1  per- 
cent, the  remainder  being  rated  at  2  percent.  Instead  of  taking 
$80,000  insurance  in  concurrent  policies,  each  covering  the  entire 
plant  subject  to  the  80  percent  clause  at  the  average  rate  of  the 
entire  plant,  1^  percent,  premium  $1,200,  he  would  obtain  $50,000 
of  insurance  blanket  over  the  whole  plant  at  the  average  rate  of 
iy2  percent,  premium  $750;  and  $v30,000  of  insurance  covering 
specifically,  subject  to  the  80  percent  clause,  on  the  low-rated  por- 
tion of  the  risk  at  1  percent,  premium  $300;  total  premium,  $1,050 
instead  .of  $1,200,  thus  saving  $150,  12>^  percent  of  the  premium 
he  would  have  had  to  pay  had  he  taken  it  all  at  the  1^  percent 
rate  covering  blanket  over  the  whole  plant,  as  the  companies  issu- 
ing the  blanket  policies  supposed  him  to  be  doing. 

In  event  of  loss  on  the  low-rated  item,  the  assured  would  prop- 
erly collect  his  entire  loss  as  it  would  be  covered  bv  both  sets  of 
policies. 

If,  however,  the  loss  occurred,  wholly  or  in  part,  on  the  high- 
rated  risk  covered  by  the  blanket  policies  only,  the  claim  would 
be  made  that  the  blanket  policies  must  pay  the  entire  loss  on  the 
high-rated  risk.  The  Company  could  not  claim  contribution  as  to 
the  loss  on  the  high-rated  risk  from  the  other  insurance,  as  such  loss 
was  not  covered  by  the  other  insurance,  and  was  denied  any  bene- 
fit  from  the  co-insurance  clause,  -because  of  the  contention  that 

706 


The  Co-Insurance  Clause 

the  insured  had  insurance  (not  on  the  whole  property  it  is  true, 
but  at  least  on  a  portion  of  it)  to  the  stipulated  percentage  of  the 
combined  value  of  both  items  of  property. 

It^was  probably  to  avoid  some  of  the  troubles  caused  by  such 
noivcpncurrences  as  we  have  considered,  that  the  second  clause 
above  set  forth  was  formulated. 

This  clause  does,  in  many  cases,  secure  the  results  intended 
for  it;  and,  as  v#jll  hereafter  appear,  I  am  disposed  to  believe  that 
the  courts  should  construe  it  in  all  cases  as  meaning  the  same  as 
the  average  clause  with  which  we  New  Yorkers  are  so  familiar, 
and  which  we  shall  consider  later.  But  it  has  been  so  construed 
by  Joss  claimants  and  their  representatives  as  to  nullify  the  inten- 
tion^ of  the  drafters  in  cases  where,  with  non-concurrent  insurance, 
andLloss  on  that  portion  of  the  property  covered  only  by  the  broad- 
est policies,  some  of  the  insurance  covering  on  all  of  the  property 
and  all  of  the  insurance  covering  on  some  of  the  property,  the  ag- 
gregate  being  not  less  than  the  percentage  of  value  stipulated  in 
thQ_clau.se,.. the  insured  has  insisted  that  the  conditions  of  the  clause 
have_been  complied  with,  so  that  the  restriction  on  the  Company's 
liability  could  not  be  invoked. 

Some  adjusters  have  conceded  in  the  past,  and  some  still  con- 
cede the  force  of  this  argument.  As  I  view  the  clause,  these  ad- 
justers have  been  misguided  or  too  timid.  I  do  know  that  one 
illustrious  member  of  this  society,  when  apportioning  an  adjusted 
loss  under  policies  so  written,  carried  his  point  and  enforced  a  very 
heavy  contribution  by  the  assured  by  arguing  in  behalf  of  the 
blanket  policies,  which  alone  covered  the  property  damaged,  sub- 
stantially as  follows: 

If  you  have  insurance  to  80  percent  of  the  value  of  the  property  cov- 
ered by  the  blanket  policies  each  of  these  policies  will,  by  virtue  of  its 
contribution  clause,  pay  that  proportion  only  of  the  loss  which  the 
amount  insured  under  said  policy  bears  to  the  total  insurance.  If  your 
insurance  is,  in  all,  less  than  80  percent  of  the  value  of  the  property, 
each  blanket  policy  will,  by  virtue  of  the  80  percent  clause,  pay  that  pro- 
portion of  the  loss  which  the  amount  insured  by  said  policy  bears  to  80 
percent  of  the  value  of  the  property  covered  by  the  policy. 

To  my  mind,  the  absurdity  of  any  other  construction  than  that 
successfully  defended  by  our  mutual  friend  can  be  clearly  exhibited 
by  comparing  the  results  of  two  hypothetical  but  easily  possible 
cases.  In  each  there  are  two  items  of  property,  A  and  B.  In  the 
first  case  the  factors  are  as  follows: 

707 


^ 


The  Fire  Insurance  Contract 

A  B 

Sound    value    $100,000  $100,000 

Insurance 60,000 

Subject  to  80%  cl.  (blanket  insurance)  $100,000 

Loss    $100,000 

According  to  the  assured's  construction  which,  for  the  sake  of 
illustration,  we  follow,  the  blanket  policies  would  pay  the  entire 
loss,  $100,000,  because  the  aggregate  of  the  non-concurrent  policies- 
is  $160,000,  being  80  percent  of  the  value  of  the  property  covered 
by  the  blanket  policies  which  alone,  let  me  repeat,  cover  the  dam- 
aged property. 

Now,  for  our  second  case,  let  us  assume  that  the  factors  are 
the  same  as  in  the  first  except  that  the  sound  value  of  A  is  in- 
creased $1.00.     The  problem  then  appears  thus: 

A  B 

.  Sound  value   $100,001  $100,000 

Insurance    60,000 

Subject  to  80%  cl.  (blanket  insurance)  $100,000 

Loss $100,000 

The  only  insurance  covering  B  is  the  blanket  insurance  of 
$100,000. 

The  total  sound  value  is  $200,001 ;  the  total  insurance  is  $160,- 
000 — less  than  80  percent.  Therefore,  according  to  the  80  percent 
clause  the  blanket  policies  are  liable  for  no  greater  proportion  of 
the  loss  than  that  which  their  amount,  $100,000,  bears  to  80  percent 
($160,000.80)  of  the  sound  value  of  the  property;  the  result  being 
that  the  blanket  policies  pay  $62,499.69.  The  increase  of  $1.00 
in  the  sound  value,  every  other  factor  remaining  the  same,  reduces 
the  collectible  loss  $37,500.31. 

Anyone  who  wishes  to  believe  that  a  change  of  $1.00  in  sound 
value  can  effect  a  change  of  over  $37,500  in  collectible  loss  is,  un- 
der the  constitution  of  the  United  States,  guaranteed  the  right  so 
to  do.     But  he  must  not  expect  us  all  to  agree  with  him. 

So  far  as  I  know,  only  one  court  of  last  resort  has  decided 
a  case  arising  under  this  clause  where  the  insured  had  blanket  in- 
surance on  two  items  of  property  with  specific  insurance  on  one 
only,  the  amounts  at  risk  under  the  two  sets  of  policies  aggregating 
as  much  as,  or  more  than  the  stipulated  percentage  of  the  value  of 
both  items,  the  loss  being  confined  to  the  item  covered  by  the  blanket 
insurance  only.  The  court  in  its  decision  held  that  the  clause  did 
not  reduce  the  loss  collectible  under  the  blanket  policies  because 
the  total  insurance  equaled  the  percentage  of  value  named  in  the 

708 


The  Co-Insurance  Clause 

clause.  It  should  be  said  in  explanation  that  the  contest  in  this  case 
involved  the  question  of  whether  all  policies  covered  blanket  on 
two  items  of  property  or  whether  part  were  confined  in  their  cover 
to  the  undamaged  item  only. 

It  appears  to  have  been  conceded  by  the  adjusters  and  other 
company  representatives  that,  however  the  question  might  be  de- 
cided by  the  courts,  the_insur^d_would  recover  full  indemnity.  In 
consequence,  when  the  attorneys  for  the  blanket  policy  companies 
came  to  prepare  their  pleadings,  they  found  themselves  precluded 
from  th€  following  contention;  that  either  there  was  or  was  not 
insurance  on  the  property  (both  items)  to  the  percentage  of  value 
named  in  the  clause;  that  if  there  was,  the  blanket  policy  companies 
should  pay  only  such  proportion  of  the  loss  as  their  amounts  bore, 
to  the  total  insurance;  whereas,  if  there  was  not,  they  should  pay 
only  that  proportion  of  the  loss  which  their  amounts  bore  to  the 
stipulated  percentage  of  the  value.  The  point  not  being  contested, 
the  court,  holding  that  part  only  of  the  policies  covered  on  the  item 
involved  in  the  loss,  naturally  held  also  that  they  must  pay  the  en- 
tire loss. 

Probably  it  was  long  ago  recognized  that  while  the  clause..JKfi. 
hajve_been_dlscussing  might,  if  tested,  stand  the  strain,  it  was  never- 
theless, variously  construed  even  by  company  representatives.  And 
it  is  reasonable  to  suppose  that  the  clause  so  long  in  use  in  New 
York  City  and  other  parts  of  the  country  and  known  here  as  the 
"Average  Clause"  was  formulated  for  the  elimination  of  all  doubt 
and  discussion.     It  read  as  follows : 

This  Company  shall  not  be  liable  for  a  gi-eater  proportion  of  any 
loss  or  damage   to   the  property   described   herein   than    thr   sum   >i^reby 

insured  bear  to per  centum( %)   of  the  actual  cash  value  of 

said  property  at  the  time  such  loss  shall  nappen.tfliii  case  ui  claim  tor 
loss  on  the  property  described  herein  not  exceedin"five  percent  (5%)  of 
tlTe~maxImum  amount  named  in  the  policies  written  thereon  and  in  force 
at  t]i£_time  ^ch  loss  shall  happen,  no  special  inventory  or  appraisement 
oV\\\t  undamaged  property  shall  be  required.  If  the  insurance  under  this 
policy  be  divided  into  two  or  more  items,  these  clauses  shall  apply  to 
^ach  item  separately. 

To  those  familiar  with  it,  this  clause  is  free  from  ambiguity 
or  doubt  in  so  far  as  may  be  involved  its  restricting  the  liability 
of  a  company,  in  any  conceivable  case,  to  that  proportion  of  the 
loss  which  its  policy  bears  to  the  stipulated  percentage  of  the  value 
of  the  property  at  the  time  when  such  loss  shall  occur.  Any  doubt 
they  may  have  as  to  its  effect  arises  when  it  is  to  be  construed,  in 
cases    of    non-concurrence,    in    connection    with    the    contribution 

709 


The  Fire  Insurance  Contract 

clause.  The  apportionment  of  loss  under  non-concurrent  policies 
is  an  interesting  theme,  but  it  has  been  assigned  to  another,  so  I 
leave  it  untouched. 

Even  so,  the  average  clause  affords  room  for  discussion.  It 
is  customarily  met  either  as  the  80  percent  or  100  percent  average 
clause.  It  is  surprising  how  many  people,  even,  some  actively  en- 
gaged in  the  insurance  business,  consider  these  clauses  as  if  the 
effect  of  the  80  percent  clause  was  to  restrict  the  insured's  collection, 
in  event  of  loss,  to  80  percent  of  the  loss  sustained,  while  the  policy 
with  the  100  percent  clause  permits  the  collection  of  the  entire  loss. 
This  is,  of  course,  amusing  to  one  familiar  with  the  subject.  But 
what  are  we  to  do  about  it? 

It  is  very  easy  to  tell  our  misguided  friend  that  his  concep- 
tion of  the  Average  Clause  is  radically — fundamentally — wrong. 
But  how  are  we  to  make  clear  to  him  its  real  meaning  and  the  re- 
sults of  its  proper  application  ?  Or  rather,  perhaps,  how  are  we  to 
arrive  for  ourselves  at  a  clear  understanding  of  the  real  meaning 
of  the  clause  and  the  results  of  its  proper  application,  so  that  the 
knowledge  may  be  imparted  to  him? 

Very  simply  if  we  have  digested  that  part  of  the  arithmetic 
devoted  to  common  or  vulgar  fractions.  The  restrictive  effect  of 
the  clause  is  measured  by  a  fraction  of  which  the  numerator  is,  in 
every  case,  the  product  of  the  amount  in  dollars  of  the  loss  and 
the  number  of  dollars  in  the  amount  at  risk  under  the  policy;  the 
denominator  varying  according  to  circumstances. 

(a)  If  neither  loss  nor  insurance  exceeds  the  stipulated  per 
centage  of  value,  the  numbfinol  dollars  in  the  percentage  of. value 
is  the  denominator. 

Thus,  if,  in  a  given  case  the  factors  are: 
I  /        A^  Loss  $5,000 

/i  FnT'-  Insurance  .  2,000 

'       /H  ^  {)    '  Average  Clause  80% 

Sound  Value  10,000 

the  fraction  will  be 

$5,000  X  2,000  -ij  '  ^^^' 

=  $1,250  =  25%  of  the  lo4s 

8,000 
Had  the  clause  designated  100  instead  of  80  as  the  percentage, 

the  fraction  would  have  been 

$5,000  X  2,000 

=  $1,000  =  20%  of  the  loss. 

10,000 

(b)  If  Jhe  loss  but  not  the  insurance  equals  or  exceeds  the 
stipulated  percentage,  the  denominator  is  the  number  of  dollars  in 

710 


The  Co-Insurance  Clause 

the  loss,  the  equivalent  of  the  fraction  being  the  amount  at  risk 

Thus,  if,  in  a  given  case  the  factors  are : 

Loss  $9,000 

Insurance  2.000     ' 
Average  Clause  80%  > 

Sound  Value  10,000    -^ 

the  fraction  will  be 

$9,000  X  2,000 

=  $2,000  =  100%  of  the  ins. 

?  9^0  ? 

Had  the  clause  designated  \00  instead  of  80  as  the  percentage, 

the  fraction  would  have  been. 

$9,000  X  2,000 

=  $1,800=^90%  of  the  loss. 

10,000 

Of  if  the  factors  are : 

Loss  $11,000 

Insurance  2,000 

Average  Clause  80% 

Sound  Value  11,000 

the  fraction  will  be 

$11,000  X  2,000 

=  $2,000=100%  of  the  ins. 

11.000 

Had  the  clause  designated  100  instead  of  80  as  the  percentage 
the  case  would  be  in  class  B,  as  the  loss  reached  the  stipulated  per- 
centage. 

(c)  \i  the  insurance  equals  or  exceeds  the  stipulated  per- 
centage, the  denominator  is  the  number  of  dollars  in  the  amount  at 
risk,  the  equivalent  of  the  fraction  being  the  amount  of  loss. 

My  recommendation  to  the  student  is  that  he  construct  for 
himself  a  series  of  different  combinations  of  loss,  insurance  and 
sound  value,  applying  to  each  the  100  percent  and  the  80  percent 
average  clauses,  each  combination  thus  yielding  two  problems.  Let 
him  assume  that  any  man  is  fallible  and  that  my  generalities,  so  con- 
fidently stated,  may  not  be  universally  true  and  that  it  is  his  duty 
to  find  the  lurking  error.  Let  him  preserve  his  notes  so  that  when 
he  has  enough  solutions  he  may  compare  them  and  see  for  himself 
how  the  average  clause  adapts  itself  to  varying  conditions  and 
with  what  results.  The  adjuster  or  the  proof-checker  finds  his  ex- 
amples ready-made  for  him  among  the  apportionments  that  he  must 
make  or  verify. 

Probably  a  small  percentage  only  of  brokers,  active  in  the 
prosecution  of  the  Fire  Insurance  business,  need  the  exposition  of 

711 


The  Fire  Insurance  Contract 

the  Average  Clause  above  given.  But  experience  and  observation 
lead  me  to  believe  that  many  could  profit  by  a  warning  with  regard 
to  one  phase  of  the  subject. 

The  average  clause,  as  has  been  sufficiently  argued,  is  essen- 
tial to  the  proper  conduct  of  the  business.  Non-concurrent  insur- 
ance, while  troublesome  to  him  who  has  to  apportion  losses  there- 
under, cannot  by  itself  be  considered  in  any  way  reprehensible. 
But  the  combination  of  the  two  is  dangerous  and  should  be  con- 
sistently avoided  by  every  broker  and  policy  holder. 

If  all  policies  on  a  risk  cover  on  exactly  the  same  property,  it 
is  proper  to  say  that  if  the  insurance  equals  or  exceeds  the  per- 
centage of  value  stipulated  in  the  average  clause,  the  assured,  in 
event  of  a  loss  not  exceeding  the  insurance,  will,  so  far  as  relates 
only  to  the  a\erage  clause  and  the  contribution  clause  in  the  body 
of  the  policy,  be  fully  indemnified.  It  is  not  every  broker  who 
knows  this ;  and  of  the  many  who  do  there  are  some  who  misapply 
the  knowledge. 

Any  adjuster  in  active  practice  here  in  New  York  City  may 
occasionally  find  that  an  assured  has  non-concurrent  policies,  each 
subject  to  the  average  clause,  the  aggregate  of  the  amounts  at  risk 
equalling  or  even  exceeding  the  stipulated  percentage  of  value,  but 
with  the  values  and  non-concurrences  so  distributed  that  the  ag- 
gregates of  the  average  clause  limitations  of  the  several  policies, 
although  the  maximum  of  possible  collectibility,  is  insufficient  to 
indemnify  the  assured. 

A  notable,  but  not  solitary,  instance  of  this  kind  came  to  light 
some  years  ago  in  connection  with  a  Committee  loss,  interesting 
especially,  both  then  and  now,  because  of  the  manner  in  which 
the  non-concurrence  arose.  At  first  glance  the  policies  seemed 
to  cover  alike  on  merchandise  in  two  buildings.  After  the  fire,  how- 
ever, it  was  discovered  that  a  majority  only  of  the  policies  were 
subject,  as  required  by  the  rules  of  the  Exchange,  to  the  average 
distribution  clause  as  between  the  two  buildings.  The  apportion- 
ment of  the  loss  agreed  to  by  insurers  and  insured  as  correct,  par- 
ticularly as  to  the  application  of  the  average  clause  feature  of  the 
several  policies,  developed  an  uncollectible  loss  of  some  thousands 
of  dollars. 

Dry  the  starting  tear.  The  deficit  was  supplied  by  ex  gratia 
payments  by  some  of  the  companies.    These  seemed  justified  by  the 

712 


The  Co-Insurance  Clajljse 

high  character  of  the  assured,  their  fairness  in  the  adjustment  of 
the  loss,  and  the  elusive  way  in  which  the  error  had  escaped  at- 
tention. 

Far  be  from  me  to  deprecate  the  exercise  of  the  act  of  grace 
in  special  circumstances.  But  neither  the  broker  nor  the  insured 
should  count  on  it  when  the  contract  is  made.  Indemnity  for  the 
loss  is^  I  am  sure,  most  pleasing  to  the  broker's  customer  when 
it  is  paid  in  discharge  of  an  obligation  legally  incurred  for  value 
received. 

While  there  are  brokers  who  scrutinize  their  policies  so  care- 
fully that  when  delivered  they  are  free  from  material  errors,  there 
is  room  in  which  others,  younger  and  less  experienced  let  us  hope, 
may  improve  themselves. 

But  there  is  one  factor  for  mischief  that  all  a  broker's  care  and 
foresight  cannot  always  counteract.  I  refer  to  the  claimant  who  has 
two  brokers  and  letteth  not  his  right  hand  broker  know  what  his  left 
hand  broker  doeth.  What  this  kind  of  assured  cannot  achieve  in  the 
way  of  snarling  things  up  for  the  broker  chosen  to  represent  him, 
also  for  the  adjusters  for  the  Companies,  is  hardly  worthy  of  ex- 
tended notice  in  a  paper  of  this  kind.  As  for  what  the  adjusters 
think  of  him — well — let  it  go  at  that. 

Another  practice  has-  the  sanction  of  such  long  standing  and, 
seemingly,  at  least,  the  approval  of  so  many  excellent  authorities 
that  one  may  not  hopefully  venture  its  condemnation.  Yet  it  has 
in  some  cases  resulted  unprofitably  for  the  insured  and  may  reason- 
ably be  expected  to  do  so  again.  I  refer  to  the  practice  of  having 
insur^nce^  subject  to  the  average  clause,  cover  on  the  property  of 
the  assured  and,  as  well,  that  of  others,  generally  by  incorporating 
the  commission  clause  in  the  policy. 

The  commission  clause  has  caused  embarrassment  and  loss 
to  the  assured  where  there  was  no  average  clause.  The  proba- 
bility of  embarrassment  to  him  is  even  greater  with  it. 

Mrs.  Johnson  sent  her  victoria  to  the  shop  of  the^Chas.  Abresch 
Company  to  be  painted.  The  Abresch  Company,  so  far  as  disclosed 
by  the  record,  assumed  no  liability  for  damage  tp  the  victoria  except 
such  as,  in  the  absence  of  any  express  contract,  accrued  to  it  in  event 
of  loss  or  damage  to  the  victoria  as  the  result  of  its  negligence  or  - 
that  of  its  employes.  Fire  in  no  way  the  result  of  any  negligence 
of  theirs,  damaged  or  destroyed  property  of  the  Abresch  Company 
and,  as  well  (or  ill),  the  victoria  belonging  to  Mrs.  Johnson.     The 

713 


The  Fire  Insurance  Contract 

Abresch  Company  collected  the  face  of  its  insurance,  supposedly 
for  the  loss  to  its  own  property.  There  is  nothing  in  the  record  to 
suggest  that  it  was  overpaid  thereon.  Mrs.  Johnson  had  not  ob- 
tained insurance  to  protect  her  against  loss  on  the  victoria.  She 
would  have  had  no  recourse  against  the  Abresch  Company  had  it 
had  no  insurance,  covering  on  her  property.  But  she  learned  that_ 
the  Abresch  Company's  policy  covered  not  only  the  Abresch  Com- 
pany's property  but  also  that  held  by  it  on  storage  or  for  repair. 
She  accordingly  demanded  of  the  Abresch  Company  a  share  of  the 
money  paid  by  its  insurer.  The  Abresch  Company  refusing,  she 
sued  it.  The  case  was  appealed  to  the  highest  court  of  the  State 
(Wisconsin),  which  decided  that  Mrs.  Johnson  should  share  io 
the  money  in  the  proportion  that  the  value  of  her  property  bore 
to  the  combined  value  of  her  property  and  that  of  the  Abresch 
Company. 

My  friend,  James  E.  Underbill,  now  deceased,  was  known 
to  many  of  you  as  proprietor  of  a  picture  and  picture  framing 
establishment  at  the  corner  of  Nassau  and  John  Streets.  He  had 
a  valuable  stock  of  his  own.  He  also  had  in  his  possession  on 
storage,  framed  pictures  and  other  valuable  property  belonging 
to  others.  He  also  had  pictures  and  other  articles  left  with  him 
to  be  framed.  His  policies  covered  his  own  property  and  that 
of  his  customers.  Both  were  damaged  by  fire  originating  in  a  part 
of  the  building  not  occupied  by  him. 

Sound  value  of  his  own  property  and  the  loss  thereon  were 
readily  ascertained,  but  proofs  could  not  be  made  or  approved 
till  the  value  of  and  loss  on  customers'  goods  were  also  ascert^ned. 
Some  of  his  customers  were  wholly  reasonable.  All  were  not. 
The  adjustment  was  a  trouble  to  him  in  spite  of  all  that  could  be 
done  by  him  and  the  Companies'  adjuster,  although  they  were  in 
perfect  accord.  As  a  result  of  this  experience  he  wisely  decided 
that  thereafter  his  own  property  ^hould  be  covered  bv  itself  under 
one  set  of  policies,  while  the  property  of  customers  should  be  cov- 
ered by  another  set  from  whose  protection  his  own  property  was. 
by  specific  agreement  in  the  policies,  excluded. 

The  Abresch-Johnson  case  was  not  a  New  York  case,  but  there 
is  no  certainty  that  the  decision  would  have  been  any  different 
here.  The  Utica  Canning  Company  decision,  so  well  known  that 
quotation  is  not  necessary  at  this  time,  inflicted  no  uncollectible  loss 
on  the  assured,  Louis  DeGroff  &  Son,  as  there  was  enough  insur- 

714 


The  Co-Insurance  Clause 

ance  to  cover  the  loss  to  both  concerns.  But  suppose  the  insurance 
held  by  the  DeGroffs,  subject  to  the  Average  and  Commission 
Clauses,  had  been  insufficient  or  barely  sufficient  to  indemnify  them 
for  their  own  loss;  what  would  have  been  the  result?  Do  the 
Abresch  decision  and  the  Utica  Canning  Company  decision  rea(^ 
together,  indicate  anything  but  danger  to  the  interests  of  the  party 
who  takes  out  and  pays  for  insurance  subject  to  the  Commission 
Clause  supposedly  for  his  own  protection  first? 

This  is  a  danger  that  the  Insurance  Companies  are  powerless 
to  avert.  Policies  subject  to  both  Average  and  Commission  Clauses 
are  desirable  for  some  people  in  some  circumstances.  The  Com- 
panTes  are  in  no  position  to  decide  whether  such  a  policy  does  or 
does~nor~fir"tEe~assured's  needs.  The  decision  can  only  be  made 
properly  by  the  assured,  and  by  him  only  after  his  broker  has  ex- 
plained to  him  the  danger  of  taking  insurance  covering  blanket 
both  on  his  and  on  his  customers'  goods. 

I  will  close  my  paper  with  two  things  for  you  to  reflect  upon: 
a  question  and  a  suggestion.     The  question  is  this :  ' 

Assuming  property  of  a  Sound  Value  of  $10,000,  an  insurance 
policy  thereon  subject  to  the  lOO^c  Average  Clause,  and  a  loss. 
What  is  the  amount  of  the  policy  and  what  is  the  amount  of  the 
loss  that,  because  of  the  Average  Clause,  will  yield  the  greatest 
uncollectible  loss? 

The  suggestion  is  this : 

As  the  average  clause  is  current  wherever  in  New  York  State 
any  clause  coming  within  the  general  meaning  of  "co-insurance 
clause"  is  used,  and  as  it  involves  no  mathematics  save  "ratio  and 
proportion."  let  the  Board  of  Regents  of  the  State  prescribe  it  as 
one  of  the  problems  to  be  understood  by  the  teachers  of  arithmetic 
and  taught  to  all  their  pupils.  This  would  be  easily  done,  and  when 
the  children  begin  to  understand  the  Average  Clause,  they  will 
in  many  cases  impart  their  knowledge  to  their  parents.  And  in  time 
the  public,  through  this  educational  process  will  realize  not  only 
the  absolute  necessity  of  applying  the  principle  of  co-insurance,  if 
the  insurance  burden  is  to  be  equitably  apportioned  among  the 
property  owners  of  the  country,  but  w^ill  wonder  why  so  self- 
evident  a  proposition  should  at  any  time  have  been  regarded  as 
even  debatable. 

BIBLIOGRAPHY — CO-INSURANCE. 

Bahr  &  Son,  Inc.,  Joa.  A  letter  in   re  explanation   of  and   reasons   for. 

Pam.    1916. 
Barbour,  Robert  P.  Asenid  Ke>    to  Fire  Insurance,     p.  114/120. 

715 


The  Fire  Insurance  Contract 


Bbddall,  Edward  F. 

Brown,  atlee 
Browne,  J.  D. 

Case,  Charles  E. 
Clough,  Allen  E. 

Crawford,  William  S. 
Dean,  Andrew  F. 

Dean,  Andrew  F. 


Fox,  W.  F. 
Francis,  Gut 

GAT,  E.   S. 

GrOODWIN,    W.    S. 

Gunn,  John  W. 

HARDT.  Edward  R. 
HARTFORD  Fire  Ins.  Co. 

Hewitt,  William  R. 

Johnson,  W.  N. 
Lock,  Frank 


McLean,  E.  L. 


MBDLicoTT,  William  B. 

Moore,  Francis  C. 
Philadelphia  Contribution 

PHILADELPHIA    CONTRIBUTION 

Philadelphia  Fire   Under- 
writers'  ASSOCIATION 
Rice,  E.  F. 


Richards,  E.  G. 

Robb,  Willis  O. 
SHAW,  H.   K. 

Sloan,  e.  J. 


Stevens,  Lindley  M. 

trezevant  &  cochran 
Whitney,  Albert  W, 

Wisconsin  Legislative  Fire 
Insurance  Investigating 
Committee 

wilmerding,  herbert 


Proceedings.  Fire  Underwriters'  Association, 
Northwest,  1892  ;  p.  38. 

Co-insurance  or  reduced  rate  clau.se.    Pam.  1914. 

State  regulation  and  control  of  the  business  of 
flre  insurance.     Pam. 

Reason  and  Value  of.     Pam.  1917. 

Adjustment  of  flre  losses  and  the  8fl%  averaga 
clause  and  depreciation.     Pam.  1910. 

"Pointers  for  Local  Agents."     p.   86/96. 

Use  of  Co-i*isurance.  Proceedings.  Fire  Under- 
writers' Association,  Pacific,   1905  ;  p.   195. 

Rates  vs.  Co-insurance.  Proceedings.  Fire  Un- 
derwriters' Association,  Northwest,  1884  ;  p. 
138. 

"Rationale  of  Fire  Rates."     p.   119/125. 

Yale  Readings  in  Insurance:  Property  Insur- 
ance,     p.    287. 

Proceedings.  Fire  Underwriters'  Association, 
Northwest,  1893  ;  p.  64. 

Standard  Boston:  v.  32:  p.  519. 

Proceedings.  Fire  Underwriters'  Association, 
Pacific,  1909  ;  p.  15. 

Business  of  Insurance:  v.  1 ;  p.  178. 

It  means  equity  to  all  policyholders  when  gener- 
ally used.     Pam.  1909. 

80%  and  100%  average  clauses — their  applica- 
tion in  case  of  loss,  etc.     Pam,  1904. 

A  few  salient  facts  in  connection  with.     Pam. 

Purpose  and  effect  of  the  co-insurance  clause 
in  fire  insurance  policies.  (Economic  World, 
June  9,  1917;  p.  814.) 

Average  and  co-insurance  clauses  in  flre  insur- 
ance policies.  (Proceedings:  Insurance  In- 
stitute, Toronto;  1903/4.     p.  43/61.) 

Lectures  on  Fire  Insurance.  (Insurance  Insti- 
tute, Hartford,  1914/6  ;  p.   161.) 

Fire  Insurance  and  How  to  Build,     p.    573/580. 

Tables  showing  operation  of.     Pam.  1916. 

Co-insurance  briefly  explained.     Pam.  1916. 

80%  co-insuranCe  and  its  application  in  case  oi 
less.     Pam.  1906. 

Contribution  in  flre  losses.  Proceedings.  Fire 
Underwriters'  Association,  Northwest,  1880  ; 
p,   44/79, 

Classiflcation  and  Discrimination,  p,  41/44, 
Pam,  1912. 

Type  merno,     1918, 

Bulletin  Fire  Insurance  Society  of  Philadelphia, 
November,  1909  ;  p,  8, 

Average  and  80%  clauses  of  flre  insurance  poli- 
cies. (Insurance  Institute  of  Hartford:  v,  1; 
p.  67,) 

An  explanation  of  and  the  comparative  merits 
of  80%  and  100%   clauses. 

Circular  letter  explaining  clause,     1913. 
Conflagration    hazard    and    co-insurance.       Pro- 
ceedings.    Fire  Underwriters'  Association,  Pa- 
cific, 1904;  p.  73. 

Report,   1913  ;   p.   31/34. 


Graded  co-insurance  for  all  risks  except  those 
of  fireproof  construction  and  their  contents, 
Pam.  1902. 


716 


XXXVI 

THE  COMMISSION  CLAUSE 

William  J.  Greer 

General  Manager,  General  Adjustment  Bureau 

For  many  years  it  has  been  the  practice  in  writing  insurance 
upon  various  kinds  of  merchandise,  to  cover  not  only  the  prop- 
erty which  the  assured  may  actually  own  but  to  include  that  of 
others  in  his  possession  or  under  his  control,  and  in  such  cases 
there  is  embodied  in  the  form,  certain  wording  which  has  come 
to  be  known  in  our  business  as  the  "Commission  Clause."  Its 
use  in  recent  years,  in  the  larger  centers  at  least  (except  as  to 
stocks  of  small  value  and  indeed  as  to  many  of  these)  has  be- 
come the  custom  and  rule.  The  agent  or  broker  who,  in  these  days, 
writes  or  accepts  policies  on  merchandise  without  the  Commission 
Clau'^e,  would  very  likely  be  looked  upon  as  lacking  proper  training 
for  his  chosen  vocation  or  that  there  was  "sand  in  his  sugar." 

We  are  to  comment  in  this  paper  upon  the  words  "held  in  trust 
or  on  commission  or  sold  but  not  delivered  or  removed,"  otherwise 
known  as  the  "Commission  Clause."  We  shall  speak  more  partic- 
ularly, in  fact  almost  entirely,  of  the  words  "held  in  trust  or  on 
commission."  The  balance  of  the  phrase,  "sold  but  not  delivered 
or  removed,"  has  no  special  significance  in  present  day.  under- 
writing, it  being  recognized  that  a  sale,  unaccompanied  by  delivery, 
is  incomplete  and  no  violation  of  the  policy,  and  if  there  has  been 
a  legal  delivery,  (and  consequently  a  change  in  ownership)  but 
no  removal,  the  property,  in  the  absence  of  an  agreement  to  the 
contrary,  would  be  covered  as  "held  in  trust."  The  words  ^*sold 
but  not  delivered"  when  u^pc\  in  connection  with  "held  in  trust  or 
on  commission,"  actually  add  nothing  to  the  coverage  of  the  pojky. 

And  likewise  I  think  we  may  say  that  had  the  originator,  or 
originators  (may  his  or  their  souls  rest  in  peace)  been  able  to 
estimate  the  extent  to  which  their  work  was  destined  to  be 
broadened  by  successive  judicial  review,  thty  would  have  also  dis- 
carded the  words  "on  commission"  and  contented  themselves  with 
"held  in  trust,"  in  which  event  their  posterity  would  never  have 
heard  of  a  "Commission  Clause,"  but  it  might  have  come  down  to 
us  as  the  "Trust  or  Bailee  Clause,"  certainly  a  more  appropriate 
description  of  its  scope  and  function. 

717 


The  Fire  Insurance  Contract 

j  This  paper  is  intended  to  be  instructive  rather  than  entertain- 
[ing,  which  shall  be  my  excuse  for  some  detail  at  this  time  as  to 
Ithe  meaning  in  law,  and  as  used  in  the  insurance  contract,  of  certain 
jof  the  words  in  which  we  shall  be  interested. 

I  A  trustee,  in  the  legal  and  technical  sense,  is  one  who  holds 
the  legal  title  to  property  for  the  use  and  benefit  of  another. 
.There  are  several  kinds  of  trusts  recognized  in  the  law,  the  details 
of  which  are  not  necessary  to  this  discussion,  but  a  feature  to  be 
remembered  is  that  a  trust — in  the  legal  and  technical  sense — can 
only  be  created  by  the  intent  of  the  person  creating  or  declaring 
.it,  expressed  either  directly  or  by  such  language,  conduct,  facts  or 
circumstances  as  will  imply,  or  justify  the  Court  In  inferring,  that 
it  was  the  intention  to  create  a  trust;  two  elements  to  establish 
a  trusteeship  in  the  legal  and  technical  sense;  viz:  the  trustee 
holds  the  title  and  there  must  be  the  intent  to  create  or  establish 
a  trust. 

Now  that  is  a  legal  trust;  if  that,  and  no  more,  is  what  is 
meant  by  "held  in  trust"  as  used  in  the  fire  insurance  contract, 
it  will  be  apparent  to  all  of  us  that  there  could  be  few  claims 
under  the  Commission  Clause,  for  the  reason  that  it  rarely  hap- 
pens that  the  assured,  the  custodian  of  the  goods,  actually  holds 
the  title,  but  our  Courts  long  ago  declared  that  the  words  were  not  to 
be  misconstrued  in  their  technical  sense,  but  will  include  any  prop' 
erty  which  has  been  placed  in  the  care,  custody,  possession  or  con- 
trol of  the  assured.  In  one  of  the  early  cases  in  this  country, 
Stillwell  V.  Staples  (19  N.  Y.  40)  the  Court  of  Appeals  of  the 
State  of  New  York  so  ruled  in  a  decision  handed  down  in  1859, 
and  in  the  following  language  defined  its  view  of  the  meaning  of 
.the  words  "held  in  trust,"  viz : — 

The  words  "in  trust"  may  with  entire  propriety,  be  applied  to  any 
case  of  bailment,  where  goods  belonging  to  one  person  are  entrusted  to 
the  custody  and  care  of  another,  and  for  which  the  trustee  is  responsible 
to  the  owner. 

In  the  next  ten  or  twelve  years  the  same  question  was  again 
passed  upon  by  the  New  York  Court  of  Appeals  in  at  least  two 
cases  (in  1867  in  Lee  v.  Adsit,  37,  N.  Y.  78,  and  in  1871  in  Waring 
V.  Indemnity  Fire,  45  N.  Y.  606),  as  well  as  by  other  States, 
always  with  the  same  result ;  and  in  1876  the  question  came  before 
the  Supreme  Court  of  the  United  States,  in  Baltimore  Warehouse 
Company  v.  Home  (93  U.  S.  593),  and  it  was  there  held  that  the 
term  "held  in  trust"  was  to  be  taken  In  a  "rnf  rrni^tile''  sense,  mean- 
ing ^QXids-which  had  been  entrusted  to  or  deposited  with  the  ware- 

719 


The  Commission  Clause 

jiniigf*  ^fim^^Y\Y  Our  Courts  have  continued  in  the  intervening 
forty  years,  whenever  the  question  has  come  before  them,  to  re- 
iterate the  principle  thus  laid  down  by  the  earlier  cases,  and  it 
is  the  law. 

In  cases  of  a  trusteeship  of  the  strictly  legal  kind,  it  is  al- 
most invariably  the  custom,  as  it  should  be,  for  the  Trustee  to 
insure  the  trust  property  in  his  own  name  as  Trustee,  thus  keep- 
ing it  separate  from  any  property  of  his  own  individual  owner- 
ship. Instances  do  occur,  it  is  true,  where  the  custodian  hold- 
ing the  title  as  trustee,  claims  the  loss  under  the  Commission 
Clause  (and  in  those  circumstances,  he  is  within  his  rights),  but 
in  my  own  experience  of  ten  years  in  this  vicinity,  I  think  I  may 
say  such  cases,  in  which  I  have  been  interested,  may  be  counted 
upon  the  fingers  of  my  two  hands. 

It  will  be  noted  from  the  foregoing,  that  as  a  matter  of  fact 
in  practically  every  case  of  ''held  in  trust,"  the  custodian  is  not 
a  Trustee  at  all  but  a  Bailee.  A  Bailee  is  one  who  for  some  - 
purpose  or  object,  has  been  pfaced  in  possession  of  personal  prop- 
erty owned  by  another,  the  same  property  to  be  returned  or  de- 
livered when  the  purpose  has  been  carried  out.  In  the  case  of 
bailment,  (and  herein  lies  the  difference  between  a  trustee  and 
a  bailee),  the  title  is  not  transferred  but  the  bailee  is  simply  the  ,\ 
temporary  holder  and  is  to  restore,  or  deliver,  the  identical  prop- 
erty in  the  same  or  altered  form.  His  oblip;ations  to  the  bailof 
vary  wkh  reg^ard  to  thp  rirrnmstaprps  under  which  the  prnpprty 
came  into  his  possession.  If  he  is  holding  it  for  the  sole  benefit 
of  the  bailor,  as  in  the  case  of  property  on  storage  for  which  no 
storage  charge  is  to  be  paid,  slight  care  only  can  be  exacted,  in  fact, 
practically  anything  will  suffice,  short  of  wilful  negligence  or  in- 
tentional misuse:  if,  on  the  other  hand,  the  bailment  exists  for 
the  sole  benefit  of  the  bailee,  as  in  the  case  of  the  gratuitous 
loan  of  some  article,  he  must  exercise  the  greatest  care  and  is 
liable  for  even  r.light  negligence,  and  if  he  holds  the  property  for 
the  benefit  of  both  parties,  as  in  the  case  of  articles  left  for 
repair  for  which  a  charge  is  being  made,  ordinary  precautirft 
must  be  observed,  in  other  words,  reasonable  care.  In  no  case 
h  the  bailee  obligated  in  the  absence  of  a  sperJQl  ngrfl^nTrTTf? 
provide  insurancejFor  the  henefit^t^^-^ffie.  owner. 

As  we  have  seen,  certain  duties  are  by  law  imposed  upon  the 
bailee  and  in  the  event  of  the  destruction  of  the  property  by  fire, 

719 


The  Fire  Insurance  Contract 

the  circumstances  may  be  such  as  to  render  him  Hable  to  the 
owner  for  the  damage  sustained,  but  it  is  equally  true  that  he  may 
not  be  liable  for  any  of  it;  in  fact,  unless  the  owner  can  establish 
culpability  or  the  requisite  degree  of  negligence,  the  law  holds  him 
harmless,  and  the  loss  falls  not  upon  the  bailee,  but  upon  the  bailor. 

We  do  not  undertake  to  say  at  what  stage  of  the  develop- 
ment of  the  insurance  business  the  Commission  Clause  was  in- 
troduced, but  suggest  that  as  each  individual  came  to  recognize 
the  necessity  of  protection  from  loss  by  fire  upon  his  own  property, 
he  must  also  have  realized  its  need  as  to  such  loss  as  might  accrue 
to  him  with  regard  to  the  property  of  others  in  his  possession, 
and  I  can  well  imagine  that  the  use  of  something  akin  to  our  present- 
day  Commission  Clause  has  obtained  in  our  business  from  the 
cradle  up. 

Be  that  as  it  may,  I  have  no  doubt  that  the  purpose  of  the 
clause,  as  originally  conceived,  and  the  only  purpose  intended  to 
be  served  thereby,  was  simply  to  extend  the  protection  afforded 
the  assured,  to  include  such  loss  as  he  might  sustain,  in  the  event 
of  a  damage  by  fire,  to  the  property  of  others  in  his  custody. 
But  the  Courts  have  placed  a  different  construction  upon  it,  and 
the  Commission  Clause  as  now  construed  will  cover  the  merchan- 
dise itself  and  not  merely  the  assured's  interest  therein  or  liability 
thereon. 

A  leading  authority  in  this  country  is  the  Baltimore  Ware- 
house case,  already  referred  to,  and  in  any  review  of  the  ques- 
tion we  are  discussing,  that  decision  must  have  a  large  place. 
There  are  gentlemen  present,  no  doubt,  who  can  recite  it  back- 
ward, and  they  will  not  be  greatly  interested  in  what  is  just  be- 
fore us,  but  we  younger  people,  and  I  count  myself  one  of  you, 
will  find  in  the  details  of  that  case  much  that  will  help  us  to 
a  fuller  understanding  of  this  question. 

The  fire  occurred  in  July,  1870.  The  Baltimore  Warehouse 
Co.,  as  warehousemen,  held  a  large  amount  of  property  on  stor- 
age for  various  people,  including  676  bales  of  cotton  for  Hough, 
Clendening  &  Co.,  valued  at  $52,863.  The  warehouse  company 
had  advanced  v$48,720  to  the  owners,  for  which  they  held  a  Hen 
on  the  cotton  and  they  also  held  as  collateral  security,  policies 
aggregating  v$60.400,  which  the  owners  had  secured  in  their  own 
name,  each  policy  covering  a  specific  lot  of  the  cotton,  and  all  with 
Loss   Payable   Clause   in   favor  of  the   Baltimore   Warehouse   Co, 

720 


The  Commission  Clause 

The   Warehouse  Company  had  previously  taken  out  insurance  in 

its  o-'^n  name  and  at  its  o\vn  expense  under  the  following  form : 

On  merchandise,  hazardous,  extra  hazardous,  their  own  or  held  by 
them  in  trust  or  in  which  they  have  an  interest  or  liability. 

Hough,  Clendening  &  Co.  knew  nothing  whatever  of  the  exist- 
ence of  the  latter  insurance,  had  contributed  nothing  to  its  cost,  but 
on  the  contrary,  had  insured  the  property  in  their  own  name  in 
other^ Companies,  but  certain  of  their  Companies  took  the  position 
that  by  reason  of  the  fact  that  the  policies  were  payable  to  the 
Baltimore  Warehouse  Company,  both  sets  of  policies  covered  the 
same  interest  and  must  contribute.  In  due  course,  a  suit  was 
brought  by  Hough.  Clendening  &  Co.  in  the  Maryland  Courts 
against  one  or  more  of  their  insurers,  resulting  in  a  decision 
in  1872  by  the  Court  of  Appeals  of  that  State  sustaining  the  con- 
tention of  the  owners'  insurers  (Hough,  Clendening  &  Co.  v.  Peo- 
ples Ins.  Co.  36  Md.  398).  In  the  meantime,  the  Warehouse 
Company  had  settled  with  their  insurers  as  to  all  items  not  in 
dispute,  but  had  declined  to  execute  final  receipts  and  when  th** 
decision  of  the  Maryland  Court  of  Appeals  came  down,  the  Ware- 
house people  demanded  a  further  payment  from  their  insurers, 
which  was  declined,  and  the  case  was  again  litigated,  this  time  in 
the  Federal  Court,  and  the  final  adjudication  by  the  Supreine  Court 
of  the  United  States  was  handed  down  at  the  October  term,  1876. 
The  insurers  contended  that  they  had  not  insured  the  cotton,  but 
th^  Warehouse  Company  against  any  loss  by  fire  which  it  might  sus- 
tain upon  the  cotton ;  that  there  was  no  liability  as  Bailee ;  that 
they  (the  Warehouse  Company)  had  not  agreed  to  insure  the  goods 
for  the  owners,  but  on  the  contrary,  each  warehouse  receipt  bore 
a  printed  notice  across  its  face  that  the  property  was  "not  insured 
by"  the  Warehouse  Company ;  and  that  the  Warehouse  Company 
having  sustained  no  loss  with  respect  to  the  goods  in  question, 
could  not  call  upon  its  insurers. 

Here  are  some  of  Aie  comments  of  the  Court: — 

The  words  of  the  policy  are  not  satisfied  if  their  import  be  restrained 
as  the  plaintiff  in  error  seeks  to  confine  it.  The  parties  to  whom  the 
policy  was  issued  were  warehousekeepers  receiving  from  various  persons 
cotton  and  other  merchandise  on  deposit.  The^  were  empowered  by 
their  charter  to  receive  bailments  and  to  make  charges  against  the  bailors 
for  liandling,  labor,  and  custod}'.  They  were  also  authorized  to  make  ad- 
vances upon  the  goods  deposited  with  them,  and  their  charges,  expenses, 
advances,  and  commissions  were  made  liens  upon  the  property.  They 
had  therefore  an  interest  in  the  merchandise  deposited  with  them,  which 
they  might  have  caused  tol^e  specifically  insured. 

It  was  also  at  their  option  to  obtain  insurance  upon  the  entire  inter- 
est in  the  merchandise,  whether  held  by  them  or  by  the  depositors. 

721 


The  Fire  Insurance  Contract 

It  is  undoubtedly  the  law  that  wharfingers,  warehousemen,  and  com- 
mission merchants,  having  goods  in  their  possession,  may  insure  them  in 
their  own  names,  and  in  case  of  loss  may  recover  the  full  amount  of  in- 
surance, for  the  satisfaction  of  their  own  claims  first,  and  hold  the  residue 
for  the  owners. 

There  is  nothing  ambiguous  in  the  description  of  the  subject  insured. 
It  is  as  broad  as  possible.  The  subject  was  merchandise  stored  or  con- 
tained in  a  warehouse.  It  was  not  merely  an  interest  in  that  merchandise. 
The  merchandise  of  the  warehouse  company  owned  by  them,  was  cov- 
ered, if  any  they  had.  So  was  any  merchandise  in  the  warehouse  in 
which  they  had  an  interest  or  liability.  And  so  was  any  merchandise 
which  they  held  in  trust.  The  description  of  the  subject  rpust  be  entirely 
changed  before  it  can  be  held  to  mean  what  the  insurers  now  contend  it 
means.  If,  as  they  claim,  only  the  interest  which  the  warehouse  company 
had  in  the  merchandise  deposited  in  their  warehouse  was  intended  to  be 
insured,  why  was  that  interest  described  as  the  merchandise  itself?  Why 
not  as  the  assured's  interest  in  it? 

The  words  "merchandise  held  in  trust"  aptly  describe  the  property 
of  depositors.  The  warehouse  company  held  merchandise  in  trust  for 
their  customers,  not,  it  is  true,  as  technical  trustees,  but  as  trustees  in 
the  sense  that  the  goods  had  been  intrusted  to  them. 

When  they  sought  insurance  of  merchandise  held  by  them  in  trust, 
it  must  have  been  intended  of  such  as  they  held  in  trust  in  a  mercantile 
sense,  goods  intrusted  to  them  by  the  legal  owners.  That  such  is  the 
meaning  of  the  words  as  used  in  this  policy  we  cannot  doubt. 

Upon   the  point   raised  by   the   Insurance   Company   that   the 

warehouse  receipts  carried  a  notice  printed  across  their  face  that 
the  property  was  "not  insured  by"  the  Warehouse  Company,  the 
Court  held  that  the  Warehouse  Company  was  prohibited  by  its 
Charter  from  becoming  an  insurer  itself,  and  the  "notice  required 
to  be  given  the  Bailors  meant  no  more  than  that  neither  the  re- 
ceiving of  the  goods,  nor  the  certificate  of  receipt  amounted  to  a 
contract  of  insurance." 

And  upon  the  question  of  contribution  as  between  the  two  sets 
of  policies,  the  Court  said : — 

The  policy  upon  which  this  suit  was  brought  covered  the  merchan- 
dise held  by  the  warehouse  company  on  storage,  and  not  merely  the  in- 
terest of  the  bailees  in  that  property.  It  follows,  necessarily,  that  there 
was  double  insurance.  The  policy  issued  to  the  warehouse  company  and 
those  obtained  in  the  depositors  of  the  merchandise  covered  the  same 
property  and  they  were  for  the  benefit  of  the  same  owners. 

The  insurers  are  liable,  therefore,  pro-rata,  each  contributing  pro- 
portionately. 

The  Commission  Clause,  as  we  have  seen,  will  cover  the  mer- 
chandise up  to  its  full  value,  irrespective  of  whether  the  bailee  is 
liable  therefor  or  thereon,  but  it  must  nevertheless  be  established, 
to  enable  a  recovery  for  property  "held  in  trust  or  on  commission" 
that  the  assured's  relation  to  such  property  was  within  the  de- 
scription of  the  policy;— that  he  was  actually  and  legally  in  posses- 
sion and  that  it  was  intended  by  him  that  his  insurance  should 
protect  such  owner   (whose  name  may,  or  may  not,  be  known). 

Stillwell  V.  Staples,  19  N.  Y.  401; 

Lee  V.  Adsit,  37  N.  Y.  78; 

722 


The  Commission  Clause 

Waring  v.  Indemnity,  45  N.  Y.  606; 
(And  various  cases  there  cited). 

It  has  been  held,  however,  that  the  mere  use  of  the"  words 
"held  in  trust"  in  the  policy  implies  a  case  of  bailment  in  which 
the  bailee  is  responsible  to  the  owner  (Stillwell  v.  Staples  supra, 
also  Utica  Canning  v.  Home  132  App.  Div.  N.  Y.  420)  and  in 
another  and  quite  recent  case  in  New  York  (Czerweny  v.  National 
139  N.  Y.  Supp.  345)  this  feature  is  very  definitely  stated  by  the 
Appellate  Division  in  these  words : 

"The  fact  that  a  Trust  Clause  was  inserted  in  an  insurance  policy 
covering  the  contents  of  a  warehouse,  was  strong  probative  evidence  that 
the  insured  intended  to  insure  another's  merchandise,  which  was  stored 
with  him  as  bailee  for  hire." 

These  cases  would  seem  to  establish  that  the  presumption  is, 
in  this  State  at  least,  that  when  the  Commission  Clause  is  put 
u2on_a  policy,  it  is  put  there  in  pursuance  of  an  i/itention  to  pro- 
tect„a]l_pwners  of  property  to  which  the  assured  stands  in  any  of 
the  s.eyeral  relations  described  in  the  policy. 

If,  on  the  other  hand,  it  be  shown  there  was  no  such  inten- 
tion, there  can  be  no  recovery.  If  it  were  otherwise,  great  in- 
justice would  result,  as  we  shall  illustrate  by  the  following  ex- 
ample:— *^A"  is  a  warehouseman  or  commission  merchant.  "B" 
places  property  in  his  custody  with  an  agreement  that  "A"  will 
procure  insurance  to  its  full  value  for  the  benefit  of  "B",  and 
"B"  is  subsequently  charged  a  proportion  of  the  premium.  "C" 
also  places  his  property  in  the  hands  of  "A",  but  only  under  the 
terms  of  an  ordinary  bailment,  with  no  undertaking  by  "A"  to 
insure  for  the  benefit  of  "C" ;  and  suppose  the  value  of  all  property 
on  "A's"  premises  to  be  $30,000.  of  which  $10,000  is  "A's"  own 
property,  $5,000  belongs  to  '^B"  and  $15,000  to  ''C."  "A"  ha.s 
placed  insurance  of  $15,000  which  fully  covers  his  own  and  the 
property  of  **B"  for  which  he  is  liable.  A  fire  occurs  from  un- 
avoidable accident,  and  through  no  fault  or  neglect  of  "A,"  the 
entire  property  is  destroyed.  If  it  is  permissible  that  **C"  may 
enforce  a  claim  under  the  Commission  Clause,  the  recovery  of 
"A"  and  **B"  would  be  reduced  to  one-half  their  loss,  when  by 
every  rule  of  fairness  and  justice,  they  should  be  fully  indemni- 
fied. Two  elements  absolutely  indispensable,  to- wit :  the  bailee 
must  bring  himself  into  proper  relationship  and  establish  it  to  have 
been  his  intention  prior  to  the  fire,  that  the  poUcy  should  protect 
his  bailor. 

723 


The  Fire  Insurance  Contract 

As  a  matter  of  course,  the  presumption  we  have  referred  to 
cannot  apply  in  a  case  where  a  bailee  has  been  expressly  ex-^ 
empted  from  liability  (Burke  v.  Continental  184  N.  Y.  77)  unless, 
as  happened  a  few  years  ago  in  the  State  of  New  York,  the  Jury 
should  find  that  although  the  parties  had  entered  into  a  written 
contract  that  the  bailee  should  not  be  responsible  for  loss  by 
fire,  he  subsequently  agreed  that  he  would  be  liable,  and  in  the 
case  in  question,  the  bailee  on  the  proof  stated,  collected  the  en- 
tire loss  (Burke  v.  Ins.  Co.  1908,  128  App.  Div.  391). 

Sufficient  has  been  said,  I  believe,  to  establish  that  in  every 

case  where  the  requirements  as  to  relation  and  intent  have  been 

satisfied,  the  bailee  is  entitled  to  collect  the  entire  loss  and  hold 

the  excess   over  his   own   interest    for   the   benefit   o£   those   who 

entrusted  the  goods  to  him. 

Stillwell  V.  .Staples,  supra; 
Bahimore  Warehouse  Co.  v.  Home,  supra; 
Calif.  Ins.  Co.  v.  Union  Compress  Co.,  133  U.  S.  387; 
Johnson  v.  Campbell,  120  Mass.  449; 
(And  various  cases  there  cited). 

But  this  does  not  mean  that  he  may  deduct  the  loss  on  his 
own  property  and  distribute  the  balance  of  the  insurance  recovery 
(if  any)  to  the  other  owners.  It  was  held  in  the  Baltimore 
Warehouse  Co.  case,  you  will  recall,  that  the  Warehouse  Com- 
pany "may  recover  the  full  amount  of  insurance  for  the  satis- 
faction of  their  own  claims  first  and  hold  the  residue  for  the 
owners,"  but  it  should  be  pointed  out  that  as  the  Warehouse  Com- 
pany had  no  goods  of  their  own  and  their  only  interest  in  the 
property  was  their  lien  for  advances  and  storage  or  other  charges, 
the  Court  undoubtedly  referred  to  only  such  claims  as  were  in 
the  nature  of  legal  liens  upon  the  property.  The  right  of  the 
bailee  to  first  deduct  his  charges  or  any  claims  which  are  in  the 
nature  of  a  legal  lien  upon  the  property,  has  been  upheld  in  num~ 
erous  decisions  and  is  everywhere  conceded. 

Generally  speaking,  we  take  it  the  assured,  having  taken  out 
insurance  in  his  own  name  and  at  his  own  expense,  regards  it 
as  his  own  to  deal  with  as  he  sees  fit.  Possibly,  if  not  probably, 
his  insurance  representative  takes  the  same  view,  but  such  may  not 
be  the  situation  if  the  Commission  Clause  has  been  incorporated 
in  his  form.  The  question  has  been  litigated  in  several  States  and 
the  view  now  favored  by  the  weight  of  authority  is  that,  except  as 
to  his  charges  or  claims  in  the  nature  of  direct  liens  on  the  property, 

724 


The  Commission  Clause 

he  is  not  entitled  to  deduct  anything  (Boyd  v.  McKee  99  Va.  72)' 

but  must  share  the  proceeds  of  his  insurance  pro-rata  with  his 

bailor. 

Johnston  v.  Abresch,  123  Wis.  130; 
Snow  V.  Carr,  61  Ala.  363; 
'        Siter  V.  Moors,  13  Pa.  State  220; 
Boyd  V.  McKee  (Va.),  supra; 

Southern  Cold  Storage  Co.  v.  Dechman  (Texas),  IZ  S.  W.  545; 
(And  various  cases  there  cited). 

The  Courts  have  not  only  conceded  to  the  bailor  the  right  to 
demand  a  proportionate  share  of  the  bailee's  recovery  but  they 
have  held  that  where  a  bailee  for  hire  has  insurance  with  the 
Commission  Clause,  and  fails  or  refuses  to  claim  for  the  bailor's 
property,  or  makes  a  settlement  with  his  insurers  without  including 
the  loss  of  the  bailor,  the  latter  may,  in  case  the  insurance  has  not 
been  exhausted,  make  claim  directly  upon  the  Companies  and  may 
maintain  suit  in  his  own  name  for  the  recovery  of  his  loss  up  to 
an  amount  not  exceeding  the  unexhausted  insurance.  The  Appellate 
Division  of  the  State  of  New  York  has  so  held  in  two  cases  of 
striking  interest  and  importance  to  which  we  will  briefly  refer; 
the  Utica  Canning  Co.  sold  goods  to  Lewis  DeCroflf  &  Son  of  New 
York  City;  after  delivery  to  DeGroft*,  the  goods  were  rejected  but 
it  was  agreed  that  property  could  remain  in  DeGroff's  warehouse 
pending  a  re-sale;  no  storage  was  to  be  charged  except  that  when 
another  customer  was  found,  DeOroff  &  Son  were  to  be  reim- 
bursed for  cartage  and  freight  charges.  While  the  goods  were  so 
stored,  the  warehouse  burned,  with  insurance  on  stock  of  $140,000, 
all  in  DeGroff's  name,  with  form  covering : 

Merchandise,  hazardous,  not  hazardous  and  extra  hazardous,  in- 
cluding boxes,  labels  and  other  supplies,  the  property  of  the  assured,  or 
held  by  them  in  trust  or  on  commission,  or  sold  but  not  removed. 
The  loss  of  DeGroff  &  Son  on  their  own  stock  was  $88,000  and 
that  was  the  amount  they  claimed  from  their  insurers.  Prior  to 
the  settlement,  demand  was  made  that  DeGroff  &  Son  claim  also 
for  the  loss  of  the  Canning  Company,  but  they  declined  so  to  do, 
and  disclaimed  any  Hability  whatever  with  respect  to  the  Canning 
Company's  goods;  subsequently  they  accepted  payment  of  $88,000 
from  their  insurers  in  full  of  all  claims  under  the  policies  and  ex- 
ecuted receipts  accordingly,  accompanied  by  cancellation  and  sur- 
render of  the  policies;  prior  to  such  payment  the  Companies  were 
notified  of  the  claim  of  the  Canning  Company  but  denied  lia- 
bility on  the  ground  that  their  assured,  DeGroff  &  Son,  were  in 
no  WRV  responsible  to  the  Canning  Company.     Suit  was  brought 

24 


The  Fire  Insurance  CoNTiiACT 

by   the   Canning  Company  in   its  own  name   directly   against   the 

Companies   and   judgment   was  granted   in   its   favor,   which   was 

sustained  by  the  Appellate  Division  in  a  decision  handed  down  in 

May,  1909  (38  Ins.  L.  J.  813). 

Here  are  some  of  the  rulings  of  the  court :  • 

DeGroff  &  Son  were  bailees  for  hire,  and  having  insured  the  Can- 
ning Company's  goods,  were  liable  to  it  for  the  damage  sustained. 

We  think  it  was  intended  by  the  defendants  (the  Insurance  Com- 
panies) that  everything  which  DeGroff  &  Son  should  have  in  their  ware- 
house in  the  course  of  their  business  was  to  be  insured  and  this  would 
seem  to  be  the  only  purpose  of  the  slip  attached  to  the  policy. 

We  think  a  fair  interpretation  and  meaning  of  the  policies  was  that 
they  were  intended  to  cover  whatever  property   DeGroff  &  Son  had  in 
their  warehouse   in  the  course  of  their  business.     The  plaintiff's   goods 
were  there  in  the  course  of  such  business;  the  goods  were  lost  and  the" 
plaintiff  is  now  entitled  to  the  protection  of  the  policies. 

The  Other  decision  was  in  the  case  of  Czerweny  v.  National 
Fire  Ins.  Co.,  (Supra,)  arid  came  down  in  January  1913.  Herman 
Jedel  was  a  dealer  in  fireworks  and  arranged  to  store  with  the 
A.  Jedel  Company  (a  concern  in  which  he  was  interested  but 
operated  as  a  separate  business)  a  quantity  of  matches  for  which 
he  was  to  pay  storage  at  the  rate  of  ten  cents  per  case.  The 
goods  had  been  purchased  from  Alfred  Czerweny,  who  wrote  Her- 
man Jedel  about  insurance,  saying — "Kindly  let  me  know  whether 
you  as  the  owner,  will  take  responsibility  in  case  of  fire,  or  if  you 
expect  me  to  cover  the  insurance,"  and  the  reply,  also  by  letter, 
was  "according  to  our  agreement  you  are  to  efifect  and  attend  to 
the  insurance  on  the  matches."  Czerweny  thereupon  procured  in- 
surance of  $1,300,  but  he  took  it  in  his  own  name.  Fire  occurred 
and  destroyed  the  matches,  as  well  as  a  large  amount  of  property 
owned  by  the  A.  Jedel  Company. 

The  fire  found  the  following  situation: — The  matches  were 
owned  by  Herman  Jedel ;  they  were  in  the  custody  of  the  A.  Jedel 
Company  as  bailee,  and  were  insured  in  the  name  of  Alfred  Czer- 
weny who  had  parted  with  the  title  and  had  no  insurable  interest. 
and  as  a  matter  of  course  the  specific  insurance  was  void  from  in- 
ception. 

The  A.  Jedel  Company  had  insurance  of  $25,000  with  the 
Commission  Clause;  its  loss  on  its  own  property  was  $21,000, 
which  was  the  amount  claimed  from  its  insurers.  On  payment  of 
$21,000,  receipts  in  full  were  executed  and  policies  surrendered 
for  cancellation. 

726 


The  Commission  Clause 

Subsequently  Herman  Jedel  assigned  his  claim  to  Czerweny 
who  brought  suit  directly  against  the  Companies  which  had  in- 
sured the  A.  Jedel  Company.  It  was  conceded  on  the  trial  that 
the  facts  regarding  the  matches  had  been  brought  to  the  attention 
of  the  Companies'  adjusters  prior  to  payment  of  the  loss,  and  that 
liability  was  denied. 

It  was  contended  on  behalf  of  the  Companies,  that  the  fact 
that  owner  had  arranged  with  Czerweny  to  provide  specific  insur- 
ance, was  conclusive  proof,  that  it  »never  had  been  the  intention 
that  the  matches  should  be  covered  by  the  insurance  of  the  A. 
Jedel  Company,  but  the  Court's  view  was  that  as  neither  Herman 
Jedel  or  Czerweny  were  connected  with  or  acting  for  the  A. 
Jedel  Company,  the  contract  of  the  latter  with  its  insurers  could 
not  be  altered  or  varied  by  the  act  of  these  third  parties,  the 
precise  language  of  the  Court  being  (in  part)  "nor  can  any  in- 
tention which  Herman  Jedel  may  have  had  in  regard  to  the  insur- 
ance be  imputed  to,  or  taken  advantage  of  by  the  A.  Jedel  Com- 
pany." The  judgment  affirmed  the  finding  of  the  Lower  Court 
that  the  Bailee  intended,  when  taking  out  the  insurance,  to  pro- 
tect the  owners  of  all  property  in  its  custody  and  the  Companies 
were  held  liable  to  Czerweny  for  the  amount  of  his  loss. 

It  was  conceded  that  the  specific  insurance  had  never  been 
effective  on  account  of  lack  of  insurable  interest,  and  the  ques- 
tion of  contribution  between  the  two  sets  of  policies  was  not  raised. 

The  Court  further  found  in  part : 

The  assignee  of  the  owner  of  matches  stored  with  the  insured  as 
bailee  for  hire  was  the  proper  plaintiff  in  an  action  and  under  a  trust 
clause  of  the  policy  for  loss  of  the  matches;  the  person  for  whose  benefit 
a  contract  is  made  having  the  right  to  sue  thereon,  although  not  named 
therein. 

In  the  absence  of,  waiver  or  estoppel,  the  plaintiff's  rights  in  such 
case  were  not  affected  by  a  settlement  between  the  insured  and  the  insur- 
ance company  with  knowledge  of  the  claim  of  plaintiffs  assignor. 

There  is  another  feature  which  has  a  very  important  bearing 
upon  certain  classes  of  cases  coming  under  the  Commission  Clause, 
and  it  is  the  doctrine  of  ratification.  As  a  matter  of  course,  no 
question  of  ratification  arises  in  a  case  where  the  bailee  has  agreed 
to  pi-ocure  insurance  for  the  owner's  benefit,  or  is  otherwise  legally 
liable  Tor  fire  damage,  and  in  some  States,  it  is  held  that  ratification 
is  unnecessary  if  the  insurance  was  taken  out  in  pursuance  of  a  cus- 
tom of  trade,  but  in  every  case  w^here  the  taking  of  the  insurance  has 
been  the  gratuitous  act  of  the  bailee,  the  owner  must  show,  if  he 

m 


The  Fire  Insurance  Contract 

would  claim  the  benefits  of  the  contract,  that  he  ratified  the  trans- 
action and  adopted  the  contract  within  a  reasonable  time  after 
knowledge  of  the  same  came  to  him,  even  though  it  be  after  the  fire. 
The  adoption  need  not  have  been  in  any  prescribed  form  but  it  is  a 
question  of  fact  for  a  jury. 

Southern  Cold  Storage  &  Produce  Co.  v.  Dechman,— Tex.  1903— 
73  S.  W.  545. 

The  Appellate  Division  (New  York)  in  deciding  the  Utica  Can- 
ning Co.  also  so  held,  in  these  words: 

The  form  of  policy  is  simiLar  in  its  legal  effect  to  the  policy  "for 
whom  it  may  concern"  and  it  arises  in  much  the  same  way.  The  insur- 
ance is  taken  out  by  an  agent,  consignee  or  third  party  and  inures  to  the 
benefit  of  the  real  owner  of  the  goods  who  need  not  have  given  original 
authority  therefor,  or  need  he  adopt  the  policy  prior  to  a  loss;  but  an 
adoption  within  a  reasonable  time  after  the  loss  is  sufficient  to  bind  the 
insurer. 

The  bailee,  as  we  have  seen,  may  collect  the  entire  loss. 
In  some  cases  he  must  do  so,  or  he  will  be  held  personally  liable  to 
the  owner.  Such  is  the  case  when  the  insurance  has  been  pro- 
cured by  the  instruction  or  direct  authority  of  the  owner,  or  at  his 
expense,  or  in  pursuance  of  an  agreement  by  the  bailee  to  provide 
insurance  for  the  owner's  benefit,  and  it  is  held  in  some  of  the 
States  that  if  by  reason  of  a  custom  of  trade,  it  became  the  duty 
of  the  bailee  to  provide  insurance  upon  the  property  in  his  cus- 
tody, he  must  not  only  insure  such  property  for  a  reasonable 
amount,  but  must  be  held  to  ^'diligence  and  discretion"  in  collect- 
ing the  loss  (Southern  Cold  Storage  &  Produce  Co.  v.  Dechman 
supra). 

Upon  receiving  payment  of  any  insurance  upon  the  property 
of  another,  the  bailee,  irrespective  of  whether  he  was  actually  lia- 
ble to  the  owner,  must  account  to  such  owner  for  the  entire  amount 
collected,  save  only  his  proper  charges  or  liens  against  the  prop- 
erty (Symmers  v.  Carroll  207  N.  Y.  632) ;  "The  money  obtained 
from  the  insurance  simply  takes  the  place  of  the  property  itself 
and  as  a  matter  of  course,  would  belong  to  the  owner"  (Southern 
Cold  Storage  &  Produce  Co  v.  Dechman  supra). 

So  much  for  those  principles,  which  having  been  interpreted 
by  the  Courts,  are  now  regarded  as  settled.  There  are  a  number  of 
other  features,  which  in  view  of  interpretations  now  placed  upon 
the  commission  clause,  are  live  and  important  questions  but  which 
have  not  been  settled.  One  of  the  foremost  of  these  is  that  of 
contribution.  If,  in  a  given  case,  the  bailor  is  entitled  to  claim 
the  benefit  of  the  bailee's  insurance,  but  happens  to  have  specific 

728 


The  Commission  Clause 

insurance,  in  his  own  name,  sufficient  we  will  say,  to  fully  cover 

his  loss,  are  his  insurers  entitled  to  contribution  from  the  bailee's  y* 

policies?     The  affirmative  was  held  in  the  Baltimore  Warehouse., 

case,  but  there  the  controlling  feature,  no  doubt,  was  the  fact  that 

the  specific  policies  were  by  their  terms  payable  to  the  Warehouse 

Company. 

Now  I  do  not  pretend  to  say  that  1  can  tell  you  how  that  ques- 
tion should  be  or  is  going  to  be  settled,  but  here  is  my  view  of  it : — 
I  believe  that  when  a  man,  having  goods  in  the  custody  of  a  bailee, 
proceeds  to  insure  the  property  in  his  own  name,  he  does  so  be- 
cause he  does  not  intend  to  rely  upon  his  bailee's  insurance,  and 
1  would  regard  the  existence  of  specific  insurance  in  the  name  of 
the  bailor,  as  proof  conclusive,  that  so  far  as  he  is  concerned,  the 
element  of  intent  is  wholly  lacking,  but  it  is  held  by  our  Appellate 
Division  in  the  Czerweny  case,  that  it  is  the  intent  of  the  bailee, 
which  controls,  and  that  no  intention  which  the  bailor  may  have  • 
had  in  regard  to  the  insurance,  can  be  imputed  to,  or  taken  ad- 
vantage of,  by  the  bailee.  If  that  is  a  correct  statement  of  the  law, 
it  certainly  would  seem,  in  a  case  where  the  bailee  did  intend 
to  cover  all  the  property  in  his  custody,  and  the  bailor  duly  ratifies 
and  adopts  the  contract,  both  sets  of  policies  would  then  cover  the 
same  interest,  and  it  is  difficult  to  see  why  the  specific  policies  art 
not,  in  that  situation,  entitled  to  contribution  from  any  unexhausted 
portion  of  the  bailee's  insurance. 

Another  question  probably  no  less  important  is  that  of  co-_ 
insurance.  The  Society  has  already  been  treated  to  a  very  able 
and  full  discussion  of  this  topic,  in  a  paper  which  leaves  little,  if  any- 
thing, to  be  said  under  this  head,  and  we  will  dismiss  it  with  a  word 
as  we  pass  along.  We  will  all  agree  that  the  question  oi^^^hetj^^y^  ^^  '^ 
thevalue^QJLthe  property  of  others  in  the  custody  of  the  assuxied. 
is  it  to  be  taken  into_aiXQimt  for  co-insurance  depends  upon  whctlici 


the  policies  cove^r  it.  We  have  seen  the  construction  which,  without 
exception,  the  Courts  have  placed  upon  the"  wording  "held  in  trust 
or  on  commission,"  which  makes  of  it  not  a  question  of  whether 
the  bailee  was  liable,  but  did  he  intend  the  owners  should  have  the 
benefit  of  his  insurance?  The  mere  use  of  the  words  of  the  Com- 
mission Clause,  you  will  recall,  is  held  to  create  the  presumption 
that  such  was  the  intent.  Unless  such  presumption  be  overcome, 
all  such  property  was  under  the  protection  of  the  policies  and 
must  be  included.     Particularly  will  this  be  true  if  there  has  htdn 


7 


729 


The  Fire  Insurance  Contract 

a  ratification  by  the  bailor,  in  fact,  in  such  a  case  I  should  say 
there  is  no  alternative,  and  the  assured  may  only  get  what  com- 
fort he  can  from  the  reflection  that  he  may  be  suffering  from  an 
over-dose  of  liberality,  either  self-administered,  or  on  the  part 
of  the  gentleman  who  got  up  his  form.  > 

Up  to  the  Utica  Canning  case,,  it  seems  to  have  been  every- 
vvhej'e  held  that  the  mere  voluntary  act'  of  the  bailee  in  procuring 
insurance  with  the  comrnission  clause,  involved  him  in  no  duty  or 
liability  to  the  bailor,  unless  he  collected  insurance  money  upon 
the  bailor's  property,  but  in  the  case  to  which  reference  has  just 
been  made,  the  Court  se^ms  to  have  gone  much  further:  The 
holding  was — "Lewis  DeGroff  &  Son  were  bailees  for  hire,  and 
hazing  insured  the  property,  were  liable  to  it  (meaning  Utica  Can- 
ning Co.)  for  the  damage  sustained.  Until  there  shall  be  some  other 
or.  further  ruling,  the  words  I  have  just  read  you  is  the  law  of 
this  State.  Does  it  mean  that  a  bailee,  liable  under  the  common 
law  for  reasonable  care  only,  will  by  the  mere  acceptance  of  a  pol- 
icy containing  the  trust  and  commission  clause,  make  himself  lia- 
ble for  every  damage  by  fire  which,  under  any  circumstances,  may 
occur  to  property  of  others  on  his  premises?  If  so,  is  his  liability 
absolute  or  conditional  upon  his  being  able  to  collect  from  the  In- 
surance Company? 

These  and  numerous  other  questions  growing  out  of  the  very 
general,  and  I  may  say  indiscriminate,  use  of  the  commission  clause, 
are  yet  to  be  decided,  including  no  doubt,  many  features  which 
have  not  yet  occurred  to  any  of  us,  and  having  no  ambition  to  be 
known  as  a  prophet,  I  prefer  to  withhold  my  guess  as  to  the  out- 
come.   All  we  really  know  is  that  the  end  is  not  yet. 

Up  to  this  point  our  consideration  has  been  directed  to  what 
I  would  term  the  usual  form  of  commission  clause,  "held  in  trust 
or  on  commission,  or  sold  but  not  delivered  or  removed."  There 
are  variations  in  somewhat  general  use  which  are  chiefly  distin- 
guished by  a  reference  to  the  assured's  liability.  A  favorite  form 
is  "and  (sometimes  the  word  "or"  is  used)  for  which_th£_ajiiuired 
may  be  legally  liable."  When  used  in  the  precise  form  stated, 
the  additional  wording  is  in  no  sense  restrictive,  but  rather  the 
reverse,  as  it  adds  one  more  class  (that  for  which  the  assured 
may  be  legally  liable)  to  the  cover  of  the  policy,  but  if  the  words 
"for  w4iich  the  assured  may  be  legally  liable"  are  used,  without  the 
prefix  "and"  (or  its  running  mate  "or"),  the  restriction  is.  of 
course,  very  pronounced  and  gives  to  the  clause  the  precise  mean- 

730 


The  Commission  Clause 

ing  which  was  originally  intended.  Your  commission  clause  would 
then  read,  ''Held  in  trust,  or  on  commission,  or  sold  but  not  de- 
livered or  removed,  for  which  the  assured  may  be  legally  liable" 
and  your  assured's  loss,  as  to  the  property  of  others,  would  be 
measured  accordingly. 

We  have  all  been  taught  as  one  of  the  fundamentals  of  our 
business,  that'  the  contract  is  an  insurance  of  the  person  and  not 
of  the  property.  I  realize  this  to  be  true  even  as  regards  the 
commission  clause  in  its  broadest  form,  although  I  confess  there 
are  times  and  places,  to  which  one  will  come  in  an  examination 
of  this  question,  when  one's  faith  in  early  teaching  will  be  shaken 
for  a  moment,  but  the  insurance  contract  is  still,  as  it  always 
has  been,  a  personal  contract,  but- under  the  commission  clause, 
of  the  form  now  generally  in  use,  the  Underwriter  does  not  al- 
ways know  who  that  person  is:  Sometimes  even  the  assured  does 
not  know  and  frequently,  nobody  knows :  That  the  Underwriter 
ought  to  know  is  another  of  those  fundamentals  upon  which  our 
business  is  grounded,  the  wisdom  and  propriety  of  which  is  no- 
where denied. 

The  time  is  not  only  coming,  but  has  arrived,  when  in  the 
interest  of  both  the  assured  and  the  Companies,  there  should  be 
some  reasonable  and  definite  limit  upon  this  form  of  contract. 
Its  scope  is  controlled,  as  we  have  seen,  by  the  intent  of  the 
bailee,  but  in  scarcely  one  case  in  a  hundred  can  the  bailee  tell 
you  what  his  intent  was,  because  he  had  none.  Probably  he  learns 
for  the  first  time,  after  the  fire,  that  there  is  such  a  thing  as  the 
Commission  Clause,  much  less  that  he  has  one  on  his  own  policies, 
and  where  the  assured  gives  the  matter  any  thought  at  all,  he 
undoubtedly  understands  and  believes  the  clause  is  to  protect  him 
only  in  case  he  shall  be  liable.  In  the  great  majority  of  cases,  that 
is  all  the  assured  intends  to  cover;  it  is  all  he  wants  or  needs  and 
all  he  ever  supposed  he  had,  and  when  he  comes  to  understand  the 
situation,  it  will  be  all  he  will  be  willing  to  take.  It  is  no  longer  any 
compliment  to  the  assured,  or  a  safe  or  wise  thing  to  bestow  upon 
him  an  unqualified  form  of  commission  clause,  unless  there  is  some 
occasion  for  it. 

In  the  isolated  case  where  by  reason  of  a  special  situation, 
the  assured  requires  a  broader  form  of  policy,  you  will,  as  has 
already  been  suggested  upon  this  .floor,  best  serve  him  if  you 
divide  the  cover  into  two  contracts,  one  to  cover  property  of  his 

731 


The  Fire  Insurance  Contract 

own  (including  goods  which  he  may  have  sold  but  which  are  not 
yet  delivered),  and  another  "for  account  of  whom  it  may  con- 
cern" to  apply  to  such  of  the  described  property  as  may  be  "held 
in  trust  or  on  commission  and/or  for  which  he  may  be  liable," 
and  although  questions  bearing  on  the  construction  of  the  Com- 
mission Clause  will  necessarily  continue  to  arise,  in  case  of  loss  your 
assured's  interest  as  to  such  matters  would  be  very  largely  that 
of  a  spectator,  and  he  will  learn  then,  if  not  before,  that  the  con- 
tracts you  have  provided  to  meet  the  conditions  of  his  case,  have 
not  only  been  good,  but  the  best  and  the  best  is  good  enough. 


732 


XXXVII 
TTSE  AND  OCCUPANCY  INSURANCE 

John  A.  Eckert 

We  workers  in  the  insurance  profession  are  influenced'  by 
our  respective  occupations,  and  subjects  of  this  character  are  Hable 
to  be  viewed  from  one  angle  by  the  underwriter  and  the  adjuster, 
and  from  another  angle  by  the  broker. 

The  experience  of  the  underwriter  and  the  adjuster  is  de- 
rived from  a  review  of  many  claims  presented  under  all  kinds  of 
conditions,  from  which  he  judges  a  certain  class  of  insurance, 
and  because  of  this  experience,  with  all  that  it  implies,  the  under- 
writer and  the  adjuster  are  liable  to  view  a  unique  or  unusual 
form  of  insurance  with  caution. 

The  broker,  on  the  other  hand,  while  perhaps  not  having  as 
much  experience  in  the  matter  of  technical  adjusting,  looks  at 
unique  and  unusual  forms  of  insurance  from  a  much  different 
viewpoint,  because,  in  his  profession,  he  meets  thousands  of  in- 
surers who  desire  only  reimbursement  for  their  actual  losses  and 
pay  their  premiums  and  expect  to  receive  such  reimbursement  if 
a  loss  occurs.  Among  these  thousands  there  is  only  an  occasional 
loss  claimant. 

It  seems  to  me,  therefore,  in  order  to  be  able  to  say  anything 
on  this  subject  which  has  not  already  been  said,  that  I  must  dis- 
cuss it  along  the  line  of  my  experience,  somewhat  from  the  stand- 
point of  the  public,  and  endeavor  to  justify  its  existence,  and  at- 
tempt to  minimize  the  doubts  and  fears  which  are  so  often  ex- 
pressed by  underwriters  as  to  the  wisdom  of  writing  this  form  of 
insurance. 

It  appears  that  Use  and  Occupancy  Insurance  was  first  written 
in  this  country  through  the  efforts  of  two  prominent  New  Eng- 
land insurance  men,  interested  in  stock  company  insurance,  who 
induced  a  number  of  prominent  companies  to  write  this  class 
of  insurance  on  highly  protected  New  England  factories,  in  fact, 
it  is  said  that  their  object  in  doing  so  was  to  make  up  to  the  stock 
companies  premiums  lost  to  the  New  England  Mutual  Insurance 
Companies,  and  to  offer  this  form  of  coverage  in  connection  with 
straight  ihsurance  against  fire  damage  in  order  to  defeat  the  com- 
petition of  the  New  England  Mutual '  Companies  who  were  not 
then  prepared  to  write  it. 

733 


The  Fire  Insurance  Contract 

It  would  seem  that  the  ideas  of  the  promoters  were  sound 
and  their  efforts  successful,  for  we  find  now  that  Use  and  Oc- 
cupancy insurance  is  very  generally  carried  by  the  large  mill  owners 
throughout  New  England  and  elsewhere,  and  the  New  England 
Mutual  Insurance  Companies  write  it  quite  as  freely  as  do  the 
Stock  Companies. 

It  has  been  suggested  that  the  term  "Use  and  Occupancy" 
might  very  well  be  discarded,  and  another  name  applied  to  this 
form  of  insurance  wnich  would  more  clearly  describe  its  charac- 
ter. The  term  ''Business  Interruption  Indemnity"  has  been  sug- 
gested. Whether  or  not  this  suggestion  is  a  good  one  depends 
entirely  on  whether  a  uniform  contract  will  eventually  be  adopted 
or  come  into  common  use  by  the  companies  which  will  clearly 
define  the  coverage. 

In  view  of  the  many  different  forms  of  contract  which  are 
now  being  used,  which  result  in  many  wide  differences  in  the  mat- 
ter of  loss  payments  under  Use  and  Occupancy  policies,  some- 
thing should  be  done  for  the  guidance  of  the  public  and  for  the 
purpose  of  enabling  the  companies  to  determine  how  to  underwrite 
this  class  of  insurance  by  way  of  providing  a  standard  form  of^. 
contract  so  that  the  public  may  at  all  times  know  what  a  Use  and 
Occupancy  policy  means,  and  the  companies  may  at  all  times  knov/ 
what  their  liability  is  under  such  policies. 

Several  companies  have  adopted  their  own  Use  and  Occupancy 
forms,  but  it  is  my  opinion  that  they  very  rarely  have  an  oppor- 
tunity to  use  them  unless  they  take  the  order  for  the  insurance  di- 
rect from  the  assured  or  are  dealing  with  an  agent  who  has  very 
little  knowledge  of  the  subject.  Most  all  large  agencies  have  their 
own  form,  and  most  every  large  brokerage  office  has  its  own 
form,  with  the  result  that  we  very  rarely  see  two  forms  alike,  and 
by  this  is  meant  alike  as  to  application  and  coverage. 

The  following  insuring  clause  is  taken  from  a  form  in  some- 
what general  use  and  is  quoted  as  a  basis  for  the  discussion  of 
this  subject.  It  is  by  no  means  the  only  form  used,  but  it  is  a  fair 
sample;  with  a  few  exceptions  the  clauses  are  the  same  or  if  the 
words  are  not  the  same  the  meaning  is  practically  the  same : 

On  the  use  and  occupancy  of  premises  situate ' 

It  is  understood  that  if  by  reason  of  fire,  the  assured  shall  be  wholly.. 
prevented   from    producing   their   product    or   conducting    their   business, 
then  this  Company  shall  be  liable  for  $.....   per  diem  for  each  working 
day  from  date  of  said  fire  to  date  (whether  the  same  fall  within  the  term 
of  this  policy  or  not),  when  the  normal  production  of  their  product  has 

734 


Use  and  Occupancy — Eckert 

been  resumed,  or  could  with  reasonable  diligence  be  resumed;  but  if  the 
normal  production  is  diminished  only  then  shall  this  Company  be  liable 
for  that  proportion  of  said  per  diem  in  which  said  production  is  dimin- 
ished. In  case  the  production  be  diminished  by  lire,  as  above  specified, 
the  average  daily  production  for  the  twelve  months  in  which  the  plant 
has  been  in  full  operation  immediately  preceding  the  fire,  shall,  for  the 
purpose  of  this  insurance,  be  assumed  to  be  the  normal  daily  production. 
This  Company  shall  not  be  liable  for  more  than  the  amount  of  this 
policy. 

Let  US  take  the  terms  "shall  be  wholly  prevented  from  pro-  / 
ducing  their  product  or  conducting  their  business." 

There  have  been  several  controversies  in  the  adjustment  of 
Use  and  Occupancy  losses  arising  over  the  question  as  to  \Vliether 
the  disablement  by  fire  of  a  certain  department  of  a  manufacturing 
plant,  preventing  the  completion  of  finished  product,  constituted 
a  total  per  diem  loss.  Unless  a  plant  is  totally  destroyed  it  is 
likely  that  certain  departments  will  be  left  intact  and  capable  of  per- 
forming their  work;  therefore,  in  such  a  case  the  words  ''wholly  , 
prevented  from  producing  their  product"  would  have  to  be  con- 
strued in  a  spirit  of  fairness  by  the  adjuster  and  the  assured. 
An  assured  could  hardly  expect  to  collect  a  total  per  diem  loss  if 
he  is  operating  a  part  of  his  plant,  and  if  he  is  doing  a  pros- 
perous business  and  is  desirous  of  filling  his  orders  he  would  no 
doubt  prefer  to  operate  such  part  of  his  plant  as  it  would  be  possi- 
ble, and  accept,  from  the  insurance  companies,  a  reduction  from 
his  per  diem  loss,  unless  the  conditions  of  his  business  were  such 
that  it  would  be  impossible  for  him  to  do  so. 

Forms  have  been  issued  reading : 

Shall  be  wholly  prevented  from  producing  finished  goods. 
But  to  hold  an  insurance  company  for  a  total  loss  because  of  this 
phraseology,  when  it  would  be  possible  to  advantageously  operate 
part  of  the  plant,  would  be  unfair,  and  would  result  in  discouraging 
the  companies  from  writing  this  class  of  insurance,  except  under 
a  limited  form  which  would  make  this  class  of  insurance  less  at- 
tractive to  many  insurers  who  desire  to  be  fair  in  the  adjustment 
of  their  losses  and  to  collect  only  the  measure  of  their  actual  loss. 

The  words  ''or  conducting  their  business"  in  the  above  forni 
appear  to  be  inserted  to  cover  risks,  part  of  which  are  occupied 
as  sales  or  distributing  departments.  There  are  many  such  risks 
where  the  prodiict  is  manufactured  in  part  of  the  premises  and 
removed  to  another  part  for  storage,  sale  or  distribution,  and  the 
loss  or  damage  to  such  product  while  on  storage,  sale  or  distribu- 
tion, if  located  in  premises  occupied  in  part  for  the  manufacturing 
of  the  product,  would  quite  as  readily  result  in  a  Use  and  Occu- 

735 


The  Fire  Insurance  Contract 

pancy  loss  as   would  the   stoppage  of  manufacturing  should  the 
tire  occur  in  the  manufacturing  part  of  the  plant. 

Shall  be  liable  for  $ per  diem  for  each  working  day. 

This  phraseology  seems  to  make  the  contract  a  valued  policy.^ 
Some  companies  insist  upon  inserting  the  words  "not  exceeding" 
before  the  stated  amount  payable  per  diem,  which  insertion  ap- 
parently takes  from  the  contract  the  valued  feature  thereof  and 
would  necessitate  the  proving  of  a  loss  by  items  and  figures  in 
detail. 

Shall  be  liable  *  *  *  to  date  when  the  normal  production  of 
product  has  been  resumed  or  could,  with  reasonable  diligence,  be  re- 
sumed. 

This  feature  of  this  form  makes  the  term  for  which  the  com- 
panies are  liable  for  the  per  diem  loss  a  matter  of  adjustment  on 
the  same  basis  as  a  rent  loss  would  be  determined,  by  arriving  at 
the  time  when  production  could  be  resumed  amicably,  if  possible, 
or  otherwise  by  appraisal. 

The  latter  part  of  the  above  form  which  provides,  in  case  of 
partial  stoppage  of  product,  that  the  loss  shall  be  settled  on  a  per- 
centage basis,  based  upon  the  average  normal  production  for  the 
twelve  months  in  which  the  plant  has  been  in  full  operation  im- 
mediately preceding  the  fire,  might  result  in  a  surprise  party  either 
for  the  company  or  the  assured,  depending  upon  the  capacity  at 
which  the  plant  was  operating  at  the  time  of  the  loss,  as  follows : 

The  normal  daily  production  of  a  plant  for  the  twelve  months 
preceding  a  fire  might  be  $3,000  per  day.  In  these  times  the  same 
plant  might  be  running  at  double  its  capacity,  as  many  plants  are 
now  running,  and  the  production  valued  at  $6,000  per  day.  If  a 
fire  should  occur  and  result  in  a  50  percent  stoppage  it  is  evident 
that  the  stoppage  would  amount  to  $3,000  per  day.  50  percent  of 
the  normal  daily  production  for  the  twelve  months  preceding  the 
fire,  however,  would  figure  out  $1,500  per  day.  The  remedy  for 
this  condition  would  seem  to  be  for  the  insured  to  revise  and  in- 
crease his  Use  and  Occupancy  insurance  at  times  of  extraordinary 
production.  This  condition  of  aflfairs  would  operate  in  an  opposite, 
manner  if  a  fire  should  occur  in  a  dull  period  following  an  ex- 
traordinary busy  period. 

Where  the  product  of  a  plant  is  known  to  fluctuate  during 
the  year,  with  a  large  output  in  certain  months  and  a  small  output 
in  other  certain  months,  brokers  and  agents  have  been  known  to 

736 


Use  and  Occupancy — Eckert 

provide  in  the  policy  for  the  payment  of  a  gieater  per  dicni  sum 
during  the  period  of  large  output  and  a  lesser  per  diem  sum  dur- 
ing the  period  of  small  output. 

It  is  sometimes  argued  that  there  is  no  co-insurance  feature 
in  connection  with  Use  and  Occupancy  insurance.  I  believe,  how- 
ever, that  it  is  the  usual  practice  for  companies  to  demand,  and  for 
brokers  and  agents  to  issue,  policies  in  amounts  equal  to  three  hun- 
dred times  the  daily  per  diem  amount  stated  in  the  policy.  This 
practice  provides  a  fair  substitute  for  a  co-insurance  clause- 
Use  and  Occupancy  insurance  is  written  to  cover  against  the 
hazards  of  explosion,  windstorm,  sprinkler  leakage  and  lightning, 
the  lightning  hazard  usually  being  included  in  the  policy  against 
fire.  There  has  been  considerable  explosion  Use  and  Occupancy 
written  during  the  last  year  or  so. 

There  are  so  many  technical  questions  involved  in  the  adjust- 
ment of  Use  and  Occupancy  losses,  and  so  many  different  views 
indulged  in  by  the  assured,  agent,  broker  and  adjuster  as  to  the 
coverage,  that  the  inclusion  or  omission  of  a  word  or  two  here  or 
there  in  the  form  may  alter  the  entire  aspect  of  the  contract,  and 
result  in  a  controversy  as  to  the  amount  of  the  loss,  thus  causing 
dissatisfaction  on  the  part  of  either  the  companies  or  the  assured. 

The  elements  of  this  class  of  insurance  on  which  there  seems 
to  exist  differences  of  opinion  are : 

First — Whether  some  of  the  contracts  used  constitute  valued  poll-, 
cies  and  whether,  as  a  matter  of  good  underwriting  practice,  valued  poli- 
cies should  be  issued  or  whether  the  assured,  in  case  of  loss,  should  b£_ 
obliged  to  prove  his  loss  by  items  and  figures. 

Second — Whether  this  class  of  insurance  creates  a  severe  moral  haz- 
ard and  should  be  avoided  for  that  reason,  and  tor  the  further  reason  that^ 
if  freely  written  it  would  increase  the  moral  hazard  in  connection  with' 
the  insurance  on  the  buildings  and  contents  of  the  same  risk. 

Third — Whether  it  is  a  blanket  policy  covering  rents,  profits  an4 
leasehold  interest  under  the  name  of  "Use  and  Occupancy." 

Mr.  W.  N.  Bament  in  a  very  able  article  on  this  subject,  written 

about  four  years  ago,  says : 

There  has  been  a  feeling,  which  still  exists  in  some  quarters,  that 
this  class  of  insurance  tends  to  increase  the  moral  hazard,  but  probably 
on  account  of  the  discriminating  care  on  the  part  of  companies  in  select- 
ing their  risks  the  record  thus  far  has  failed  to  justify  these  fears. 

Whether  or  not  Mr.  Bament  has  had  reason  to  change  these 

views  since   1912   I  do  not   know,  but  it  seems  evident  that  his 

views  on  this  subject  are  far-reaching  by  reason  of  his  large  ex 

perience  as  an  adjuster  and  his  association  with  a  company  writing 

a  considerable  volume  of  this  business 

m 


The  Fire  Insurance  Contract 

As  to  whether  the  forms  of  contract  at  present  being  used 
constitute  valued  policies  depends  entirely  on  how  such  forms  are 
constructed.  Probably  many  of  the  contracts  now  in  force  are 
valued  policies,  while  there  are  many  which  are  not.  There  seems 
to  be  little  doubt  that  this  form  of  insurance  can  be  made  valued, 
depending  upon  the  ability  of  the  agent  or  broker  in  preparing  his 
form,  and  that  valued  insurance  can  be  obtained,  depending  upon 
whether  the  underwriters  will  accept  such  forms. 

The  next  question  which  arises  is  to  whether  it  is  good  prac 
tice,  from  an  underwriting  standpoint,  for  companies  to  accept 
forms  which  constitute  valued  policies.  It  is  needless  to  say  that 
at  the  same  rate  the  valued  policy  is  more  acceptable  to  the  assured. 
In  these  times  of  aggressive  busines>  methods  large  hrms  direct  their 
energies  and  efforts  in  many  way?  and  in  many  places  and  at  larg? 
expense  for  the  purpose  of  selling  their  product.  It  is  apparent 
that  reimbursement  for  physical  damage  to  buildings,  machinery 
and  stock  at  market  prices,  only  partially  covers  the  k)ss  of  such 
firms.  Many  of  them  maintain  agencies  throughout  the  country 
with  fixed  expenses,  which  must  necessarily  be  continued  at  a  loss 
unless  the  product  which  they  are  employed  to  sell  is  forthcoming 
from  the  source  of  production.  If  the  plant  is  seriou'ly  crippled 
by  fire  these  agencies  cannot  be  discontinued  without  cnppling  the 
business  organization.  These  same  firms  jnay  be  employmg  a  force 
of  traveling  salesmen  whose  services  cannot  be  dispensed  with 
without  injury  to  the  business,  and  they  may  be  ':arrying  id ^er- 
tising  expenses  which  cannot  be  very  well  discontinued.  The  agen- 
cies, the  salesmen  and  the  advertising  are  expense  factor?  not  i*. 
part  of  the  physical  plant,  but  they  result  in  a  sericus  loss  if  the 
operation  of  the  plant  is  interfered  with.  The  plant  taxes  are  not 
abated  when  fire  occurs,  and  if  bonds  or  mortgages  exist  the  in- 
terest on  them  must  be  paid,  and  trained  and  expeiienced  heads  of 
departments,  executives,  etc.,  must  be  kept  on  the  payroll,  as  well 
as  many  other  similar  and  less  important  expenses  continu  'd  while 
the  plant  is  unproductive.  Furthermore,  a  fire  may  occur  in  a  plant, 
the  product  of  which  must  be  delivered  in  time  to  supply  :  season 
trade.  If  such  plant  should  be  seriously  damaged  by  fire  4ie  sea- 
son's business  could  be  lost,  resulting  in  a  financial  loss  which 
would  be  difficult  to  calculate. 

All  of  these  items  seem  to  constitute  proper  insurable  '•'azards 
and  now  we  come  to  the  question  of  insuring  profits. 

73« 


Use  and  Occupancy — Eckert 

If  the  valued  feature  of  these  contracts,  which  are  in  general 
use,  is  eliminated,  then  I  believe  there  is  grave  doubt  as  to  whether 
fixed  expense  charges  which  do  not  apply  to  the  plant  would  have 
to  be  admitted  by  the  adjuster,  or,  in  other  words,  if  the  form  is 
not  a  valued  one.  specific  or  general  language  should  be  used  to 
clearly  set  forth  just  what  the  policy  covers  in  much  the  same  man- 
ner as  we  describe  property  covered  under  regular  fire  insurance 
policies  for  instance,  a  form  such  as  is  generally  used  to  cover 
machinery. 

Why  should  not  a  reputable  concern,  doing  a  prosperous  bus- 
iness, be  able  to  insure  against  the  loss  of  profits  in  order  that  their 
dividends  may  continue  and  their  surplus  be  protected  from  de- 
pletion? 

It  may  be  said  that  all  of  these  losses  are  subject  to  proof 
and  that  there  is  no  justification  for  the  issuance  of  a  valued 
policy.  The  answer  to  this  assertion  is  that  there  is  grave  doubt 
as  to  whether  losses  of  this  character  can  be  proved  without  con- 
troversy between  the  insured  and  the  adjuster  and  a  resort  to  com- 
promise. 

If  it  is  the  purpose  of  the  company,  in  issuing  a  Use  and  Occu- 
pancy policy,  to  protect  the  insured  against  loss  resulting  from  the 
interruption  of  his  business,  and  if  the  Company  is  averse  to  is- 
suing a  valued  policy,  then  the  form  should  be  so  constructed  as  to 
cover  all  the  factors  referred  to,  which  would  result  in  loss;  and 
if  such  a  form  is  written  and  all  of  such  factors  included  in  the 
loss,  it  would  seem  as  though  the  insured,  if  he  choose,  could  pre- 
sent a  formidable  claim  which  it  would  be  very  difficult  for  tjie 
adjuster  to  analyze. 

If  the  foregoing  statements  are  sound  it  would  seem  that  a 
valued  form  of  policy  will,  in  the  long  run,  prove  most  satisfac- 
tory. It  will  give  the  assured  what  he  needs  and  pays  for,  and  if 
his  loss  exceeds  the  amount  of  insurance  which  he  carries,  he  can 
have  no  complaint.  It  makes  possible  more  easily  adjusted  losses 
w^ithout  controversy,  which  sometimes  injures  the  reputation  of  the 
insurance  companies. 

The  real  solution  of  this  problem,  from  the  company  stand- 
point, is  careful  and  thoughtful  underwriting.  It  is  an  accepted 
fact  that  no  prosperous  concern  can  aflford  to  have  a  serious  fire,  no 
matter  how  well  they  are  iisured.  The  underwriter  has  facilities 
for  learning  whether  an  applicant  for  Use  and  Occupancy  in- 
surance is  a  prosperous  concern.     He  can   review  the  character. 

739 


The  Fire  Insurance  Contract 

of  the  business  conducted  and  the  machinery  in  use,  and  determine 
whether  same  can  be  promptly  replaced  or  repaired,  and  thus  inform 
himself  as  to  whether  his  per  diem  loss  is  likely  to  extend  over  an 
abnormally  long  period  by  reason  of  the  inability  of  the  insured 
to  promptly  rebuild  his  building,  equip  it  with  machinery  and  re- 
plenish his  stock  of  raw  material  to  enable  him  to  begin  operations 
as  soon  as  possible  after  the  tire. 

There  is  no  doubt  that  a  large  majority  of  Use  and  Occu- 
pancy risks,  when  selected  with  care  by  the  underwriter,  have 
proved  a  profitable  form  of  insurance.  It  is  true,  however,  that 
here  and  there  a  loss  has  occurred  and  a  claim  made  which  has 
proved  troublesome.  The  factors  which  have  resulted  in  trouble- 
some adjustments  have  no  doubt  largely  consisted  of  inability  to 
replace  machinery,  to  secure  raw  material,  and  unreasonableness 
on  the  part  of  the  assured.  These  are  factors  which  can  be  fore- 
seen to  some  extent  at  least  at  the  time  of  the  issuance  of  the 
policy. 

It  should  be  an  easy  matter  for  an  inspector,  if  he  would  de- 
part from  the  beaten  path,  to  ascertain  whether  the  machinery 
in  the  plant  is  of  foreign  make,  and  whether  it  can  readily  be  re- 
placed if  of  domestic  make.  At  present  the  inspection  report  often 
deals  with  the  conditions  of  construction,  protection  and  exposure 
only. 

As  to  the  attitude  of  the  assured,  I  cannot  believe  that  a 
prosperous  concern,  doing  a  staple  business,  would  be  content  to 
allow  its  plant  to  be  shut  down  and  remain  idle  for  the  sake  of 
collecting  a  few  hundred  dollars  per  day  Use  and  Occupancy  loss, 
while  orders  are  waiting  to  be  filled,  if  it  were  possible  for  them 
to  put  their  plant  in  an  operative  condition.  Therefore,  it  seems 
to  me,  that  whatever  bad  experience  the  companies  have  had  in 
this  class  of  insurance,  which  has  resulted  in  criticism  of  it  as  a 
class,  has  resulted  from  a  lack  of  the  same  discrimination  which 
the  companies  generally  exercise  in  accepting  ordinary  fire  risks. 
If  all  this  is  so,  and  this  business  is  profitable  as  a  whole,  it  is 
high  time  that  the  companies  adopt  a  more  discriminating  method 
in  selecting  their  risks,  by  refusing  to  approve  applications  on 
risks  which  may  lead  to  troublesome  losses  for  reasons  stated  above. 

Use  and  Occupancy  Insurance,  as  a  class,  should  not  be  viewed 
with  alarm  because  of  this  lack  of  discrimination.  On  the  other 
hand,  I  believe  it  would  prove  to  the  advantage  of  the  companies 

740 


Use  and  Occupancy — Eckert 

if  they  were  to  make  an  effort  to  increase  their  volume  of  this  class 
of  business,  properly  selected.  Neither  should  Use  and  Occupancy 
insurance  be  considered  in  the  light  of  an  experiment,  and  the 
broker  specializing  in  this  class  of  insurance  and  writing  a  large 
volume  of  it  should  be  credited  with  doing  a  constructive  work, 
and  not  be  considered  as  engaging  in  undesirable  practices. 

There  is  a  speculative  element  associated  with  Use  and  Occu- 
pancy insurance,  when  written  under  a  valued  form,  which  has 
not  been  referred  to  in  any  of  the  papers  or  speeches  which  I  have 
read  and  heard  on  the  subject.  Under  'the  present  underwriting 
methods  an  insured  is  at  liberty  to  carry  as  much  Use  and  Occu- 
pancy insurance  as  he  is  willing  to  pay  for.  This  permits  an  in- 
sured, knowing  that  he  has  a  plant  subject  to  probably  total  de- 
struction, to  carry  insurance  in  excess  of  all  probable  loss.  For 
instance,  a  man  with  a  plant  such  as  I  have  referred  to,  who  might 
easily  cover  all  his  indirect  losses  with  Use  and  Occupancy  insur- 
ance amounting  to  $60,000,  which  would  provide  for  the  payment 
of  $200  per  day,  might  figure  that  it  would  be  a  good  speculation 
for  him  to  carry  insurance  to  the  amount  of  $120,000,  thus  enabling 
him  to  collect  $400  per  day.  Such  an  act  would  not  be  considered 
exactly  honest  by  the  underwriter,  but  the  average  business  man, 
not  being  imbued  with  the  spirit  of  "Indemnity  Only"  whi.ch  ex- 
ists in  the  mind  of  the  underwriter,  would  not  think  there  was 
anything  wrong  in  effecting  excess  insurance  under  such  circum- 
stances, so  long  as  the  companies  were  willing  to  issue  the  policies 
and  accept  his  premium. 

This  may  constitute  a  dangerous  feature  in  Use  and  Occu- 
pancy underwriting,  but  such  a  practice  could  easily  be  obviated  by 
the  underwriter  demanding  information  as  to  the  total  insurance 
carried  on  Use  and  Occupancy  by  the  insured  whose  application 
he  is  considering,  and  he  might  also  properly  demand  that  the  total 
amount  of  insurance  carried  be  stated  in  the  policy.  He  could  then, 
by  investigation,  determine  whether  that  assured  was  justified  in 
carrying  that  amount  of  Use  and  Occupancy  insurance.  If  he 
is  willing  to  issue  a  liberal  policy  he  is  entitled  to  be  surrounded 
by  some  safeguards  in  connection  with  its  issuance. 

I  believe  that  Use  and  Occupancy  is  an  entirely  sound  and 
justifiable  form  of  insurance  which  if  carefully  considered  before 
writing  will  prove  just  as  profitable  to  underwriters  as  any  other 
form.     It  does  embrace  some  of  the  features  of  rent  insurance, 

741 


The  Fire  Insurance  Contract 

prortt  'nsiurance  and  leasehold  insurance,  but  that  is  no  reason  why 
the  unotcrvvriter  should  say  to  the  fnanufacturer  we  will  not  cover 
you  for  Use  and  Occupancy  insurance — insure  your  rents  separately 
if  you  are  liable  for  them,  or  your  rental  value  if  you  own  the 
building,  and  insure  your  leasehold  interest  if  you  have  an  insur- 
able hazard  therein,  or  insure  your  profits  separately.  I  believe 
that  the  same  underwriting  skill  and  thought  should  be  applied  to 
this  class  of  insurance  as  is  applied  to  insuranc*  igainst  physical 
damage  to  property,  and  that  with  such  application  of  skill  valued 
policies  can  be  written,  and  the  volume  of  this  business  very  largely 
increased.  It  is  volume  and  average  from  which  the  underwriter 
can  best  judge  whether  a  class  of  business  is  profitable  or  not. 

A  much  larger  volume  of  Use  and  Occupancy  insurance  can  be 
written  and  should  be  written  if  companies  will  issue  a  liberal  form 
of  policy  for  assureds  whose  records  show  that  they  are  entitled 
to  same,  and  agents  and  brokers  will  give  more  attention  to  this 
class  of  business  and  explain  its  features  to  their  clients.  It  must 
be  remembered  that  there  are  certain  advantages  to  the  under- 
writer in  this  form  of  insurance  w^hich  he  does  not  always  enjoy  in 
settling  a  loss  on  physical  property. 

For  instance,  a  plant  may  be  totally  destroyed,  involving  a 
.total  loss  on  buildings,  machinery  and  stock,  which  would  result 
in  a  much  less  than  total  loss  on  Use  and  Occupancy,  allowing  that 
the  plant  could  be  replaced  in  less  than  twelve  months.  Again 
a  plant  might  be  visited  by  fire  and  a  delicate  stock  very  severely 
damaged,  resulting  in  a  large  loss  on  stock,  which  would  result  in 
only  a  moderate  loss  on  Use  and  Occupancy  because  the  plant 
could  be  put  in  operation  in  a  short  time. 

Even  though  valued  policies  are  Issued  the  assured  is  under 
obligations  to  put  his  plant  in  running  order  in  as  short  a  space  of 
time  as  possible,  and  the  company  has  a  right  to  demand  that  he 
does  so.  Many  claimants  will  endeavor  to  secure  as  liberal  a  set- 
tlement as  possible  on  buildings,  machinery  and  stock,  and  at  the 
same  time  will  put  forth  every  energy  to  get  their  plant  in  running 
order  as  soon  as  possible. 

In  the  first  Instance  their  interest  lies  In  making  as  liberal 
a  settlement  as  possible,  while  in  the  second  instance  their  Interest 
lies  in  rebuilding  and  operating  their  plants  as  promptly  as  possible, 
thus  reducing  the  Use  and  Occupancy  loss,  because  of  the  ever- 
prevailing  competition   in  business,   threatening  that  greater  and 

742 


Use  and  Occupancy — Eckert 

uninsured  loss — the  loss  of  trade,  the  diversion  of  customers,  in 
the  upbuilding  and  acquirement  of  which  years  of  effort  and  large 
expenditures  of  money  have  been  invested. 

BIBLIOGRAPHY— USE   AND   OCCUPANCY   INSURANCE. 


BAMENT.  William  N. 
Bament,  William  N. 
Bamknt,  William  N. 

DOYLB,  F. 

Drake,  Ltman  M. 
Eastern  Underwriter 

HALL,    THRASI^ER 
kiNNKT,  C.  C 

Koop^  William  H. 

T^wis,  W.  H. 
MCLEAN,  E.  L. 
Medlicott,    William   B. 
Mitchell,  W. 

RoBB,  Willis  O. 
SAUNrERS.  L.  V,  L. 
TowNSEND,  George  E. 

West,  Frank  G. 

Wright,  alsxandeb  B. 


(Address   before   Fire   Insurance   Society   Phila- 
delphia, 1J12.) 
Live  Articles  on  Special  Hazards  :  No.   4. 

Weekly  Underwriter.) 
Weekly  Underwriter:     Dec.   7,   1912.) 
Proceedingrs  Insurance  Institute  Yorkshire 
1907^1908.) 
Bulletin    Fire    Insurance    Club    Chicago 
January,  1912.) 
(July  7,  1914;  Augrust  13,  1915.) 
(IN:     Hall  on  Fire  Insurance,  Louisville, 
Fire    Underwriters'    Association 

1910.) 
Live  Articles  on  Special  Hazards ; 
"V\eekly  Underwriter.) 
,       ^      Standard.  Boston,   Sept.   20,  1916.) 
(Bulletin:     April  1,  1916.) 
( IN :  Lectures  on  Fire  Insurance,  Boston, 


(IN: 

(IN; 
(IN; 

(IN; 


(IN: 
(IN: 
(IN' 


1915.) 
Pacific 


No.  4. 


(IN 

(IN: 
(IN: 
(IN: 


1912.) 
South 


Record    Insurance    Institute    New 

Wales,  1908.) 
Cyclopedia  of  Insurance,  Hartford,  1916.) 
Consequential  Loss  Assessment,  London.) 
Proceedings   Fire  Underwriters'   Associa- 
tion  Paciflc,   1916.) 
(A  Treatise  on.     Reprint  from  Rough  Notes,  In- 
dianapolis.    1914.) 
(IN:    Proceedings  Insurance  Institute  Uverpool, 
1909-1910.) 


743 


XXXVIII 
USE  AND   OCCUPANCY;  PROFITS  AND   COMMIS- 
SIONS ;  RENTS  AND  LEASEHOLD  INSURANCE 

Leo  Levy,  Lawyer 

In  the  present  (adopted  1886)  New  York  Standard  Form  of 
Policy,  at  lines  38  to  44,  inclusive,  are  various  words,  phrases  and 
clauses  which  seek  to  exclude  certain  items  of  tire  loss  from  the 
coverage  of  the  policy. 

The  hrst  part  expressly  declares  that  the  insurer  shall  not  be 
liable  for  loss  to  accounts,  currency,  deeds,  evidences  of  debt,  etc., 
and  the  words  are  clear  and  unmistakable. 

Immediately  following  and  in  the  same  paragraph  is  found 
language  which  in  many  respects  seems  confused  and  ambiguous, 
with  misleading  punctuation.  It  begins  with  the  expression  ''nor 
unless  liability  is  specifically  assumed  hereon  for  loss  to  awnings, 
etc.,  *  *  *  property  held  on  storage  or  for  repairs  or  by  in- 
ierriiption  of  business,  manufacturing  processes  or  otherzvise." 

We  are  all  familiar  with  the  forms  in  daily  use  which  take 
from  the  above  excluding  clause  its  operation  upon  items  such  as 
patterns,  models,  signs,  store  and  office  furniture  and  fixtures, 
property  held  on  storage  or  for  repairs,  and  the  substitution  of  di- 
rect coverage  and  the  trust  and  commission  clauses. 

The  words,  however,  "nor  unless  liability  is  specifically  as- 
sumed hereon  for  loss  *  *  *  by  interruption  of  business,  man- 
lifacturing  processes  or  otherwise"  cannot  be  dealt  with  so  lightly. 

I  am  unable  to  say  what  was  intended  by  the  word  "other- 
wise" except  that  the  phraseology  indicated  >  when  read  as  above 
means  that  the  insurer  should  only  be  liable  for  direct  loss  of  cash 
value  as  distinguished  from  consequential  or  indirect  loss,  which, 
though  invarjiably  following  a  fire  damage,  is  not  secured  to  the 
assured  unless  liability  therefor  has  been  specifically  assumed  else- 
where in  the  contract. 

It  has  been  believed  that  strictly  it  is  neither  permissible  nor 
legal  to  insure  against  loss  by  interruption  of  business  or  manu- 
facturing process  under  this  Standard  Form,  but  it  would  seem  that 
the  language  employed  does  warrant  the  writing  of  such  insurance 
coverage  and  should  a  policy  have  been  issued  wherein  obligation  is 
assumed  for  damage  by  ^'business  interruption,  manufacturing 
processes  or  otherwise"  the  insurer  would  be  estopped  from  assert- 
ing ''ultra  vires"  or  invalidity. 

744 


Business  Interruption,  Rents  and  Leasehold 

It  is  assumed  for  the  purposes  of  this  paper  that  a  bargain 
has  been  made  and  a  form  adopted  which  expressly  covers  the 
subject  matters  of  the  paper  and  thus,  there  are  called  up  for  dis- 
cussion some  of  the  questions  that  have  arisen  and  have  been  de- 
termined by  adjudication  and  it  is  hoped  that  comment  thereon  may 
serve  as  help  in  avoiding  disputes.   ' 

It  may  also  be  taken  for  granted  that  in  the  discussion  of 
these  various  subjects  most  of  them  have  to  do  with  ambiguities 
due  to  diversity  of  form;  and  in  practice  it  is  to  be  noted  that  there 
exists  at  the  present  time  no  uniform  or  standard  rider  which  under 
the  section  of  the  insurance  law  is  authorized  to  be  attached  to  the 
policy  which  describes  these  interest?.  It  is  to  be  borne  in  mind  that 
the  courts  universally  say  that  though  there  might  appear  hard- 
ship or  injustice  in  particular  cases,  ''all  ambiguity  or  doubt  as  to  the 
meaning  of  terms  of  policies  having  no  accepted  significance,  such 
ambiguity  or  doubt  would  be  resolved  against  the  insurer."  If 
it  appear  that  what  was  intended  to  be  covered  was  ''interruption  of 
business,  manufacturing  processes  or  otherwise,"  no  matter  what 
phraseology  may  have  been  employed,  such  intent  once  established, 
there  would  be  secured  to  the  policy-holder  by  court  adjudication 
the  loss  suffered  and  not  coverable  by  insurance  against  the  destruc- 
tion of  the  physical  property. 

Before  referring  to  the  different  classifications  outlined,  it  may 
be  in  point  to  call  attention  to  an  extreme  to  which  the  courts  have 
gone  in  aiding  an  assured  in  establishing  cash  value.  This  in  the 
well-known  case  of  Phillips  v,  Ins.  Co.,  128  App.  Div.,  528,  where 
it  was  held  that  upon  the  ordinary  and  usual  fire  policy  covering 
merchandise  a  loss  occurred  to  straw  hats  which  had  been  com- 
pletely manufactured,  sold,  cased  for  shipment  but  not  delivered, 
and  the  delivery  of  which  was  to  have  been  begun  the  day  after 
the  fire  and  to  have  continued  for  a  period  of  months  thereafter; 
since  it  was  impossible  to  rebuild  the  plaintiff's  factory  in  time  for 
seasonable  reproduction  and  the  merchandise  was  not  purchaseable 
in  the  open  market,  the  Company  w^as  liable  for  the  cost  of  manufgic- 
ture  plus  the  profits  which  had  been  included  by  the  assured  in  the 
actual  selling  price  and  that  the  cash  value  as  thus  determined 
was  not  the  cost  (straw  hats,  it  being  held,  were  not  an  ordinary 
staple)  but  the  price  at  which  the  assured  had  agreed  to  sell.  There 
was  a  strong  dissent  in  the  case  to  the  effect  that  as  the  selling 
price  included  profits  such  profits  should  not  be  recoverable  under 

745 


The  Fire  Insurance  Contract 

the   policy   insuring  merchandise,   as   there   was   no   insurance   of 
profits  as  such. 

The  point  which  I  am  seeking  to  make  is  that   the  insurance 
now  discussed  is  intended  to  secure  to  or  indemnify  the  assured 
against   loss   of   that   which   might   roughly   be   termed   profits   as . 
distinguished  from  the  other  kinds  of  insurance  attempted  to  be 
covered  in  this  paper. 

Profits  have  been  defined  as  "the  expectation  of  pecuniary 
gain  or  advantage  from  the  continued  existence  of  the  thing  in- 
sured." In  the  old  case  of  Insurance  Company  v.  Coulter,  3  Peters 
(U.  S.)  222,  profits  were  said  to  be  "a  mere  excresence  of  the 
principal — the  sums  added  upon  the  value  of  goods  beyond  the 
prime  cost." 

In  the  year  1830,  where  the  subject  matter  of  insurance  was 
profits  of  a  certain  voyage,  it  was  held  that  it  was  not  a  matter 
of  inquiry  at  the  instance  of  the  insurer  to  speculate  as  to  whether 
or  not  profits  might  have  been  earned  had  the  voyage  (interrupted 
by  the  destruction  of  the  vessel  by  fire)  been  continued  to  its 
projected  conclusion.  The  question  was  to  be  disposed  of  upon 
reason  and  principle.  That  the  loss  of  the  cargo  must  necessarily 
carry  v/ith  it  the  loss  of  profits,  and  that  the  rule  thus  adopted  had 
convenience  and  certainty  to  recommend  it. 

"Here  was  a  voyage  of  many  thousand  miles  to  be  performed,  final 
profits  of  which  must  have  been  determined  by  a  statement  of  accounts 
passing  through  several  changes,  some  of  which  might  have  resulted  in 
loss,  some  in  gain;  and  in  each  case  the  good  or  ill  fortune  of  the  adven- 
ture turning  on  the  gain  or  loss  of  a  day  in  the  voyage.  What  human 
calculation  or  human  imagination  could  have  furnished  testimony  on  a 
(act  so  speculative  and  fortuitous?  To  have  required  testimony  to  it 
A'ould  have  been  subjecting  the  rights  of  the  plaintiff  (the  assured)  to 
mere  mockery." 

Thh  lane^uage  used  so  long  ago  was  reafiirmed  by  the  same 
august  tribunal  in  1899  in  the  case  of  Sugar  Refining  Company 
V.  Insurance  Company,  175  U.  S.,  at  page  624.  In  that  case  the 
policy  read  to  a  fixed  amount  of  profits  on  a  cargo  of  sugar  and  it 
'vas  decided  in  addition  that  even  though  a  part  of  the  cargo  was 
'salvaged  there  had  been  a  total  loss  within  the  fair  intendment  of 
*he  contract. 

Necessarily  there  is  involved  in  the  discussion  of  profits  the 
nuestion  of  insurable  interest,  and  in  that  connection  it  might  be 
mstructive  to  dwell  upon  what  has  been  held  to  be  insurable  where 
*he  ownership  is  not  in  the  insured,  and  this  is  referred  to  as  point- 
ing the  distinction  to  be  borne  in  mind,  to  wit:     that  though  the 

746 


Business  Interruption,  Rents  and  Leasehold 

provisions  of  the  Standard  Form  would  void  the  insurance  if  the 
assured  were  not  sole  and  unconditional  owner,  etc.,  it  would  seem 
that  insurance  upon  the  intangible  property  rights  under  discussion 
are  unaffected  by  lack  of  legal  title,  provided  only  that  there  existed 
in  the  assured  a  sufficient  insurable  interest. 

As  far  back  as  Riggs  v.  Commercial  Ins.  Co.  (125  N.  Y.)  it 

was  held  that  a  stockholder  of  a  corporation  holding  no  title  to  the 

corporate  property  except  by  such  indirect  ownership  could  legally 

insure  such  interest;  and  that  the  insurable  interest  was  really  to 

be  determined  by  the  rule  that 

"If  a  person  be  so  situated  with  respect  to  the  subject  of  insurance 
that  its  destruction  would  or  rriight  reasonably  be  expected  to  impair  the 
value  of  that  interest,  an  insurance  on  such  interest  would  not  be  a  wager, 
whether  such  interest  was  an  ownership  in  or  a  right  to  the  possession 
of  the  property  or  simply  an  advantage  of  a  pecuniary  character  having 
a  legal  basis,  but  dependent  upon  the  continued  existence  of  the  subject." 

but  further  noting 

that  the  mere  hope  or  expectation  which  may  be  frustrated  by  the 
happening  of  some  event  is  not  insurable. 

In  the  given  case  the  stockholder's  right  to  dividend  or  final  dis- 
position of  the  corporate  property  possibly  prejudiced  by  the 
casualty  insured  against  was  a  sufficient  showing  of  insurable  in- 
terest which  supported  the  right  of  recovery  of  the  indemnity. 

See  also  Cone  v.  Niagara  Ins.  Co.,  60  N.  Y.  619;  Wilson  v.  Jones, 
Law  Reports,  2  Exch.  139;  Herkimer  v.  Rice,  27  N.  Y.  163;  Rohrback  v. 
Ins.  Co.,  62  N.  Y.  47;  Oil  Co.  v.  Ins.  Co.,  106  N.  Y.  535. 

With  respect  to  the  headings  of  the  paper: 

(A)  Use  and  occupancy, 

(B)  Profits  and  commissions, 

(C)  Rents  and  leasehold, 

it  may  be  said  generally  that  in  principle  there  exists  no  difference 
in  coverage  and  for  the  purposes  of  this  paper  the  definitions  here 
given  may  be  taken  as  explanatory. 

"Use  and  occupancy"  has  been  judicially  defined  "as  being  the 
business  use  of  which  the  described  property  is  capable."  Tan- 
nenbaum  v.  Simon,  40  Misc.  175,  84  App.  Div.  642.  Also,  "as 
applying  to  the  status  of  property  and  its  continued  availability  to 
the  owner  for  any  purpose  he  may  be  able  to  devote  it  to"  (Michael 
V.  Prussian  National  Ins.  Co.,  171  N.  Y.  25)  as  seen  in  the  in- 
stance of  a  grain  elevator  or  a  hotel,  the  business  availability  of 
which  might  be  impaired  or  destroyed  by  fire  loss  to  the  structure. 
See  Chatfield  v.  Ins.  Co  (71  App.  Div.  164). 

747 


The  Fire  Insurance  Contract 

Profits  have  been  defined  and  stated  "as  the  expectation  of 
pecuniary  gain  or  advantage  from  the  continued  existence  of  the 
thing  insured." 

Rents  as  such  are  sums  derivable  from  real  property  interests 
and  to  the  assured  lost  by  fire  because  of  the  interruption  of  the 
continued  enjoyment  of  the  property;  and  as  to  the  tenant  under 
lease,  the  destruction  or  impairment  of  the  same  property  right  for 
which  the  lessee  has  paid  or  is  obligated  to  pay. 


USE  AND  OCCUPANCY. 

Use  and  occupancy  upon  this  accepted  definition  is  wide  in  its 
coverage. 

The  business  use  of  which  described  property  is  capable  would 
ordinarily  mean  that  purpose  to  which  the  assured  might,  could  or 
would  devote  the  property  to  produce  income  which,  if  prevented 
by  a  casualty  insured  against,  to  wit:  fire,  would  immediately  and 
justly  give  rise  to  a  claim  for  loss;  the  question  seriously  to  be  con- 
sidered would  be  the  measuring  of  the  liability  to  the  insured. 
What  in  a  given  case  might  be  held  to  be  a  valued  policy,  in  another 
would  leave  open  and  subject  to  proof  the  question  of  damage. 

There  have  been  examined  for  the  purposes  of  this  paper 
a  great  many  forms  of  use  and  occupancy  coverage;  some  pre- 
pared by  insurer,  by  broker  and  others  by  apparent  cooperation 
of  the  two. 

Many  times  there  have  been  added  to  the  form  reading  use 
and  occupancy  the  words  "including  fixed  charges."  Necessarily 
the  implication  would  follow  that  there  was  intended  to  be  covered 
tho.^e  items  of  expense  which  would  have  to  be  met  by  the  assured 
even  though  the  property  itself  were  damaged  or  destroyed,  as, 
for  example,  interest  on  mortgages,  salaries  to  employes  under 
contract,  and  many  others  which,  as  accounting  propositions,  would 
have  to  be  added  to  the  loss  defined  as  the  impairment  of  the 
business  use  of  which  the  described  property  is  capable;  there  is, 
as  stated,  no  uniform  rider  and  each  case  must  be  taken  on  its  own 
facts. 

A  reading  of  the  adjudicated  cases  leads  to  the  conclusion 
that  "use  and  occupancy"  is  a  broader  cover  than  "Profits,  Rents  or 
Leashold." 

748 


Business  Interruption,  Rents  and  Leasehold 

In  the  well-known  case  of  Michael  v.  National  Ins.  Co.,  171  N. 
Y.  725,  known  as  the  grain  elevator  case,  the  "use  and  occupancy" 
of  a  grain  elevator  against  a  fire  loss  which  "would  prevent  the 
elevating  and  other  handling  of  grain''  was  ivolved.  The  oft  laid 
down  ruling  that  any  of  the  general  conditions  of  the  Standard 
Form  which  were  found  to  be  repugnant  to  or  inconsistent  with 
statements  otherwise  in  the  contract,  those  which  were  most  favor- 
able to  the  assured  would  be  held  to  be  controlling,  and  that  the  ex- 
pectation of  profits  and  earnings  derivable  from  property  not  alone 
were  conveyed  by  the  words  "use  and  occupancy,"  but  that  the 
definition  first  above  quoted  as  to  use  and  occupancy  was  the  one 
which  would  govern  the  Court  in  defining  the  obligations  of  the 
insurer,  and  that  had  it  been  the  intent  of  the  insurer  to  limit  its 
coverage  to  earnings  and  profits  alone,  appropriate  and  unmis- 
takable words  therefor  would  have  been  used  and  not  the  words 
"use  and  occupancy." 

It  was  the  insurer's  contention  in  that  case  that  the  coverage 
"use  and  occupancy"  meant  such  earnings  and  profits  which  would 
have  been  derived  by  the  assured  from  the  actual  operation  of  the 
elevator  and  since  it  was  shown  as  a  fact  that  by  virtue  of  arrange- 
ments or  agreements  made  by  the  owners  of  the  elevator  this  par- 
ticular property  was  not  in  operation,  there  did  not  result  to  the 
assured  any  loss  which  was  recoverable.  Such  contention  was  held 
to  be  ill-founded. 

Again,  in  the  two  cases  of  Tannenbaum  v.  Simon,  40  Misc. 
174,  and  Same  v.  Freundlich,  39  Misc.  819,  under  the  well-known 
form  of  broker's  contract  where  the  assured  had  agreed  to  carry  in- 
surance including  that  upon  "use  and  occupancy"  building  and  rents, 
the  brokers  plaintiff  claimed  damages  for  the  assured's  failure  to 
carry  the  kind  of  insurance  specified,  and  sought  to  establish  that 
the  measure  of  damage  under  use  and  occupancy  insurance  was  the 
profit  which  the  defendant  insured  had  made  upon  the  premises 
and  shown  by  computations  covering  a  period  of  years.  The  Court 
held  that  such  profits  were  not  in  any  wise  valid  elements  usable 
in  ascertaining  the  amount  of  insurance  which  the  broker's  cus- 
tomers had  agreed  to  carry,  and  that  "use  and  occupancy"  was  not 
and  could  not  be  profits  or  estimated  profits  from  earnings,  how- 
ever ascertained,  and  that  the  record  of  the  business  for  prior 
years  had  no  direct  bearing  upon  the  establishing  of  the  value  of  use 
and  occupancy  and  could  not  legally  measure  the  damage. 

749 


The  Fire  Insurance  Contract 

In  the  absence  of  express  language  clearly  indicating  the  con- 
trary, the  writer  is  inclined  to  the  belief  that  a  policy  upon  "use 
and  occupancy"  as  such  would  be  held  to  be  valued,  and  that  if  it 
be  sought  in  practice  to  avoid  such  a  construction,  there  should  be 
clear  expression  by  simple  and  unambiguous  language  of  exactly 
what  measure  of  damage  is  to  be  applied  and  that  the  mtent  to  leave 
the  ascertainment  of  damage  as  under  an  open  policy  should  be 
made  unmistakably  clear. 

B 
PROFITS  AND  COMMISSIONS. 

As  indicated,  profits  and  commissions  attempted  to  be  secured 
to  the  insured  under  contracts  in  question  are  those  having  to 
do  with  the  future  and  which  are  lost  to  the  assured  by  reason  of 
the  casualty. 

The  Court  decision  above  referred  to  as  to  "what  human 
calculation  or  human  imagination  could  have  furnished  testimony 
on  a  fact  so  speculative  and  fortuitous  that  to  have  required  testi- 
mony would  have  been  subjecting  the  rights  of  the  assured  to  mere 
mockery"  is  indicative  of  the  difficulty  of  laying  down  a  measure  of 
damage  which  would  limit  the  right  of  recovery  on  a  profits  or 
commission  contract,  and  in  seeking  to  define  liability  of  the  insurer 
under  contracts  covering  profits  and  commissions,  it  has  already 
been  pointed  out  what  profits  are  and  what  it  is  the  Courts  might 
say  would  be  secured  to  the  insured  under  a  policy  which  read  on 
profits,  and  it  is  to  be  noted  that  there  is  very  little,  if  any,  dis- 
tinction between  the  words  "profits  and  commissions." 

In  the  case  of  Lite  v.  Ins.  Co.  (119  App.  Div.,  410,  affirmed 
193  N.  Y.,  639,  without  opinion)  the  lessee  was  insured  against  loss 
of  profits  that  inured  to  him  under  lease  of  a  certain  building. 
The  fire  rendered  untenantable  a  substantial  number  of  the  apart- 
ments in  the  building.  The  owner,  under  the  terms  of  the  lease,  was 
obligated  to  and  did  grant  to  the  assured  lessee  a  diminution  of 
rents,  and  it  was  held  that  the  policy,  which  read,  as  stated,  with 
various  provisions  as  to  how  the  loss  should  be  computed,  did  not 
for  all  purposes  make  the  policy  a  valued  one,  but  it  was  valued  only 
in  the  event  of  a  total  loss  and  that  it  was  proper  to  show  any 
loss  which  resulted  to  the  assured,  although  not  ascertainable  by  the 
monthly  limit  fixed  in  the  contract ;  and,  though  it  would  be  difficult 
to  fix  the  amount  of  partial  loss,  the  assured  had  shown  enough 
to  have  justified  a  jury  in  saying  that  there  had  been  a  loss  sus- 

750 


Business  Interruption,  Rents  and  Leasehold 

tained,  and  since  there  might  be  reasonable  precision  in  the  ascer- 
tainment of  such  partial  loss,  it  was  for  the  jury  to  he  precise  and 
reasonable.  There  was  strong  dissenting  opinion  that  there  having 
been  actual  diminution  of  rent  allowed  by  the  landlord  there  was  no 
actual  loss  in  fact  suffered  by  the  insured  and  there  should  be  no 
award  of  damage. 

In  the  case  of  Oil  Company  v.  Ins.  Co.  (106  N.  Y.,  538)  the 
policy  by  its  terms  insured  royalties  under  a  patent  licensing  agree- 
ment to  be  earned  in  an  oil  reducing  and  filtering  works.  There 
again  came  up  the  question  of  the  measure  of  damage,  and  it  was 
contended  by  the  insurer  that  since  the  fire  did  not  cause  a  reduction 
in  output  and  hence  a  lessening  of  royalties,  there  had  been  no  loss 
that  was  recoverable.  The  Court  held  to  the  contrary,  saying  that 
the  earning  power  under  the  royalty  contract  was  affected  by  the 
fire  which  destroyed  the  refinery  and  that  the  injury  to  the  assured 
was  to  his  right  to  receive  royalties  and  came  from  the  enforced 
idleness  of  part  of  the  refinery  and  that  the  assured  upon  proving 
what  the  oil  works  could  have  earned  and  which  the  fire  prevented 
it  from  earning,  was  sufficient  proof  of  damage. 

On  the  question  of  commissions,  the  case  of  Hayes  t.  Ins.  Co., 
170  Mass.,  492,  is  instructive.  Plaintiflf  was  an  agent  of  an  insur- 
ance  company  and  was  entitled  to  receive  under  his  contract  as  com- 
pensation the  sum  equal  to  twenty  percent  of  the  premiums  on 
policies  issued  by  him  and  an  extra  compensation  of  ten  percent  on 
the  net  ^profits  on  all  of  the  business  of  the  company.  It  was  decided 
that  the  agent  had  an  insurable  interest  in  the  property  insured  by 
the  Company  sufficient  to  support  a  policy  issued  to  him  which  cov- 
ered his  compensation  as  specified  in  the  agency  contract,  the  Court 
saying  that  the  property  belonging  to  others  and  which  was  to  them 
insured  under  the  policies  of  the  Company  employer,  even  though 
not  owned  by  the  employe  agent,  would,  if  destroyed,  leprive  the 
agent  of  his  extra  compensation  by  depriving  the  Company  em- 
ployer of  profits  on  the  business,  and  since  this  would  bring  to  the 
agent  a  direct  pecuniary  loss  of  the  profits  of  the  insurance  com 
pany  which  he  was  to  receive,  there  was  established  an  insurable 
interest  recoverable  under  the  particular  contract  of  indemnity  there 
before  the  Court. 

C 
RENTS  AND  LEASEHOLD: 

The  interests  thus  affected  are  described  for  the  purpose  of 
illustration  in  Casey  v.  Ins.  Co.  (33  Hun.,  315).     The  policy  cov 

751 


The  Fire  Insurance  Contract 

ered  a  lease  of  a  building.     The  lessee  had  sub-let  the  same,  by 
which  there  was  netted  to  him  a  yearly  profit. 

The  fire  partially  destroyed  the  premises  so  that  they  were  in 
fact  untenantable.  The  assured  claimed  the  loss  of  several  months' 
rent,  to-wit :  the  sum  of  rent  receivable  in  excess  of  the  rent  to  be 
paid.  It  was  held  that  this  was  the  right  measure  of  damage  on 
this  form  and  that  that  was  the  security  or  indemnity  which  the 
lessee  insured  and  had  contracted  to  have  made  good  to  him.  This 
is  almost  parallel  to  profits  insurance,  although  classified  as  rent 
insurance.  At  the  same  time  ordinary  rent  insurance  would  be  the 
income  derivable  from  property  as  rents  which  are  lost  to  an  owner 
or  lessee  by  reason  of  the  partial  or  total  destruction  of  described 
property. 

In  the  case  of  Hellar  v.  Ins.  Co.,  177  Pa.  State,  202,  the  insur- 
ance was  against  loss  by  reason  of  having  to  pay  rent  for  a  building 
under  lease  while  untenantable  through  fire  loss.  On  the  same 
building  the  owner  had  insurance  against  loss  of  rent  and  the  con- 
test arose  between  the  two  diflferent  sets  of  insurers.  Without 
discussing  certain  peculiarities  of  fact  and  of  law  there  arising, 
it  was  shown  that  after  the  fire  the  landlord  and  tenant  had  agreed 
upon  the  tearing  down  of  the  building  and  the  placing  upon  the 
premises  of  a  new  structure  which  in  part  covered  the  area  of  the 
old  and  in  addition  a  much  larger  area  at  a  largely  increased  rental. 
The  lessee's  insurer  contended  that  the  landlord  owner  had  been  paid 
the  loss  by  his  insurers  and  that  the  tenant  having  agreed  with  the 
landlord  for  a  new  building,  the  measure  of  liability  was  the  period 
of  time  elapsing  between  the  fire  and  the  day  when  the  landlord  en- 
tered upon  the  insured  premises  for  the  purpose  of  erection  of  the 
new  building.  It  was  decided  that  the  tenant's  insurer  had  nothing 
whatever  to  do  with  the  landlord's  insurer  and  that  there  was  noth- 
ing in  the  new  arrangement  between  the  landlord  and  the  tenant 
which  in  anywise  could  be  said  to  diminish  the  Hability  of  the  ten- 
ant's insurer  and  that  the  measure  of  the  damage  so  far  as  the 
obligation  to  the  tenant  was  concerned  was  the  interval  of  time 
which,  when  proven,  could  be  reasonably  said  to  be  necessary 
for  the  replacement  of  the  original  building,  and  since  such 
period  necessarily  exceeded  the  time  limited  in  the  contract,  the 
Company  insuring  the  tenant  was  liable  for  a  total  loss  and  that  any 
new  arrangement  between  the  landlord  and  tenant  did  not  aflfect  or 
control  the  fixing  of  the  amount. 

752 


Business  Interruption,  Rents  and  Leasehold 

In  conclusion,  attention  is  directed  to  the  historic  case  of 
Niblo  V.  Insurance  Company.  The  poHcy  read  to  the  assured  on 
Niblo's  Garden;  on  the  proposition  of  the  measure  of  damage  the 
following  copious  note  from  the  decision  is  taken: 

The  vital  question  in  the  cause  is,  What  was  that  loss?  The  plaintiff 
claims  first,  that  having  a  legal  insurable  interest  in  the  buildings  as 
lessee,  he  is  entitled  to  recover  their  value  as  fixed  by  the  policy.  The 
case  of  Laurent  v.  The  Chatham  Fire  Insurance  Company  (1  Hall's  R., 
41)  in  this  court,  which  was  cited  by  the  plaintiff,  does  not  sustain  his 
position.  There  the  assured  owned  the  building,  entire.  The  landlord 
had  no  interest  whatever  in  the  property  insured.  In  this  case,  the 
buildings  were  the  exclusive  property  of  Van  Rennselaer's  devisees,  and 
the  interest  of  the  assured  was  merely  his  right  to  possess  and  occupy 
them  for  the  unexpired  portion  of  the  year  for  which  they  were  demised. 

In  fire  insurance  generally,  there  is  nothing  corresponding  with  the 
valued  policies  used  in  marine  insurance,  and  the  assured  recover  accord- 
ing to  their  actual  loss,  as  estabHshed  in  evidence.  (2  Phill.  on  Ins.,  40, 
53.)  We  perceive  no  reason  for  distinguishing  this  case  from  the  gen- 
eral rule.  On  the  contrary,  it  would  be  extravagant  and  dangerous  to 
hold  that  the  lessee  of  a  house  for  a  year  can  recover  its  entire  value  on  a 
destruction  by  fire,  upon  a  policy  insuring  it  for  its  value.  How  it  would 
be,  if  the  insurer  were  fully  apprised  of  the  extent  of  his  interest  when 
they  issued  the  policy,  we  are  not  called  upon  to  decide. 

Next,  it  is  claimed  by  the  plaintiff  that  if  the  extent  of  his  interest 
be  open  to  inquiry  for  the  purpose  of  reducing  its  value,  it  is  proper  to 
look  into  the  circumstances  which  in6rease  the  value  of  the  property  to 
him.  And  in  this  view  he  offered  the  testimony  which  was  excluded  at 
the  trial.  It  is  said  that  the  evidence  was  not  to  show  remote,  uncertain 
or  contingent  profits,  but  to  prove  bargains  actually  made,  and  which 
were  certain  to  produce  gains  to  the  extent  of  the  insurance  by  the  use 
of  the  tenements  to  the  end  of  the  term,  if  the  buildings  endured  to  that 
time. 

The  point  urged  is  plausible;  but  it  is  not  to  be  disguised  that  it 
leads  to  the  admission  of  proof  of  gains  and  profits  interrupted  and  cut 
off  in  every  case  where  the  tenement  insured  is  occupied  for  business 
purposes,  and  the  injury  to  the  building  itself  or  to  the  interest  of  the 
assured  therein  is  less  than  the  sum  insured. 

We  have  no  hesitation  in  saying  that  on  an  insurance  against  loss  or 
damage  by  fire  on  a  building,  simply,  and  its  injury  or  destruction  by  the 
peril  insured  against,  the  assured  cannot  recover  for  his  loss,  occasioned 
by  the  interruption  or  destruction  of  his  business  carried  on  in  such 
building,  nor  for  any  gains  or  profits  which  were  morally  certain  to  enure 
to  him  if  it  had  remained  uninjured  to  the  expiration  of  his  policy. 

It  is  undoubtedly  true  that  profits  may  be  insured;  but  they  must 
be  insured  as  such;  so  that  the  underwriters  may  know  with  what  sub- 
ject they  are  deaUng.  (See  1  Phill.  on  Ins.,  122,  191.)  This  policy  is 
upon  certain  buildings.  It  agrees  to  make  good  to  the  assured  such  loss 
or  damage  as  shall  happen  by  fire  to  the  property  specified;  not  the  dam- 
age which  shall  happen  to  the  plaintiff  by  reason  of  the  interruption  of 
his  business,  nor  to  the  gains  which  he  would  make  in  those  buildings  if 
they  remained  unharmed.  The  policy  prescribes  that  the  loss  shall  be 
estimated  according  to  the  true  and  actual  cash  value  of  the  property 
insured,  at  the  time  of  the  fire;  (limited  of  course  by  the  extent  of  the 
interest  of  the  assured;)  and  in  the  proof  of  loss,  the  assured  is  to  make 
oath  of  the  cash  value  of  the  subject  insured.  Thus,  besides  its  silence 
as  to  everything  aside  from  the  buildings  as  such,  the  policy  is  incon- 
sistent with  the  supposition  that  anything  else  is  insured.  And  finally, 
the  tenth  condition  annexed,  giving  to  the  insurers  the  option  to  repair  or 

753 


The  Fire  Insurance  Contract 

rebuild,  cannot  be  reconciled  with  the  plaintiff's  claim  for  damages  grow- 
ing out  of  the  interrupted  use  and  enjoyment  of  the  premises. 

Our  conclusions  from  the  good  sense  of  the  contract  are  sustained 
by  a  decision  of  the  King's  Bench,  in  England,  and  by  the  opinion  of  this 
Court  pronounced  in  the  first  year  of  its  existence. 

In  Wright  v.  Sun  Fire  Office  (3  Nev.  &  Mann.  819;  S.  C.  I  Ad. 
&  Ell.  621),  the  policy  insured  £1,000  "on  his  interest  only  in  the  Ship 
Inn  and  offices."  The  premises  being  injured  by  fire,  the  insurer  rein- 
stated them  pursuant  to  the  policy.  The  assured  then  claimed  to  recover 
for  the  rent  paid  in  the  meantime,  the  hire  of  other  houses,  &c.,  while  the 
inn  was  being  repaired,  and  the  loss  or  damage  sustained  by  him  by  rea- 
son of  various  persons  declining  to  go  to  the  Ship  Inn  while  it  was  under- 
going such  repairs.  The  cause  was  submitted  to  an  arbitrator  under  a 
rule  of  court,  who  awarded  to  the  assured  £450  for  the  loss  he  had  sus- 
tained in  his  business  as  an  innkeeper  by  not  being  able  to  occupy  the 
inn  and  offices  during  the  interval  between  the  fire  and  the  rebuilding 
of  the  premises.  On  a  rule  nisi  to  set  aside  the  award,  it  was  contended 
by  the  assured  that  the  interest  which  he  had  in  the  inn  consisted  in  the 
power  to  use  it  in  his  business  as  an  innkeeper,  and  the  loss  by  tempo- 
rary inability  to  use  the  inn  was  within  the  meaning  of  the  policy;  and 
the  loss  of  business  by  reason  of  his  not  being  able  to  use  the  premises 
would  be  equally  within  the  policy.  That  the  profits  from  the  use  of  the 
inn  were  an  insurable  interest,  and  the  nature  of  the  interest  of  the  in- 
sured in  the  subject-matter  may  be  left  at  large,  if  the  subject  be  properly 
described. 

The  Court  held  that  the  policy  did  not  cover  the  profits  of  the  busi- 
ness, or  the  loss  sustained  in  his  business,  by  the  assured  being  unable  to 
occupy  the  premises;  and  that  profits,  when  insurable,  must  be  insured 
as  profits,  and  are  not  recoverable  as  an  incidental  loss  under  the  insur- 
ance of  a  building. 

The  argument  of  Chief  Justice  Jones,  in  the  case  of  Laurent  is  elab- 
orate and  satisfactory  to  show  that  as  it  is  the  tenement  upon  which  the 
insurance  is  made;  so  ihe  actual  value  of  the  tenement,  as  a  building,  is 
the  loss  of  the  assured,  on  its  destruction  by  fire;  that  however  unpro- 
ductive the  property  may  be,  or  however  great  may  be  the  extent  of  the 
revenue  derived  from  it,  the  measure  of  indemnity  in  case  of  loss  is  sim- 
ply its  value  as  a  building. 

The  plaintiff,  in  conclusion,  insisted  on  a  return  of  the  premiums 
paid  from  the  outset,  if  it  were  held  that  he  had  no  insurable  interest  in 
the  buildings.  As  to  this,  we  have  already  declared  our  opinion  that 
he  had  an  insurable  interest  as  tenant;  and  that  being  so,  there  can  be 
no  return  of  premium. 

There  is  nothing  before  us  b}'^  which  we  can  adjust  the  extent  of  his 
interest  covered  by  the  policy;  and  there  must  be  a  new  trial  to  ascer- 
tain the  same,  unless  the  parties  will  agree  upon  some  amount  to  be 
taken  as  the  verdict  of  a  jury,  assessing  his  damages  for  such  value.  On 
the  principle  we  have  established,  there  can  be  no  allowance  for  the  loss 
of  his  busine&s  or  interrupted  gains;  but  merely  for  the  value  of  the  tene- 
ments for  occupation,  subject  to  the  rent.  One  mode  of  putting  the  in- 
quiry to  the  jury  would  be  this:  How  much  would  a  stranger,  having 
no  contracts  or  engagements  pending,  such  as  the  plaintiffs  offered  to 
prove,  have  given  for  the  unexpired  lease  when  the  fire  occurred?  There 
may  be  other  modes  of  stating  the  inquiry,  equally  proper,  but  we  will 
not  attempt  to  anticipate  them.  We  recommend  the  parties  to  agree,  in 
order  to  save  the  expense  of  another  trial, 

BIBLIOGRAPHY — USB  AND  OCCUPANCY:     RENTS  AND  LEASEHOLD 

INSURANCE. 

BAMENT,  William  N.  Address    uefore    Fire    Insurance    Society    Phila- 

delphia:  1912. 
Bamekt.  William  N.  Weekly   Underwriter:     December  7,  1912. 

754 


Business  Interruption,  Rents  and  Leasehold 


Bambnt,  William  N. 

DOTLB,    F. 

Barbour,  Robert  P. 
Barbour,  Robert  P. 

Drake,  Ltman  M. 

Eastern  Underwriter 
ECKERT,  John  A. 

Grat,  John  H. 
Hall,  Thrasher 

HiNES'  Books  or  Forms 
KINNBT,  C.   C. 

KOOP,    WILLIAM    H. 

LBvr,  Leo 
Lewis,  W.  H. 
McLban,  E.  L. 
MEDLicoTT,  William  B. 
mitchell,  w. 
Richards,  George 

ROBB,  Willis  O. 

Saunders,  L.  V.  L. 
Town  send,  George  E. 
Wkkklt  Underwriter 
West,  Frank  G. 

Wohlgemuth,  John  F. 

Wright,  Alexander  B. 
Use  and  Occupancy  Inspection 
tion.  175  West 


Also :  Live  Articles  on  Special  Hazards  No. 
4.  (Weekly  Underwriter,  80  Maiden  Lane. 
New  York  City. 

Eastern  Underwriter,  105  William  Street,  Jan- 
uary 12,   1917. 

The  Affent's  Key  to  Fire  Insurance.  (In  press) 
Spectator  Company,  135  William  Street,  New 
York  City. 

Proceedings  Insurance  Institute,  Yorkshire, 
1907-8. 

Bulletin  Fire  Insurance  Club,  Chicago:  January, 
1912. 

July  7,  1914:     August  13,  1915. 

Address  before  The  Insurance  Society  of  New 
York:     November  16,  1916. 

National  Underwriter:     February  22,  191'. 

Hall  on  Fire  Insurance,  (Insurance  Field, 
Louisville,  Ky.,  1915.) 

C.   C.   Hines'   Sons,   100   William   Street. 

Fire  Underwriters'  Association,  Pacific,  San 
Francisco :      1910. 

Live   Articles   on   Special  Hazards   No.   4. 

Address  before  The  Insurance  Society  of  New 
York  :     January  30,  1917. 

Standard,  141  Milk  Street,  Boston;  September 
20,  1916. 

Americtin  Agrency  Bulletin,  55  Kilby  Street,  Bos- 
ton:     April  1,   1916. 

Lectures  on  Fire  Insurance.  (Insurance  Library 
Association,   141   Milk   Street,   Boston:      1912.) 

Record  Insurance  Institute,  New  South  Wales : 
1908. 

Richards  on  Insurance  Law,  8rd  ed.  1909. 
(Banks  Law  Publishing  Company,  Park  Row, 
New  York  City.) 

Cyclopedia  of  Insurance:  1916.  (Insurance 
Journal,  Hartford,  Conn.) 

Consequential  Loss  Assessment,   (London,  1913.) 

Fire  Underwriters'  Association,  Pacific:    1916. 

February   24.   1917;   p.   253. 

Treatise  on  Use  and  Occupancy  Insurance. 
(Rough  Notes  Publishing  Company,  Indian- 
apolis,  Ind..   1914.) 

New  Pointers  for  Local  Agents.  (Western  Un- 
derwriter, Chicago:      1914.) 

Insurance  Institute  of  Liverpool:    1909-1910. 

Blank,     Fire  Underwrit\}rs'  Uniformity  Assocla* 

Jackson  Boulevard,  Chicago,   111. 


COMMISSION    CLAUSE. 


BARBOUR,  Robert  P. 

Eastern   Underwriter 
Greer,  William  J. 

HALL,  Thrasher 
Richards,  George 


The  Agent's  Key  to  Fire  Insurance.     (In  press.) 

Spectator  Company,  135  William  Street,  New 

York    City. 
October  15.  1914. 
Address   before  The   Insurance   Society  of  New 

York:      March  21,   1916. 
"When    the    Warehouseman's    Insurance    Makes 

Him    Liable    for    Goods    Stored    With    Him." 

Chicago,    1914. 
Richards  on  Insurance  Law.     (trd  ed.  1909.) 


755 


XXXIX 
USE  AND  OCCUPANCY 

L.  A.  Moore 

General  Adjiister,  New  York  Underwriters  Agency 

One  would  naturally  suppose  that  there  are  abundant  words  in 
the  English  language  to  express  any  desired  meaning  in  compre- 
hensible terms,  yet  when  one  undertakes  to  interpret  the  meaning 
of  some  of  the  use  and  occupancy  forms  now  in  use,  it  would  seem 
that  such  is  not  the  case.  The  wording  of  these  forms  is  at  times 
so  ambiguous  that  they  are  subject  to  two  or  more  interpretations. 
At  other  times,  while  there  may  be  no  ambiguity,  the  language 
used  so  inadequately  expresses  the  intent  of  the  designers  of  the 
form,  that  the  results  obtained  are  frequently  inequitable.  Such 
forms,  if  literally  applied,  would  be  liable  to  overpay  or  underpay 
a  loss,  whereas  the  intent  of  any  contract  of  insurance  is  to  indem- 
nify assured  for  actual  loss  sustained,  subject,  of  course,  to  the 
conditions  of  co-insurance  or  other  qualifying  clauses.  The  language 
used  to  express  intent  should  therefore  define  such  intent  in  terms 
so  adequate  and  so  free  from  ambiguity,  that  no  occasion  for  con- 
troversy would  arise  in  its  interpretation.  Otherwise,  the  forms 
are  liable  to  be  susceptible  of  different  construction  and  lead  to 
wrangles  and  vexatious  delays,  to  which  the  assured  should  not 
be  subjected. 

Take,  for  example,  the  following  form,  which  provides  under 
Condition  No.  1 : 

It  is  understood  that  the  term  "use  and  occupancy"  shall  be  con- 
strued to  mean  net  annual  profits,  etc.,  and  such  fixed  charges  which 
may  not  be  discontinued  during  partial  or  total  suspension  of  operations. 

Condition  No.  2 : 

That  if  fire  occurs  during  the  term  of  the  policy  which  entirely  pre- 
vents production,  the  company  shall  be  liable  for  actual  loss  sustained 
at  a  rate  not  exceeding  1/300  of  the  amount  of  the  policy  per  day  for 
each  working  day  of  such  prevention. 

Condition  No.  3 : 

That  if  by  fire  occuring  during  the  term  of  the  policy  the  ability 
to  produce  the  full  daily  average  production  be  impaired  onl^,  then 
shall  the  company  be  liable  per  day  for  the  actual  loss  sustained  in 
such  proportion  of  a  sum  not  exceeding  1/300  of  the  amount  of  the 
policv  as  the  product  so  prevented  from  being  produced  bears  to  the 
full  daily  average  product,  it  being  understood  and  agreed  that  for  the 
purpose  of  the  insurance  the  average  daily  product  for  the  twelve  months 
next  preceding  the  date  of  the  fire  will  be  considered  the  full  daily 
average  product. 

756 


Use  and  Occupancy — Moore 

Condition  No.  1  states  it  is  understood  that  the  term  "use  and 
occupancy"  shall  be  construed  to  mean  net  annual  profits,  etc. 
Does  the  reference  to  ''net  annual  profits"  mean  the  net  annual  prof- 
its for  twelve  months  next  preceding  the  fire ;  that  is,  if  the  assured 
should  be  unable  to  operate  as  a  result  of  fire  for,  say,  four  months, 
the  average  profits  for  the  twelve  months  next  preceding  the  fire 
should  be  determined  and  that  rate  of  profit  applied  to  the  four 
months'  period  of  suspension?  Probably  the  reference  to  "net 
annual  profits"  and  all  of  Condition  No.  1  is  simply  meant  to  be 
descriptive  of  the  subject  of  insurance.  If,  however,  the  reference 
to  "net  annual  profits"  is  intended  to  mean  that  loss  shall  be  settled 
on  the  basis  of  the  profits  for  the  twelve  months  next  preceding 
the  fire,  all  that  would  be  necessary  to  do  to  determine  loss  of  profits 
would  be  to  ascertain  the  average  net  profits  for  the  twelve  months 
next  preceeding  the  fire  and  apply  that  rate  of  profit  to  the  period 
of  suspension,  which  would  have  the  eflPect  of  making  the  form 
valued  in  respect  to  profits,  in  the  sense  that  the  form  provides 
that  the  loss  shall  be  predicated  on  the  profits  for  the  twelve  months 
next  preceding  the  fire,  whatever  found  to  be,  without  regard  to 
what  they  would  have  been  had  no  loss  been  sustained. 

Condition  No.  2  states  that  in  the  event  of  total  suspension, 
the  company  shall  be  liable  for  actual  loss  sustained,  not  exceed- 
ing the  stated  daily  limit  of  liability,  so  that  if  assured  could  show 
that  during  the  period  of  suspension  his  net  profits,  etc.,  would  have 
exceeded  what  they  had  averaged  for  the  twelve  months  preceding 
the  fire,  he  could  collect  on  basis  of  actual  loss  sustained  up  to 
the  daily  limit  of  liability. 

Condition  No.  3  also  provides  that  in  the  event  of  partial  sus- 
pension the  company  shall  be  liable  for  actual  loss  sustained.  It 
might,  however,  not  so  operate  in  eflfect,  as  it  seems  to  be  modified 
by  the  provision  that  the  denominator  of  the  fraction  for  measuring 
the  loss  of  net  profits  and  overhead  shall  be  the  average  daily 
product  for  the  twelve  months  next  preceding  the  fire,  while  the 
numerator  of  the  fraction  is  the  "product  so  prevented"  and  the 
third  item  to  be  reckoned  with  is  "a  sum"  not  exceeding  the  daily 
limit  of  liability  stated  in  the  form;  that  is,  the  company's  Hability 
is  determined  by  three  factors,  namely : 

Product  so  prevented  ^^  ,»       .  j-       .i 

.  c        di  sum     not  exceedmg  the 

Average  production  of  "  <l=»"y  '■'™'t  °^  "ability, 

previous  year 

757 
25 


The  Fire  Insurance  Contract 

None  of  those  factors  appear  to  have  a  direct  relation  to  actual 
loss  sustained.  As  a  matter  of  fact,  it  would  seem  to  be  unneces- 
sary to  determine  the  actual  loss,  for  the  reason  that  it  seems  to 
have  no  bearing  on  the  amount  of  the  company's  liability.  There- 
fore, the  yardstick  required  for  measuring  a  partial  loss  under  a 
literal  interpretation  of  the  form  would  appear  not  to  be  the  same 
as  would  be  required  to  measure  the  company's  liability  in  case 
of  total  suspension.  While  in  some  cases  there  may  be  no  particular 
objection  to  the  employment  of  these  different  methods  in  the 
measurement  of  total  and  partial  losses,  the  form  would  be  clarified 
by  omitting  the  reference  to  '^actual  loss  sustained"  in  the  clause 
dealing  with  the  measurement  of  partial  losses,  for  the  reason, 
as  has  been  pointed  out,  that  the  company's  liability  would  be  de- 
termined without  direct  relation  to  the  actual  loss  sustained. 

In  connection  with  the  words  "It  being  understood  and  agreed 
that  for  the  purpose  of  this  insurance  the  average  daily  product 
for  the  twelve  months  next  preceding  the  date  of  fire  will  be 
considered  the  full  daily  average  product,"  the  question  sometimes 
arises  as  to  whether  the  reference  to  the  product  for  the  twelve 
months  next  preceding  the  fire  is  intended  solely  to  apply  to  the 
denominator  of  the  fraction  by  which  a  partial  loss  is  measured, 
or  it  is  designed  to  fix  in  advance  the  full  daily  average  product 
either  in  event  of  total  or  partial  suspension.  If  the  latter  sup- 
position is  the  correct  one,  an  assured  might  suffer  an  impairment 
of  production  and  still  be  able  to  produce  more  than  the  average 
daily  product  for  the  twelve  months  next  preceding  the  fire,  in 
which  event  he  would  not  be  able  to  collect  from  his  insurers.  On 
the  other  hand,  an  assured  might  suffer  little  or  no  actual  impairment 
of  production  as  a  result  of  fire  and  yet,  by  reason  of  a  decrease 
in  volume  of  business,  his  production  might  fall  far  short  of  that 
of  the  previous  year,  and  his  loss  would  be  measured  by  the  amount 
by  which  his  production  fell  short  of  the  average  for  the  previous 
year,  which  might  be  considerably  in  excess  of  his  actual  impair- 
ment of  production,  thereby  giving  the  assured  an  unfair  advantage 
in  the  adjustment. 

Some  forms  undertake  to  clear  up  this  ambiguity  by  stating 
that  "It  is  understood  and  agreed  that  for  the  purpose  of  this  in- 
surance, whether  involving  total  or  partial  prevention,  the  average 
daily  product  for  the  300  days  next  preceding  the  date  of  fire  shall 
be  considered  'the  full  daily  average  product.' "  While  the  ad- 
dition of  the  words  whether  involving  total   or   partial   preven- 

758 


Use  and  Occupancy — Moore 

tion  may  eliminate  to  some  extent  the  ambiguity,  the  possibili- 
ties of  an  inequitable  adjustment  still  remain. 

Aside  from  the  ambiguity  of  the  form,  it  has  the  usual 
features  which  any  form  has  which  contains  a  prior  measuring 
period,  and  especially  a  long  period;  that  is,  say,  for  example, 
that  the  product  is  coal,  that  the  average  production  for  the  twelve 
months  next  preceding  the  fire  were  1,000  tons  per  day,  that  the 
output  would  have  increased  to  2,000  tons  per  day  during  the  period 
of  suspension,  and  that  the  impairment  of  production  were  50  per- 
cent, or  1,000  tons,  the  fraction  for  measuring  the  loss  would  be 
1,000/1,000  of  a  sum  to  be  found,  not  exceeding  the  daily  limit 
named  in  the  policy,  thereby  giving  the  assured  a  100  percent 
recovery  for  a  50  percent  shutdown.  If  the  production  would 
have  decreased  during  the  period  of  impairment  to  500  tons  per 
day  had  no  fire  occurred,  and  the  impairment  of  production  were 
50  percent,  or  250  tons  per  day,  the  assured  could  recover  for  a 
50  percent  shutdown  but  25  percent  of  "a  sum",  etc.,  which  sum 
might  be  the  full  daily  limit  stated  in  the  form,  or  it  might,  of 
course,  be  less. 

When  property  insurance  carries  a  co-inturance  clause,  the 
values  are  taken  into  account  as  they  exist  at  time  of  fire.  Should 
not  use  and  occupancy  insurance  likewise  be  predicated  on  use  and 
occupancy  values  as  they  were  found  to  be  at  the  time  of  impair- 
ment rather  than  on  some  prior  period,  if  the  full  co-insurance 
feature  is  to  be  kept  intact? 

Many  forms  in  present  use  contain  a  provision  somewhat  as 
follows : 

It  is  a  condition  of  this  insurance  that  the  daily  production  (or 
business)  at  the  time  of  fire  shall  be  based  upon  the  average  daily 
production  (or  business)  of  all  plants  or  properties  herein  described 
for  the days  of  full  operation  next  preceding  the  fire. 

It  will  be  observed  that  a  space  is  left  before  the  word  "days" 
for  the  purpose  of  filling  in  the  period  prior  to  the  fire  which  shall 
be  taken  as  the  basis  for  measuring  the  loss  during  the  period  of 
suspension. 

The  words  "based  upon"  referred  to  in  the  form  might  be 
susceptible  of  a  different  meaning  than  they  were  intended  to  have, 
as  one  definition  of  base  is  "The  point  or  line  from  which  a  start 
is  made" ;  another,  "A  point  or  line  from  which  a  start  is  made  in 
any  action  or  operation."  If  the  reference  to  daily  production  for 
the  period  preceding  the  fire  simply  means  a  starting  point,  may 
it  not  be  built  up  from  that  point  until  the  actual  daily  production 

759 


The  Fire  Insurance  Contract 

at  the  time  of  the  fire  is  reached?  If  such  construction  vvere 
placed  upon  the  words  "based  upon,"  the  denominator  of  the 
fraction  for  measuring  the  loss  would  not  be  dependent  upon  the 
daily  production  for  a  stated  period  preceding  the  fire  but  a  variable 
amount  subject  to  determination.  It  was  probably  intended  that 
the  words  "based  upon"  should  have  the  efifect  of  "fixed  at",  as 
if  the  authors  of  the  form  had  intended  that  "based  upon"  simply 
meant  that  they  were  to  be  construed  as  a  starting  point  to  be  built 
up  from,  they  would  no  doubt  have  provided  for  no  prior  period 
as  a  basis  for  measuring  the  loss.  If,  however,  the  words  "based 
upon"  were  to  have  the  effect  of  "fixed  at",  it  would  have  been 
better  to  have  made  the  words  incapable  of  controversy  by  using 
the  words  "fixed  at"  or  the  words  "considered  to  be". 

Some  forms  make  reference  to  "prevention",  "producing 
ability",  "production",  etc.  Those  words  are  susceptible  of  such 
indefinite  construction  that  when  loss  occurs,  assured  sometimes 
interprets  them  to  mean  "sales";  at  other  times,  "weight";  again, 
"profit",  and  further,  "cost",  according  apparently  to  which  term 
would  avail  them  the  greatest  recovery.  It  will  be  apparent  that 
there  would  be  a  marked  difference  in  the  amount  of  the  company's 
liability  whether  they  were  held  to  have  one  meaning  or  another, 
as  in  a  certain  adjustment  the  ratio  of  loss  was  found  to  be  on  sales 
approximately  42  percent,  weight  35  percent,  profit  85  percent,  and 
cost  30  percent,  and  the  percentage  of  loss  to  insurance  on  those 
respective  bases  about  6  percent,  5  percent,  12  percent  and  4  per- 
cent. It  would  be  reasonable  to  presume  that  when  the  insurance 
is  taken  out  assured  estimates  what  their  approximate  daily  loss 
would  be  in  the  event  of  fire  on  a  particular  basis ;  that  is,  on  basis 
of  net  profits,  production,  sales,  weight,  cost,  or  otherwise.  On 
whatever  basis  it  is  desired  the  insurance  shall  be  predicated,  the 
form  should  make  it  plain  on  what  basis  the  company  assumes 
liability.  Generally  speaking,  it  should  be  presumed  that  when 
reference  is  made  in  a  form  to  "prevention",  "producing  ability", 
"production",  or  like  terms,  they  have  reference  to  the  particular 
thing  that  assured  manufactures,  but  from  the  different  construc- 
tions placed  upon  such  words  when  the  loss  occurs,  the  form  should 
make  it  plain  as  to  exactly  what  they  do  mean. 

Other  forms  now  more  or  less  in  use  read  somewhat  as  follows : 
During   the    time    of   total    suspension    of   business,   liability   under 

this  policy  shall  not  excecii  $ per  day  for  each  business  day 

of  such  suspension  from to  the   following » 

both  dates  inclusive. 

760 


Use  and  Occupancy — Moore 

Agents  almost  invariably  fill  in  the  dates  of  commencement 
and  expiration  in  the  two  blank  spaces,  thereby  fixing  the  limit  of 
liability  during  the  term  of  the  policy  only.  The  forms  provide, 
however,  that  the  company's  liability  is  not  limited  to  the  date  of 
expiration  so  long  as  the  fire  occurs  during  the  life  of  the  policy, 
and  the  question  therefore  may  arise  as  to  what  is  the  daily  limit 
of  liability  for  suspension  of  business  extending  beyond  the  ex- 
piration of  the  policy.  While  there  is  no  question  as  to  the  intent 
of  the  form,  an  assured  might,  perhaps,  feel  warranted  in  claiming 
recovery  on  a  higher  amount  of  daily  limit  of  liability  than  stated 
in  the  form  if  his  use  and  occupancy  loss  extended  beyond  that 
limit.  As  a  matter  of  fact,  there  would  appear  to  be  no  occasion 
to  use  a  clause  with  dates  to  be  inserted  where  the  daily  limit  is 
intended  to  remain  a  fixed  amount  during  the  entire  period  of 
liability.  If,  however,  it  is  desired  to  provide  for  a  fluctuating 
daily  lim.it  on  property  where  production  normally  varies  according 
to  season,  it  is  customary  for  th'i  form  to  read  somewhat  as  follows : 

For  each  business  day  from to  the  following $ 

For  each  business  day  from to  the  following— $ ,etc. 

For  reasons  outlined  above,  care  should  be  taken  to  see  that 
the  year  is  not  stated  in  the  blank  spaces,  the  month  and  day  only 
to  be  inserted.  It  will  be  found  of  some  assistance  to  agents  and 
others  to  have  the  words  "Insert  month  and  day  only"  printed  in 
small  type  underneath  the  blank  spaces  in  this  form,  such,  for  ex- 
ample, as : 

For  each  business  day  from 

(Insert  month  and  day  only.) 

to  noon  the  following 

(Insert  month  and  day  only.) 

It  is  not  uncommon  to  come  across  forms  assuming  liability 
for  use  and  occupancy  loss  resulting  from  destruction  or  damage 
to  the  buildings,  machinery  or  stock  described,  the  form  also  con- 
taining a  clause  providing  that  the  compensation  shall  extend  from 
the  date  of  fire  to  such  time  as  may  with  due  diligence,  etc.,  be 
required  for  above  described  property  to  be  restored  to  same  con- 
dition as  immediately  preceding  the  fire.  The  inclusion  of  stock 
in  a  form  of  this  character  without  any  qualification  as  to  whether 
it  is  raw,  in  process,  or  finished,  should  be  undesirable  if  the  com- 
pany did  not  desire  to  assume  liability  for  time  necessary  to  repro- 
duce stock  in  process  of  manufacture,  or  finished  stock.  It  is  not 
difficult  to  conceive  of  a  loss  under  this  form  where  the  property 
damage. is  confined  largely  to  finished  stock  and  stock  in  process 

761 


The  Fire  Insurance  Contract 

of  manufacture,  there  being  but  little  damage  to  the  buildings  or 
machinery.  The  damage  to  the  buildings  and  machinery  could 
be  restored  in,  say,  twenty-four  hours  and  full  operation  of  the 
plant  resumed,  yet,  according  to  the  form,  the  company  would  be 
liable  for  the  time  required  to  restore  the  damaged  stock  to  the 
same  condition  as  immediately  preceding  the  fire,  for  which  a 
month  or  more  might  be  required.  If,  however,  the  company  should 
desire  to  assume  liability  for  the  time  required  to  replace  damaged 
stock,  it  should  be  borne  in  mind  that  the  property  insurance  would 
pay  for  the  damage  to  the  stock,  including  cost  of  manufacture  up 
to  the  date  of  the  fire ;  further,  that  the  fixed  charges,  or  expenses 
which  cannot  be  discontinued  in  event  of  fire,  are  a  part  of  the 
cost  of  manufacture  and  are  included  in  the  adjustment  of  the 
property  loss.  The  fixed  charges  paid  for  by  the  property  insurance 
would  cover  the  average  time  which  had  been  spent  to  bring  the 
damaged  stock  up  to  the  state  of  completion  at  time  of  fire,  and 
under  ordinary  conditions  it  would  require  approximately  the  same 
period  for  the  restoration  of  similar  stock  after  the  fire  to  the  same 
degree  of  completion.  While  the  loss  of  profits  is  not  involved  in 
the  adjustment  of  the  property  insurance,  the  assured  would  be 
able  to  recover  double  indemnity  if  he  collected  under  his  use  and 
occupancy  policies  the  fixed  charges,  etc.,  which  were  also  paid  by 
the  property  insurance. 

From  the  foregoing,  it  would  appear  that  where  forms  assume 
liability  for  time  required  to  replace  or  restore  stock,  they  should 
provide  that  the  company's  liability  for  fixed  charges  should  be 
limited  to  the  time  the  plant  is  totally  or  partially  inoperative,  and 
in  iio  event  to  extend  to  the  time  required  to  replace  damaged  stock 
following  the  restoration  of  full  operation  of  the  plant. 

Many  of  the  earlier  forms,  as  well  as  some  of  the  current 
ones,  provide  that,  in  the  event  of  partial  suspension,  the  company 
shall  be  liable  for  that  proportion  of  "a  sum",  not  exceeding  1/300 
part  of  the  insurance,  as  the  product  so  prevented  bears  to  the  full 
daily  average  product  for  a  specified  prior  period.  The  somewhat 
indefinite  and  unsatisfactory  phrase  ''a  sum"  is  gradually  being 
superseded  by  the  words  "the  per  diem  liability  which  would  have 
been  incurred  by  a  total  suspension  of  business" — relieving  the  form 
of  any  doubt  as  to  the  actual  meaning  of  "a  sum". 

Also  where  forms  formerly  provided  for  the  measurement  of 
a  partial  loss  by  "product",  some  of  the  more  modern  forms  provide 
tor  the  measurement  "as  the  value  of  product  so  prevented,  etc., 

762 


Use  and  Occupancy — Moore 

bears  to  the  value  of  average  daily  product  for  the ^ 

days  preceduig  the  fire",  thereby  somewhat  more  clearly  defining 
the  meaning  of  "product"  by  suggesting  that  the  product  shall  be 
reduced  to  a  cash  value  basis,  which  simplifies  the  measurement 
of  a  loss  where  a  miscellaneous  stock  of  different  standards  of 
measurement  are  involved,  which  would  not  eliminate,  however, 
the  question  to  which  reference  has  heretofore  been  made,  of 
whether  ''product"  and  similar  terms  mean  profits,  sales,  cost  or 
weight,  etc. 

There  is  an  increasing  demand  for  insurance  covering  such 
fixed  charges  and  expenses  as  cannot  be  discontinued  in  the  event 
of  interruption  of  business  as  the  result  of  fire.  This  applies  more 
particularly  to  new  manufacturing  plants  and  mercantile  lines,  but 
occcasionally  to  established  lines  of  business  where  full  use  and 
occupancy  protection  is  not  desired.  Sometimes  it  is  undertaken 
to  give  the  assured  that  protection  under  a  use  and  occupancy  form 
by  striking  out  the  reference  therein  to  net  profits,  leaving  the  form 
unamended  otherwise.  A  use  and  occupancy  form  amended  only  in 
that  respect  is  hardly  suitable,  as  numerous  other  changes  would  also 
be  necessary  to  make  the  form  appropriate. 

Occasionally  a  form  is  designed  to  cover  fixed  charges  and 
expenses  which  provides  that  the  company  shall  contribute  on  basis 
as  fixed  charges  and  expenses  which  must  necessarily  continue  bear 
to  what  they  would  have  been  had  no  loss  been  sustained.  That 
would  have  practically  the  effect  of  making  the  company  liable  for 
the  full  daily  limit  of  liability  where  the  suspension  of  business 
might  be  trivial,  as  in  case  of  a  very  slight  reduction  of  business, 
it  would  probably  be  found  that  practically  the  whole  amount  of 
fixed  charges  and  expenses  would  have  to  be  kept  up,  thereby 
causing  the  company,  in  almost  all  cases  of  partial  loss,  to  be  liable 
for  the  full  daily  limit  of  liability;  that  is,  say,  for  example,  fixed 
charges  and  expenses  had  no  fire  occurred  would  have  run  $100 
per  day  and  a  slight  fire  caused  a  reduction  in  business  of  but  5 
percent.  Fixed  charges  and  expenses  which  could  not  be  discon- 
tinued would  probably  run  about  normal,  or  $100  per  day,  and  as- 
sured recover  100/100,  or  100  percent  of  the  company's  daily  limit 
of  liability,  for  a  5  percent  suspension  of  business.  As  the  assured 
should  be  able  to  collect  for  no  fixed  charges  and  expenses  which 
could  be  utilized  in  carrying  on  his  business,  it  would  be  better  to 
predicate  the  liability  for  fixed  charges  and  expenses  insurance  on 
basis  of  reduction  of  business,  under  a  form  providing  somewhat 
as  follows : 

763 


The  Fire  Insurance  Contract 

Total  Suspension:  During  the  time  of  total  suspension  of  business, 
liability   under   this   policy    shall    be   limited    to    such    fixed    charges    and 

expenses  as  cannot  be  discontinued,  not  exceeding  $ for  each 

business  day  of  such  suspension. 

Partial  Suspension:  During  the  time  of  partial  suspension  of  busi- 
ness, the  per  diem  liability  under  this  policy  for  such  fixed  charges 
and  expenses  as  cannot  be  discontinued  shall  not  exceed  such  proportion 
of  the  per  diem  liability  which  would  have  been  incurred  by  a  total 
suspension  which  the  decrease  in  business  bears  to  the  full  daily  business 
at  the  time  of  fire. 

It  is  a  condition  of  this  insurance  that  the  daily  business  at  the 
time  of  fire  shall  be  considered  the  average  daily  business  of  all  plants 

or  properties  herein  described  for  the days  of  full  operation 

next  preceding  the  fire. 

Other  Location  Clause:  It  is  a  condition  of  this  insurance  that 
as  soon  as  practicable  after  any  loss,  the  assured  shall  resume  complete 
or  partial  operation  of  the  property  herein  described,  and  shall  make 
use  of  other  property,  if  obtainable,  if  by  so  doing  the  impairment  of 
business  resulting  from  the  fire  may  thereby  be  reduced,  in  which  event 
the  company  shall  be  liable  for  not  exceeding  such  proportion  of  the 
per  diem  liability  which  would  have  been  incurred  by  a  total  suspension 
which  the  decrease  in  net  profits  bears  to  the  full  daily  net  profits  for 
the days  of  full  operation  next  preceding  the  fire. 

If  business  could  be  conducted  in  part  at  the  new  location,  with 
no  greater  proportionate  expense  than  at  the  original  location,  it 
would  no  doubt  be  fairly  equitable  to  base  the  adjustment  on  impair- 
ment of  product.  When  it  is  borne  in  mind,  however,  that  assured 
may  do  a  business  of,  say,  50  percent  of  normal  at  the  temporary 
location,  yet  owing  to  increased  expenses  his  net  profits  may  sink, 
say,  to  25  percent  of  normal  or  less,  it  would  appear  to  be  more 
equitable  to  predicate  the  company's  liability  for  loss  of  fixed 
charges  at  the  temporary  location  in  proportion  as  the  impairment 
of  net  profit  bears  to  the  full  normal  profit  at  the  original  location, 
instead  of  on  basis  of  reduction  of  ''business." 

While  the  foregoing  refers  more  particularly  to  a  "fixed 
charges"  form,  it  will  also  apply,  in  principle  at  least,  to  the  "other 
location  clause"  as  commonly  used  in  connection  with  straight  use 
and  occupancy  insurance. 

It  is  not  unusual  for  forms  to  read,  in  effect: 

On  use  and  occupancy  of  assured's  premises  located 

with  the  following  provision: 

If  by  reason  of  fire  the  assured  is  prevented  from  carrying  on  his 

business,  the  company  shall  be  liable  for  not  exceeding  $ per 

day,  etc. 

without  the  form  making  it  clear  that  the  company  shall  be 
liable  for  loss  only  in  the  event  of  the  interruption  of  business  being 
caused  by  fire  in  assured's  own  premises  as  described  in  the  policy. 
If  the  assured  obtains  power  for  the  operation  of  his  plant  from 

764 


Use  and  Occupancy — Moore 

outside  sources,  or  is  under  contract  with  other  manufacturers  to 
supply  him  with  material,  he  might  easily  be  prevented  from  carry- 
ing on  his  business  as  a  result  of  fire  at  premises  quite  remote  from 
his  own.  Liability  can,  of  course,  be  assumed  for  interruption  of 
assured's  business  by  a  fire  occurring  in  other  premises  than  his  own 
which  would  aflfect  the  operation  of  his  business,  l?ut  such  liability 
is  assumed  at  an  advanced  rate,  so  that  where  it  is  intended  that 
liability  shall  be  limited  to  interruption  caused  by  fire  in  assured's 
own  premises  only,  the  form  should  make  it  clear  that  it  does 
not  contemplate  liability  for  loss  resulting  from  fire  in  other 
premises. 

Frequently  permits  taken  from  property  damage  forms  are 
attached  to  use  and  occupancy  forms,  which  are  irrelevant  or 
dangerous.    Take,  for  example,  a  permit  to  cease  operations,  which 

usually  simply  gives  permission  to  ^'cease  operations  for 

days  from  date  hereof."  It  would  appear  desirable  that  under  both 
valued  and  non-valued  use  and  occupancy  forms,  a  permit  to  cease 
operations  should  read  about  as  follows: 

Permission  granted  to  cease  operations  for  not  exceeding ~ 

days  at  any  one  time  without  notice  to  the  company,  it  being  under- 
stood and  agreed,  however,  that  in  the  event  of  fire  occurring  during 
the  time  of  voluntary  inoperation,  this  company  shall  be  liable  for  no 
loss  during  the  period  of  time  hereby  granted  for  voluntary  inoperation, 
nor  during  such  additional  period,  if  any,  as  the  property  herein  de- 
scribed would  have  remained  voluntarily  inoperative. 

On  the  assumption  that  the  assured  might  resume  operations 
within  a  shorter  period  than  granted  by  the  permit,  it  could  be  made 
to  read  "during  such  time  as  the  property  herein  described  would 
have  been  voluntarily  inoperative"  instead  of  "during  the  period 
of  time  hereby  granted  for  voluntary  inoperation." 

On  the  ground  that  assured  might  possibly  sustain  a  loss  of  net 
profits  and  overhead  in  excess  of  loss  which  would  have  been  sus- 
tained by  reason  of  voluntary  inoperation,  which  excess  would  prob- 
ably be  null  in  case  of  either  a  valued  or  non-valued  form,  the 
permit  might  be  still  further  liberalized  by  making  it  read  somewhat 
as  follows : 

Permission  granted  to  cease  operations  for  not  exceeding 

days  at  any  one  time  without  notice  to  the  company,  it  being  under- 
stood and  agreed,  however,  that  in  the  event  of  fire  occurring  during 
the  time  of  voluntary  inoperation,  this  company  assumes  liability  only 
for  loss  of  net  profits  and  overhead  sustained  as  a  result  of  fire  in 
excess  of  the  loss  which  would  have  bee*  sustained  by  reason  of  volun- 
tary inoperation. 

The  forms  which  have  been  dealt  with  up  to  this  point  name 

a  fixed  amount  as  the  daily  limit  of  liability  under  "this  policy", 

765 


The  Fire  Insurance  Contract 

or  in  the  case  of  seasonal  forms,  several  fixed  amounts.  Occasion- 
ally forms,  however,  contemplate  other  insurance  where,  unless  care 
is  taken,  the  daily  limit  under  each  policy  may  fluctuate  with  the 
amount  of  total  insurance  carried. 

Suppose,  for  example,  a  form  provides  that  the  policy  covers 
for  $30,000,  being  pro  rata  of  the  following  form : 

$300,000  on  use  and  occupancy,  etc.,  daily  limits  of  liability  to  be 
specified  as  follows: 

During  January  to  April,  inclusive $    800  per  day 

During  May  to  August,  inclusive 1,000  per  day 

During  September  to   December,  inclusive 1,200  per  day 

It  is  evident  that  this  form  contemplates  total  insurance  to 
be  carried  of  $300,000,  being  an  average  of  $1,000  per  day  for  300 
days,  and  so  long  as  this  amount  of  insurance  is  maintained,  the 
daily  limits  under  "this  policy"  of  $30,000  will  be  30,000/300,000 
of  the  limits  specified  in  the  form,  or  $80,  $100  and  $120  per  day 
respectively  for  the  diflferent  periods  of  the  year,  being  an  average 
for  the  year  of  $100  per  day,  or  1/300  of  the  face  of  the  policy. 
There  is,  however,  no  warranty  that  the  total  insurance  of  $300,000 
will  be  maintained.  Suppose,  for  example,  that  the  total  insurance 
at  the  time  of  the  fire  were  found  to  be  but  one-half  of  the  original 
sum,  or  $150,000.  There  is  nothing  in  the  form  which  would 
operate  to  reduce  the  daily  limits  of  liability  so  far  as  the  total 
insurance  is  concerned.  The  limits  of  the  policy  in  question,  how- 
ever, would  increase  to  30,000/150,000  of  the  limits  named  in  the 
form,  or  $160,  $200  and  $240  per  day  instead  of  $80,  $100  and  $120 
respectively. 

It  will  be  noted  from  the  foregoing  that  the  daily  limits  of 

each  policy  will  fluctuate  according  to  the  total  amount  of  insurance 

carried.     In  order  to  obviate  this  unfavorable   feature,  it  would 

appear  desirable  for  the  form  to  contain  a  suitable  introductory 

clause,  providing,  in  effect,  that  "this  policy"  shall  be  liable  for  not 

exceeding  30,000/300,000  of  the  "following  per  diem   amounts". 

Such  a  clause  would  have  the  efifect  of  fixing  the  daily  limit  of  the 

policy  regardless  of  the  total  amount  of  insurance  carried.    It  would 

not,  however,  contain  any  of  the  features  of  a  co-insurance  clause. 

Necessary  provision  for  co-insurance  should  also  be  made  by  the 

use  of  a  clause  reading  somewhat  as  follows : 

During  the  time  of  a  partial  suspension  of  business,  the  per  diem 
liability  under  this  policy  shall  not  exceed  that  proportion  of  the 
per  diem  liability  which  would  have  been  Incurred  by  a  total  suspension 
which  the  decrease  in  business  bears  to  the  full  daily  business  at  the 
UiHc  ot   the.  hre. 

766 


Use  and  Occupancy — Moore 

Use  and  occupancy  forms  generally  provide  that  assured  shall, 
in  the  event  of  loss,  exercise  due  diligence  and  dispatch  in  placing 
his  plant  in  condition  to  resume  operations,  and  that  any  structure 
or  structures  or  surplus  machinery,  or  duplicate  parts,  equipment 
or  supplies,  which  may  be  owned,  controlled  or  used  by  the  assured, 
shall  be  used  in  placing  the  property  in  condition  for  operation. 
While  it  is  incumbent  upon  the  assured  to  use  every  reasonable 
means  to  hasten  resumption  of  operations,  he  frequently  expends 
more  than  would  be  necessary  in  the  normal  way  in  order  that  as 
little  time  as  possible  may  be  lost,  for  such  items,  for  example,  as 
temporary  repairs,  cost  of  express  on  machinery,  etc.  over  freight, 
extra  expense  of  and  overtime  of  labor,  and  various  other  items, 
according  to  the  necessities  of  his  business.  The  assured  is  no 
doubt  first  prompted  by  his  own  interests  to  resume  operations  at 
the  earliest  moment  possible  without  consideration  of  the  cost,  in 
order  to  save  his  trade,  fulfill  his  contracts  and  keep  his  organiza- 
tion intact.  Perhaps,  strictly  speaking,  use  and  occupancy  insurance 
would  be  liable  for  none  of  the  expense  so  incurred,  but  if  the 
assured  does  incur  such  expense  and  make  extraordinary  efforts 
to  resume  operations,  it  would  seem  reasonable  for  use  and  oc 
cupancy  insurance  to  recognize  such  outlay  if  the  use  and  occupancy 
loss  would  thereby  be  reduced  below  what  it  would  otherwise  have 
been  if  assured  simply  proceeded  in  a  normal  way. 

Many  use  and  occupancy  forms  provide,  in  resf)ect  to  salaries, 
that  liability  is  assumed  only  for  the  salaries  of  employes  under  con- 
tract. It  is  frequently  found  that  expert  and  other  valuable  em- 
ployes are  not  under  contract  and  that  it  is  necessary  for  assured/ 
in  order  to  keep  his  organization  together  and  to  resume  operations 
with  as  little  interruption  as  possible  and  to  prevent  them  from 
going  to  competitors,  to  continue  their  salaries.  It  would  seem 
reasonable,  therefore,  that  most  use  and  occupancy  forms  at  least 
should  be  broad  enough  to  include  the  salaries  of  such  indispensible 
employes,  whether  under  contract  or  not. 

Most  forms  provide  that  the  loss  of  net  profits  shall  be 
measured  by  production.  It  is  likely  that  when  agents  sell  use  and 
occupancy  insurance,  they  represent  to  assured  that  it  is  indemnity 
against  loss  of  profits,  thereby  giving  the  impression  that  the  loss 
shall  be  measured  on  that  basis  instead  of  measurement  by  produc- 
tion, as  many  forms  provide.  It  is  true  that  the  subject  of  the 
insurance  in  most  cases  is  net  profits  and  overhead,  but,  as  a  matter 
of  fact,  to  measure  a  loss  of  net  profits  and  overhead  by  production 

767 


The  Fire  Insurance  Contract 

as  against  measuring  it  by  net  profits  will  not,  as  a  rule,  fully  in- 
demnify assured,  for  the  reason  that  if,  for  example,  assured's 
production  is  cut  off,  say,  50  percent,  they  still  have  to  keep  up  a 
large  part  of  their  operating  expense,  so  that  while  impairment  of 
production  may  run  50  percent,  their  loss  of  profits  might  be  as 
high  as  75  percent,  or  even  100  percent.  If  both  profits  and  pro- 
duction ran  on  an  even  keel,  it  would  probably  make  but  little,  if 
any,  difference  whether  the  measurement  were  by  production  or  by 
profits,  but  as  they  do  not,  the  assured  would,  in  most  cases,  be  more 
nearly  indemnified  by  measuring  the  loss  of  net  profits  by  net  profits. 
There  would,  however,  probably  be  a  few  cases  where  product 
would  be  impaired  to  a  greater  percentage  than  profits. 

Occasionally  an  assured  will  sustain  damage  to  merchandise 
in  storage  or  held  in  reserve,  and  still  have  sufiicient  undamaged 
stock  to  supply,  at  least  temporarily,  the  requirements  of  his  business 
and,  consequently,  suffer  no  apparent  use  and  occupancy  loss,  yet 
will  claim  that  although  his  business  is  not  affected  at  the  time,  the 
reduction  of  his  reserve  stock,  as  a  result  of  the  fire,  may  at  some 
future  time  cause  an  actual  shortage,  which  he  may  be  unable  to 
replace  owing  to  market  conditions,  lack  of  shipping  facilities,  or 
other  causes. 

Under  certain  conditions  such  a  claim  might  not  appear  to  be 
altogether  unreasonable.  At  the  same  time,  it  would  no  doubt  be 
exceedingly  difficult  for  an  assured  to  prove  that  such  a  loss  would 
develop.  In  most  circumstances  at  least,  the  assured  could  probably 
replace  his  reserve  stock  gradually  to  the  same  condition  as  im- 
mediately preceding  the  fire,  thereby  eliminating  the  possibility  of 
any  subsequent  shortage  being  reasonably  chargeable  to  the  fire. 

Taking  everything  into  account,  there  would  appear  to  be  little 
warrant  to  consider  anything  in  connection  with  a  use  and  oc- 
cupancy loss  so  indefinite  and  remote  as  the  contingency  of  a  loss 
due  to  shortage  of  material  or  merchandise  which  may  not  become 
apparent  until  months  or  years  after  the  occurrence  of  a  loss. 

It  may  be  of  some  interest  to  refer  to  a  few  personal  ex- 
periences to  show  how  the  adjustments  were  made  and  how  they 
should  apparently  have  been  made,  in  order  to  point  out  the  im- 
portance of  the  adjuster  having  a  good  grasp  of  the  subject,  and  also 
the  importance  of  the  forms  clearly  defining  the  subject  of  insurance 
and  providing  for  a  comprehensible  basis  for  measurement  of  the 
loss : 

768 


Use  and  Occupancy — Moore 

Example  No.  1. 

This  form  provides: 

It  is  a  condition  of  this  insurance  that  if  the  said  building  or 
machinery  or  stock  therein  shall  be  destroyed  or.  so  damaged  by  fire 
that  the  premises  described  are  entirely  prevented  from  producing  or 
merchandising,  this  company  shall  be  liable  at  the  rate  of  one  three* 
hundredths  (1/300)  part  of  the  amount  of  this  policy  for  each  working 
day  of  such  prevention,  and  in  case  the  building  or  machinery  or  stock 
are  so  damaged  as  to  prevent  the  making  of  a  full  daily  average  pro- 
duction or  merchandising  of  said  goods,  this  company  shall  be  liable 
per  working  day  for  its  pro  rata  proportion  of  the  percentage  of  one 
three-hundredths  (1/300)  part  of  the  amount  of  this  policy  which  the 
production  or  merchandising  so  prevented  from  being  made  bears  to 
the  average  daily  production  or  merchandising  for  the  twelve  months 
of  operation  immediately  preceding  the  fire  but  not  exceeding,  in  either 
case,  the  amount  insured. 

The  statement  of  loss  was  as  follows: 

Production   or  merchandising  for  12  months  preceding  the 

fire   (300  days)   $7,518,147.89 

Production,    etc.,    for   the    period     of    suspension,    being    3 

months  (75  days)  following  the  fire  1,802,801.38 

Daily  average  before  fire  $25,060.49 

Daily  average  after  fire  24,037.34 

Daily   loss   1,023.15 

Insurance    loss   $1,023. 15/$25,060. 49   of   $4,166.48    (maximum 

insurance  liability),  per  day  170.10 

and  for  75  days  (being  the  agreed  period  of  suspension) 12,757.50 

The  assured's  production  per  day  for  the  300  days  before  the 
fire  was  $25,060.49,  and  the  actual  production  per  day  for  the  71 
days  after  the  fire  was  $24,037.34,  the  adjuster  calling  the  differ- 
ence between  those  figures  the  daily  loss. 

Under  the  wording  of  the  form  one  would  need  to  know,  in 
order  to  determine  the  reduction  of  production,  what  the  assured 
would  have  produced  for  the  75  days  following  the  fire  had  no 
fire  occurred.  The  diflference  between  what  the  production  would 
have  been  had  no  fire  occurred  and  what  the  assured  was  able  to 
produce  in  their  impaired  condition  would  be  the  reduction  in  pro- 
duction. If  the  adjuster  had  actually  found  that  the  production  per 
day  had  no  fire  occurred  would  have  been  $25,060.49,  and  that 
assured  actually  produced  per  day  after  the  fire  $24,037.34,  the 
difiference  would  represent  the  reduction  in  production.  If  the  ad- 
juster simply  took  the  average  daily  production  for  the  year  pre- 
ceding the  fire  without  regard  to  what  the  production  would  have 
run  during  the  period  of  impairment  and  called  the  difference  the 
amount  of  the  loss,  we  think  that  method  would  be  incorrect,  as 
the  difference  between  $25,060.49  and  $24,037.34  might  easily  have 
been,  in  part  at  least,  the  result  of  reduced  volume  of  business 
rather  than  impairment  due  to  fire.    On  the  other  hand,  if  the  busi- 

769 


The  Fire  Insurance  Contract 

ness  had  increased  over  the  previous  year  and  the  actual  daily  pro- 
duction following  the  fire  were  found  to  be  as  shown  in  the  proof 
of  loss,  the  impairment  of  production  due  to  the  fire  would  have 
been  more  than  the  statement  of  loss  showed.  It  would  therefore 
be  necessary,  in  case  the  adjuster  undertakes  to  determine  the  im- 
pairment of  production  by  deducting  the  actual  production  from 
the  full  normal  production,  to  ascertain  or  agree  upon  what  assured's 
production  would  have  been  had  no  fire  occurred,  as  well  as  the 
actual  production  following  the  fire,  to  fix  the  impairment.  Thai 
should  be  done  without  regard  to  what  assured  had  produced  during 
the  previous  year,  as  what  they  had  done  during  the  previous  year 
simply  fixes  the  denominator  of  the  fraction  for  measuring  the  loss. 
In  case  the  adjuster  does  not  use  the  actual  production  figures  fol- 
lowing the  fire  as  a  means  of  determining  the  impairment  of  pro- 
duction but  simply  agrees  that  the  impairment  would  be  so-and-so. 
there  would  be  no  great  necessity  for  ascertaining  what  the  pro- 
duction w^ould  have  been  had  no  fire  occurred. 

Example  No.  2. 

The  form  in  this  case  states  in  the  first  paragraph :  . 

It  is  understood  and  agreed  that  whenever  the  words  use  and  occu- 
pancy are  used  in  this  policy  it  shall  be  construed  to  mean  profits,  fixed 
charges  to  the  extent  of  heating,  lighting,  taxes,  insurance,  salaries  and 
wages  of  employes  under  contract,  royalties  and  interest  on  the  invest- 
ment of  their  buildings,  structures,  their  contents,  machinery  and  equip- 
ment of  every  description  owned  or  occupied  by  assured  for  the  purpose 
of  mining  coal  and  general  merchandise; 

and  in  the  second  paragraph : 

The  conditions  of  this  contract  of  insurance  are  that  if  the  said 
buildings  or  structures,  their  contents  or  equipment,  or  any  part  thereof, 
shall  be  destroyed  or  so  damaged  by  fire  occurring  during  the  term  of 
this  policy  that  the  assured  are  entirely  prevented  from  operating  or 
carrying  on  their  business  of  mining  coal  or  general  merchandise,  thrn 
this  company  shall  be  liable  at  the  rate  of  $1,166.67  per  day  of  such  pre- 
vention, and  in  the  case  of  partial  prevention,  this  insurance  shall  bo 
liable  in  that  proportion  of  the  $1,166.67  per  day  as  the  reduction  in  out- 
put bears  to  the  average  daily  output  of  coal  for  the  ninety  working  days 
of  full  production  immediately  preceding  the  fire. 

It  w^ill  be  observed  that  the  form  is  valued  and  that  liability 
is  based  on  assured's  business  of  mining  coal  or  general  merchan- 
dising; and  that  if  entirely  prevented  from  operating  or  carrying  on 
their  business,  the  insurance  shall  be  liable  at  the  rate  of  $1,166.67 
per  day  of  such  prevention,  and  in  case  of  partial  prevention,  in 
that  proportion  of  $1,166.67  per  day,  as  the  reduction  in  output 
bears  to  the  average  daily  output  of  coal  for  the  90  working  days 
of  full  production  immediately  preceding  the  fire. 

770 


Use  and  Occupancy — Moore 

It  is  not  necessary  under  a  valued  form  to  state  (as  this  one 
does  in  the  first  paragraph)  the  items  for  which  the  insurance  shall 
be  liable,  in  fact,  it  is  better  not  to  do  so,  as  it  is  liable  to  confuse 
the  assured,  as  well  as  the  adjuster,  if  he  is  not  a  past  grand  master 
in  the  adjustment  of  use  and  occupancy  losses. 

Generally  speaking,  if  assured  carries  100  percent  insurance  to 
use  and  occupancy  value,  and  percentage  of  profit  to  production 
did  not  vary,  the  result  obtained  in  an  adjustment  should  be  about 
the  same  whether  liability  is  measured  by  net  profits  or  production 
or  is  assumed  under  a  valued  or  non-valued  form,  as  when  he  takes 
out  insurance  under  a  valued  form,  he  figures  that  in  event  of  the 
total  destruction  of  his  business,  his  loss  per  day  of  net  profits  and 
overhead  expenses  would  be  around  a  certain  amount  and  that 
amount  is  stated  in  the  form  as  the  fixed  amount  of  the  company's 
liability;  whereas  under  a  non-valued  form,  he  figures  that  if  he  is 
entirely  prevented  from  carrying  on  his  business,  his  loss  of  net 
profits  and  overhead  would  probably  not  exceed  a  certain  amount 
per  day  and  that  amount  is  stated  in  the  form  as  the  limit  of  the 
company's  liability.  If,  however,  there  is  a  variation  in  production 
or  profits,  which  is  frequently  the  case,  there  Would  at  times  be  a 
wide  difference  in  the  result  whether  the  loss  were  measured  by 
impairment  of  production  or  profit. 

Under  a  non-valued  form,  it  is,  of  course,  necessary  to  recite 
in  the  form  the  items  upon  which  liability  is  assumed,  in  order  to 
determine  whether  the  loss  is  less  than  the  limit  of  liability  stated  in 
the  form,  and  if  such  is  found  to  be  the  case,  that  amount  is  the  limit 
of  the  company's  liability,  whereas,  under  a  valued  form,  it  is  un 
necessary  to  ascertain  whether  assured  has  actually  lost  one  amount 
or  another,  as  the  value  of  profits  and  overhead  expenses  is  fixed  in 
advance. 

If,  however,  the  loss  should  be  found  to  be  less  than  the  limit 

of  liability  stated  in  the  form,  the  company  should,  in  equity,  not  be 

called  upon  to  pay  more  than  actual  loss  sustained,  as  the  real  intent 

of  insurance  is  simply  to  indemnify    assured  for  his  loss  and  not  to 

enable  him  to  profit  thereby. 

Total  insurance  covering  various  mines $350,000.00 

Limit  of  liability  per  day l,166.t>7 

Total  prevention  of  operation  5  days,  one  location  only  being 

involved. 
Partial  prevention  102  days. 
Date  of  fire,  July  3,  1917. 

The  adjuster  measured  the  loss  by  net  profits  and  overhead  ex- 
penses, whereas  it  should,  according  to  the  form,  have  been  measured 
by  production. 

771 


The  Fire  Insurance  Contract 

Statement  of  loss : 

The  total  tonnage  produced  at  all  mines  covered  for  the 
three  months  next  preceding  the  fire,  being  the 
period  provided  by  the  form  by  which  partial  pre- 
vention shall  be  measured,  was  found  to  be 140,559.95  tons 

Production  for  same  period  at  Mine  No.  1,  being  the  one 

involved   in   the   loss 37,639.60  tons 

Net  profits  and  overhead  expenses  for  same  period  at 

all  mines  $188,816.55 

or  per  day 2,097.96 

Net  profits  and   overhead  expenses  for  same  period  at 

Mine  No.  1  $66,356.24 

or  per  day 737.22 

Proportion  of  profits  at  Mine  No.  1,  as  they  bore 
to  the  profits  at  all  mines  for  90  days  pre- 
ceding the  fire,  737.22/2097.96,  or 35.14% 

During  the  102  days  partial- prevention  at  Mine  No.  1, 

the  profit  on  operation  of  all  mines  was $322,182.09 

Profit  on  operation  at  Mine  No.  1  for  same  period 78,299.30 

Percentage  of  profit  at  Mine  No.  1  over  that  of 

all  mines  reduced  to  24.30% 

Difference,    being   alleged    impairment    of    profit 

at   Mine   No.    1 10.84% 

Summary : 

For  5  days'  total  shutdown  at  Mine  No.  1,  com- 
panies pay  35.14%  of  daily  limit  of  liability 
of  $1,166.67,  being,  per  day $409.97 

or  for  5  days  $2,049.85 

For  the  102  days'  partial  suspension,  companies 
pay  10.84%  (being  alleged  impairment  of 
profit  as  shown)  of  $1,166.67,  being,  per  day  $124.46 

or  for  102  days  12,898.92 

TOTAL  LOSS  $14,948.77 

The  adjuster  assumed  that  the  profits  of  mine  No.  1  had  no 
fire  occurred  would  have  shown  the  same  ratio  of  increase  for  the 
period  of  102  days'  partial  prevention  as  the  actual  percentage  of 
increase  of  profit  at  all  mines.  That  may  or  may  not  have  been 
the  case.  No  reliable  information,  however,  is  at  hand  from 
which  to  determine  that  question. 

It  seems  to  have  been  the  assured's  custom,  in  case  of  shortage 
of  freight  cars,  to  send  such  coal  as  could  not  be  shipped  to  their 
crusher  to  be  crushed  for  coking.  The  adjuster  advised  that  during 
the  102  day  period  of  partial  prevention  there  was  no  impairment 
of  actual  ability  to  mine  coal  and  the  diminution  of  production  was 
due  to  destruction  of  the  crusher  building  and  inability  to  obtain 
freight  cars  for  shipment  of  coal,  from  which  it  would  appear  that 
if  there  had  been  sufficient  freight  cars,  the  production  would  have 
been  normal. 

As  the  companies  insured  against  inability  to  produce  coal,  and 
af  assured  were  able  to  resume  normal  production  ^fter  the  five 

772 


Use  and  Occupancy — Moore 


days'  time  necessary  to  construct  a  temporary  tipple,  the  question 
arises  of  whether  there  was  any  reduction  of  production  for  which 
the  companies  were  liable  beyond  the  five  days  necessary  to  con- 
struct tjie  tipple.  Giving  assured  the  benefit  of  any  doubt,  how- 
ever, for  the  102  days  for  which  the  adjuster  made  an  allowance, 
the  measure  of  loss  should  have  been  arrived  at  as  follows : 

Production  at  all  mines  for  90  days  next  preceding  the 

loss    140.559.95  tons 

or  per  day 1,56177  tons 

Production  at  Mine  No.  1  for  the  same  period 37,639.60  tons 

or  per  day  - 418.22  tons 

The  adjuster  advised  that  the  entire  plant,  including 
Mine  No.  1  showed  an  increase  of  production  during 
the  102  days  after  the  fire  of  21.7%  over  the  average 
production  for  the  90  days  next  preceding  the  fire. 
Assuming  that  the  same  percentage  of  increase  had 
obtained  at  Mine  No.  1  had  it  been  operated  at  full 
capacity,  it  would  have  produced  during  the  5  days' 
total  suspension  121.7%  of  418.22  tons,  or  per  day. .  508.97  tons 
which  would  make  the  company's  liability  for  the  5  days' 
total  suspension  508.97/1561.77  of  the  limit  of  liabil- 
ity per  day  of  $1,166.67,  or  per  day $380.21 

and  for  5  days  1,901.05 

Production  at  Mine  No.  1  for  the  90  days  next  preceding 

the  fire,  37,639.60  tons,  or  per  day - 418.22  tons 

Assuming  that  the  production  at  Mine  No.  1,  had  no  fire 
occurred,  would  have  shown  an  increase  of  21.7% 
during  the  102  days'  partial  prevention  over  the 
average  for  the  90  days  next  preceding  the  fire,  it 
would  have  produced  121.7%  of  418.22  tons  or  per 

day  - 508.97  tons 

Actual    production    during   the    102    days    after    the   fire 

48,137.65  tons,  or  per  day 471.94  tons 

Difference  (impairment  of  production)  per  day 37.03  tons 

Production  at  all  mines  for  90  days  next  preceding  the 

fire  140,559.95  tons  or  per  day 1,561.77  tons 

Then,  as  the  form  provides,  the  companies  would  pay  for 
partial  prevention  that  proportion  of  the  daily  limit 
of  liability  of  $1,166.67  as  impairment  of  production 
bears  to  the  average  production  of  the  entire  plant 
during  the  90  days  next  preceding  the  fire,  or 
37.03/1561.77  of  $1,166.67,  or  per  day $    27.66 

and  for  102  days  2,821.73 

Summary : 

5  days'  total  prevention  of  output $1,901.05 

102  days'  partial  prevention  of  output  (if,  in  fact,  there 

was  any  prevention  for  that  period) 2,821.73 

making  the  liability  of  the  companies  at  most $4,722.78 

as  against  the  adjuster's  adjustment  of 14,948.77 

Over-adjustment    $10,225.99 

in 


The  Fire  Insurance  Contract 

The  form  appears  to  make  it  plain  that  the  companies'  Uability 
should  be  determined  by  a  certain  specified  fraction  of  the  daily 
limit  of  $1,166.67,  that  fraction  being  the  impairment  of  production 
over  the  average  production  of  all  mines  for  the  90  days  next  pre- 
ceding the  fire.  That  provision  of  the  form  was  entirely  disre- 
garded by  the  adjuster,  who  appeared  to  believe  it  to  be  incon- 
sistent with  the  fact  that  the  form  states  elsewhere  that  it  insures 
against  loss  of  profits,  etc.  There  seems  to  be  nothing,  however,  in 
the  form  which  would  operate  to  nullify  the  clause  which  pro- 
vides for  the  measurement  of  the  loss.  The  fact  that  the  numerator 
and  denominator  of  the  fraction  referred  to  are  both  made  up  of 
production  figures  is  in  no  sense  inconsistent  with  the  fact  that  the 
form  covers  profits,  etc.,  the  value  of  which  is  agreed  upon  in  ad- 
vance at  $1,166.67  per  day. 

Example  No.  3. 

This  form  provided: 

It  is  understood  and  agreed  that  the  term  use  and  occupancy  as 
herein  used  shall  be  construed  to  mean  net  profits,  general  maintenance 
to  the  extent  of  taxes,  heating  and  lighting,  legal  liability  of  assured  for 
royalties  and  salaries  and  wages  of  employees  under  contract  as  follows: 

The  conditions  of  this  contract  of  insurance  are  that  if  any  of  the 
buildings  or  machinery  therein  shall  be  damaged  or  so  destroyed  by  fire 
occurring  during  the  term  and  under  the  conditions  of  this  policy  so 
that  the  assured  are  entirely  prevented  from  producing  finished  goods, 
the  liability  of  the  insurance  for  said  loss  shall  not  exceed  $250  per  day, 
being  1/300  of  the  amount  of  the  insurance,  and  in  case  the  said  buildings 
or  machinery  therein  are  partially  prevented  from  producing  finished 
goods,  the  liability  of  the  insurance  for  said  loss  shall  not  exceed  that 
proportion  of  $250  per  day  which  the  product  so  prevented  from  being 
made  bears  to  the  amount  which,  but  for  the  fire,  would  normally  have 
been  produced. 

It  will  be  observed  that  this  is  a  non-valued  form  and  does  not 
provide  for  any  period  prior  to  the  fire  by  which  the  liability  shall 
be  measured,  but  that  the  liability  shall  be  based  on  the  production 
of  finished  goods  which,  but  for  the  fire,  would  normally  have  been 
produced.  The  net  product  for  the  9  months  next  preceding  the 
fire  was,  however,  agreed  upon  between  the  assured  and  adjuster 
as  the  average  normal  product.  It  will  also  be  noted  that  the 
form  refers  to  production  of  finished  goods. 

Total  insurance,  $75,000. 

Limit  of  liability  per  day,  $250. 

Date  of  fire,  October  23,  1917. 

The  adjustment  was  made  on  the  basis  of  loss  of  profits, 
whereas  the  form  provides  that  the  loss  shall  be  measured  by  pre- 
vention of  production  of  finished  goods.     The  adjuster  properly 

774 


Use  and  Occupancy — Moore 

determined  the  amount  of  profits,  general  maintenance,  taxes,  heat- 
ing and  lighting,  etc.,  to  ascertain  whether  the  companies'  liability 
equalled  the  limit  of  liability  per  day  stated  in  the  form. 

Adjuster's  statement  of  loss  as  follows: 

Total  number  of  tons  mined  from  Jan.   1  to  Sept.  30,  1917, 

being  the  9  months  preceding  the  fire,  90,498,  at  $2.95 $266,982.77 

Average  tonnage  per  day  for  that  period  or  225  working 

days - 402.2 

Less  cost  of  production,  including  all  fixed  charges  and  de- 
preciation of  plant $  92,103.62 

Net   profits   for   9   months,   or   225   working  days,   preceding 

the  fire  - $174,879.15 

Average  net  profits  per  day  for  same  period  .- $777.25 

Fixed  charges  for  same  period  14,718.15 

Average  fixed  charges  per  day  for  same  period  65.38 

Net  profits  and  fixed  charges  for  same  period  —  $189,597.30 


Or  average  per  day  of  $842.63 

Loss  as  follows: 

12  full  days  suspension  from  Oct.  23  to  Nov.  6,  1917,  int.; 

100%,  $250  per  day $     3,000.00 

58  days  partial  impairment  from  Nov.  7,  1917  to  Jan.  15,  1918, 

inc.,  37.7%,  $94.25  per  day 5,466.50 

30  days   partial    impairment   from   Jan.    16,    1918   to   Feb.   20, 

1918,  inc.,   12.55%,  $31.38  per  day .--  941.40 

Total  cost  construction  of  temporary  tipple,  chutes  and  equip- 
ment $2,009.20.  Companies'  proportion  250/777.25  oi' 
$2,009.20  or  646.25 

Total  loss  $  10,054.15 

Note: 

The  net  profits  on  average  normal  daily  production $        777.25 

The  net  profits  on  average  actual  daily  production  from   Nov. 

7,  1917,  to  Jan.  15,  1918  (58  working  days) 484.23 


Difference   $       293.02 

or  37.77o.  

The  net  profits  on  average  normal  daily  production  $       777.25 

The  net  profits  on  average  actual  daily  production  from  Jan. 

15,  1918  to  Feb.  20.  V  18  (30  working  days)  679.66 

Difference -•-  $         97.59 

or   12.55%. 

The  average  daily  tonnage  of  402.2  per  day,  restored  Jan.  15,  1918, 
by  use  of  temporary  tipple  and  purchase  and  use  of  additional 
car.  The  only  impairment  from  Jan.  15,  1918,  to  Feb.  20, 
1918,  was  the  difference  in  price  between  Run  of  Mine  coal 
and  graded  coal,  being  20c  per  ton  on  daily  tonnage  of  402.2 

tons  or,  per  day  $80.44 

and  the  following  addition.'^l  expense  over  old  method: 

1  motorman,  per  day  $  4.40 

1  brakeman,  per  day  4.25 

1  tippleman,  per  day  - r - 3.50 

6  ton  motor  for  hauling  cars  across  bridge,  per  day  5.00 

Total,  per  day $17.15 

775 


The  Fire  Insurance  Contract 

Total    for    balance    of    agreed    period    of    temporary    impairment, 

•    per   day   $97.59 

or,  per  day,  12.55%. 

The  loss,  according  to  the  terms  of  the  form,  should  apparently 

have  been  determined  as  follows : 

12  days'  total  suspension   (Oct.  23  to  Nov.  6,  inc.)  at  $250  per 

day  ■ ^ $3,000  00 

58  days'  partial  suspension  (Nov.  7  to  Jan.  15,  inc.) 
Number  of  tons  mined  Jan.  1  to  Sept.  30,  being  9  months  prior 
to  the  fire  (225  working  days)  90,498  or  402.2  tons  per  day. 

Adjuster   advises    average    price    of    Run     of    Mine    coal 

during  the  58-day  period,  per  ton  ,- $3,068 

Average    price    of    graded    coal    20c    per    ton    more,    or, 

per   ton      -• $3,268 

Assuming  the  average  production  for  the  9  months  preceding 
the  fire  would  have  been  maintained  during  the  58-day 
period  of  impairment  had  no  fire  occurred,  the  production 
for  the  58  days  (measured  by  value)  would  have  been  402.2 
tons  per  day  at  $3,268  per  ton,  or,  per  day  $1,314.39 

Assuming  the  actual  production  during  the  58-day  period  would 
have  been  19,946.9  tons,  being  343.91  tons  per  day,  the  pro- 
duction (measured  by  value)  at  $3,068  per  ton  would  be, 
per  day  $1,055.12 

Difference   (or  impairment  of  production  measured  by  value), 

per  day $    259.27 

The  companies  would  therefore  pay  for  the  58  days  (Nov.  7, 
to  Jan.  16,  inc.),  as  impairment  in  production  (in  dollars) 
bears  to  the  production  as  it  would  have  been  had  no  fire 
occurred;  that  is  259.27/1,314.39  of  $250.,  or  $49.31  per  day, 
and  for  58  days  $2,859.98 

From  Jan.  16  to  Feb.  20  (30  days)  there  was  no  impairment  of 
production  (in  tons),  simply  impairment  of  20c  a  ton  be- 
tween graded  and  Run  of  Mine  coal.  Probable  production 
during  the  30  days,  had  no  fire  occurred,  402.2  tons  per  day 
at  $3,268  per  ton  for  graded  coal,  per  day  $1,314.39 

The  same  production  (402.2  tons  per  day)  at  $3,068  per  ton  for 

Run  of  Mine  coal,  per  day  $1,233.95 

Difference    (or  impairment   of  production  measured  by  value) 

per  day  - $      80.44 

The  companies  would  therefore  pay  80.44/1,314.39  of  $250  per 

day,  or  $15.30  per  day,  and  for  30  days  $   459.00 

In  addition,  it  would  appear  equitable  for  the  companies  to  pay 
for  a  proportionate  part  of  the  cost  of  temporary  tipple, 
chutes  and  equipment  of  $2,009.20,  as  they  no  doubt  reduced 
the  loss  over  what  it  would  otherwise  have  been.  The  ad- 
juster makes  the  companies  contribute  to  that  item  in  pro- 
portion as  their  daily  limit  of  liability  of  $250  per  day 
hears  to  assured's  net  profits  of  $777.25  per  day  for  the  9 
months  next  preceding  the  fire,  making  the  contribution 
$646.25,  whereas  the  companies  should  not  apparently  con- 
tribute in  greater  proportion  than  their  interest  of  $250 
per  day  bears  to  assured's  interest  in  both  net  profits  and 
fixed  charges,  aggregating  $842.63  per  day,  the  companies' 
liability  on  that  basis  being  250/842.63  of  $2,009.20,  or  $    596.14 

776 


Use  and  Occupancy — Moore 

There  was  an  additional  cost  of  $17.15  per  day  for  30  days, 
aggregating  $514.50,  for  maintenance  of  the  temporary 
tipple,  etc.,  over  the  old  method,  to  which  it  would  appear 
equitable  for  the  companies  to  contribute  but  also  only 
in  proportion  as  the  companies'  interest  of  $250  per  day 
bears  to  assured's  interest  in  net  profits  and  fixed  charges 
of  $842.63,  making  the  companies'  share  250/842.63  of 
$514.50,  or  ., ;. $    152.65 

Summary: 

12  days'  total  suspension  (Oct.  23  to  Nov.  6,  inc.) $3,000.00 

58  days'  partial  suspension  (Nov.  7  to  Jan.  15,  inc.) 2,859.98 

30  days'  partial  suspension  (Jan.  16 'to  Feb.  20,  inc.) 459.00 

Proportion  cost  temporary  tipple,  etc.  596.14 

Proportion  cost  maintenance  temporary  tipple,  etc.  152.65 

Total  loss  $7,067.77 

As  against  adjuster's  figures  10,054.15 

Difference   $2,986.38 

It  would  appear  to  be  necessary  in  this  case  to  convert  product 
into  dollars  for  measurement  of  the  loss  on  account  of  coal  of 
different  grades  and  values  being  involved. 

When  the  numerator  and  denominator  of  the  fraction  which 
determines  the  measurement  of  the  claim  both  represent  equal 
standards  as  to  material,  quality,  quantity  and  value,  it  would  make 
no  difference  in  the  value  of  the  fraction  whether  the  figures  of 
which  it  is  composed  represent  number  of  tons  or  their  value.  Sup- 
pose, however,  an  assured,  instead  of  producing  coal,  had  been  a 
manufacturer  of  a  variety  of  articles,  some  of  which  were  measured 
by  the  dozen,  some  by  barrels,  others  by  pounds,  bushels,  bales,  or 
other  standards  of  measurement.  The  only  way  a  percentage  of  im- 
pairment of  production  could  be  determined  in  such  a  case  would 
be  on  a  cash  value  basis.  In  the  case  of  coal,  it  would  be  no  more 
reasonable  to  use  for  the  numerator  coal  of  one  grade  and  value, 
and  for  the  denominator  coal  of  a  dift'erent  grade  and  value,  than 
it  would  be  to  measure  the  impairment  of  production  of  a  miscel- 
laneous stock  by  number  of  bushels  over  number  of  pounds. 

Example  No.  4. 

This  form  read  on  the  *'use  and  occupancy  of  assured's  plant." 
The  conditions  of  this  contract  of  insurance  are  that  if  the  plant 
or  any  of  its  constituent  parts  or  machinery  or  supplies  or  material  in  or 
on  premises  shall  be  so  disabled,  damaged  or  destroyed  by  fire  occurring 
during  the  term  and  under  the  conditions  of  this  policy  that  assured  are 
or  would  be  entirely  prevented  from  producing  its  output,  the  com- 
panies shall  be  liable  for  an  amount  of  not  exceeding  $3,500  per  day  for 
each  working  day  of  such  prevention;  but  if  the  ability  to  produce  its 
output  be  diminished  only,  then  shall  the  companies  be  liable  for  that 
proportion  of  $3,500  per  day  in  which  such  output  is  or  would  be  dimin- 

777 


The  Fire  Insurance  Contract 

ished;  that  in  case  of  fire  the  average  daily  output  for  300  actual  operat- 
ing days  immediately  preceding  the  fire  shall,  for  the  pu«-poses  of  the 
policy,  be  assumed  to  be  the  normal  daily  output. 

Total  insurance  $1,050,000. 

Date  of  fire,   November   1,   1917. 

Period  of  impairment,  1  day. 

The  form  limits  liability  for  total  prevention  of  output  to  an 
amount  not  exceeding  $3,500  per  day,  making  it  non-valued  as  to 
total  prevention,  but  for  partial  prevention,  states  the  companies 
shall  be  liable  for  that  proportion  of  $3,500  per  day  in  which  the  out- 
put is  diminished,  instead  of  not  exceeding  $3,500,  making  the  form 
valued  as  to  partial  prevention,  thereby  destroying  the  co-insurance 
value  of  the  form  in  case  of  partial  loss. 

Statement  of  loss  as  follov^s: 

Number  of  cars  produced  during  12  months  previous  to  Novem- 
ber 1,  1917  9,591 

Average  production  of  cars  per  day  based  on  year's  business 

previous  to  the  fire  32 

Total  suspension  of  output  of  cars  due  to  fire,  (1  day)  50 

Allowance  made  on  32  cars  at  average  profit  of  $95.06^   per 

car,  loss  $3,042.00 

The  adjuster  found  that  the  average  number  of  cars  made  per 
day  for  the  300  days  next  preceding  the  fire  was  32,  and 
apparently  took  that  part  of  the  form  which  states  the 
average  daily  output  for  300  days  preceding  the  fire  shall, 
for  the  purpose  of  this  insurance,  be  assumed  to  be  the 
normal  daily  output,  to  mean  that  the  companies*  liability 
is  limited  to  32  cars  per  day,  whether  assured  was  making 
more  cars  per  day  at  time  of  fire. 

Under  the  term  of  the  form  assured's  loss  was  50  cars  at  aver- 
age profit  of  $95.0614,  or  $4,753.12 

The  daily  limit  of  liability  being  but  --  $3,500.00 

The  companies  should  pay  that  amount  as  against  the  adjuster's 

figures  of  $3,042.00 


Examplb:  No.  5. 


This  form  reads: 


This  contract  of  insurance  guarantees  the  assured  the  full  use  and 
efficiency  of  their  plant,  occupied  for  manufacturing  cotton  and  woolen 
waste,  against  any  losses  and  the  consequent  interruptions  of  business 
caused  by  either  fire  or  lightning  or  both  under  terms  and  conditions 
specifically  set  forth  as  follows: 

Total  Interruption  of  Business: 

(a)  If  the  machinery  or  other  contents  of  said  plant  or  any  part 
thereof  shall  be  destroyed  or  damaged  by  either  fire  or  lightning  or  both, 
occurring  during  the  continuance  of  this  contract,  so  that  said  assured 
shall  be  entirely  prevented  from  producing  their  finished  products  at  the 
said  location,  then  the  insurance  shall  be  liable  to  the  said  assured  for 

778 


Use  and  Occupancy — Moore 

$58.33  1-3  per  day  for  each  working  day  of  such  prevention  until  the 
full  use  and  efficiency  of  the  said  plant  is  re-established;  not,  however, 
exceeding  in  the  aggregate  the  sum  insured  under  this  contract. 

Partial  Interruption  of  Business: 

(b)  If  the  machinery  or  other  contents  of  said  plant  or  any  part 
thereof,  shall  be  destroyed  or  damaged  by  either  fire  or  lightning  or 
both,  occurring  during  the  continuance  of  this  contract,  so  that  the  said 
assured  is  partially  prevented  from  producing  their  finished  products 
at  the  said  location,  then  the  insurance  shall  be  liable  to  the  said  assured 
for  an  amount  for  each  working  day  of  such  partial  prevention  as  will 
be  equal  to  the  diflFerence  between  the  products  produced  under  the 
then  crippled  condition  and  the  full  daily  finished  products,  until  the 
full  use  and  efficiency  of  the  said  plant  is  re-established;  not,  however, 
exceeding  in  the  aggregate  the  sum  insured  under  this  contract. 

Basis. of  Settlement: 

(c)  For  the  purpose  of  adjustment  under  this  contract,  the  daily 
product  of  300  days  working  full  time  shall  be  considered  the  full  use 
and  efficiency  of  the  said  plant  and  the  basis  of  settlement. 

Total  insurance,  $17,500. 

Date  of  fire,  August  31,  1916. 

Limit  of  liability,  $58.33  1-3  per  day  for  total  prevention  of  finished 
products. 

Valued  form. 

It  will  be  observed  that  the  partial  prevention  paragraph  of 
the  form  makes  it  possible  for  the  companies  to  be  liable  for  a 
greater  loss  for  partial  prevention  than  total  prevention,  wherein  it 
states  the  companies  shall  be  liable  for  each  working  day  of  partial 
prevention  for  the  dififerehce  between  the  product  produced  under 
crippled  condition  and  the  full  daily  finished  product. 

Statement  of  loss: 
Total  Interruption  of  Business: 
12  days  from  Aug.  31  to  Sept.  14,  $17,500  insurance,  $58.33  1-3 

per  day  ■ $    700.00 

Partial  Interruption  of  Business: 

40  days,  from  Sept.  15  to  Oct.  31.  Capacity  for  one  full  working 
day,  based   on  average  for  6  years'  record  $106.88 

Capacity  in  crippled  condition  1-3  35.63 

]!)iflfcrcncc  (or  impairment  of  production)   $  71.25 

$17,500  insurance,  $71.25  per  day  for  40  days  2,850.00 

Hired   motor   ■--' 88.70 

Total  loss  -; $3,638.70 

Notwithstanding  as§ured  could  have  collected  on  basis  of  $71.25 
per  day  for  partial  prevention  for  40  days  as  against 
$58.33  1-3  per  day  for  total  prevention,  they  were  good 
enough  to  let  the  companies  off  by  payment  for  partial 
prevention  of  the  limit  of  liability  for  total  prevention, 
making  the  loss  for  12  days  total  prevention  at  $58.33  1-3 
per  day  700.00 

779 


The  Fire  Insurance  Contract 

40  days  partial  prevention  at  $58.33  1-3  per  day  2,333.32 

Hired   motor   8870 

Total   payment   $3,122.02 

H  the  form  had  provided,  as  it  should  have,  for  payment  of 
partial  loss  on  pro  rata  basis  for  total  prevention,  the  lia- 
bility would  have  been  12  days'  total  prevention  $700.00 

40  days'  partial  prevention  1-3  of  $58.33  1-3  777.77 

Hired  motor  88.70     1,566.47 

Making  the  penalty  for  a  bad  form,  even  with  assured's  con- 
cession      $1,555.55 

Example  No.  6. 

This  form  provided: 

If  buildings  or  contents,  or  either  of  them,  or  any  part  thereof,  shall 
be  destroyed  or  so  damaged  that  the  plant  is  entirely  prevented  from 
producing  goods,  the  insurance  shall  be  liable  per  day  at  the  rate  of 
1/300  part  of  the  insurance  for  each  working  day  of  such  prevention,  and 
in  case  the  buildings  or  contents  or  any  part  thereof  are  so  damaged 
as  to  prevent  the  making  of  a  full  daily  average  production  of  goods,  the 
insurance  shall  be  liable  per  day  for  that  portion  of  1/300  part  of  the  in- 
surance which  the  product  so  prevented  from  being  made  bears  to  an 
average  daily  yield;  said  average  to  be  determined  from  the  amount  of 
goods  last  produced  during  a  period  of  three  months  previous  to  the  fire. 

Total  insurance,  $50,000. 

Limit  of  liability  per  day,  $166.67. 

Date  of  fire.  May  16,  1917. 

57  days'  partial  prevention. 

Statement  of  loss  showed: 

Rivets  cut  in  the  months  of  February,  March  and  April,  three 

months  previous  to  the  fire,  lbs.  79^444 

Rivets  cut  in  May,  June  and  July,  lbs.  634,058 

Difference,  lbs.  157,386 

Making  a  loss  of  78^  tons,  less  credit  of  30  tons  for  1  week 

shut  down  not  the  result  of  fire. 

Net  loss,  48^  tons  at  3c  per  pound  profit  $2,910.00 

Add  10%  overhead  on  $2,910  291.00 

Add  freight  on  goods  sent  away  for  refinishing  to  save  delay  in 

resuming   business    94.92 

Total  loss  $3,295.92 

This  form  is  (as  all  use  and  occupancy  forms  should  be)  based 
upon  the  principle  of  full  co-insurance,  the  companies  agreeing  to 
pay  $166.67  per  day  for  total  prevention,  and  such  proportion  of 
that  amount  for  partial  prevention  as  impairment  bears  to  the  full 
daily  average  product  for  the  three  months  previous  to  the  fire. 

Applying  the  form  to  the  production  and  diminution  of  pro- 
duction given  in  the  statement  of  loss,  the  result  would  be  as  fol- 
lows : 

Production  for  the  three  months  previous  to  the  fire  (74  working 
days)  791,444  lbs.  or  average  of  10,695.2  lbs.  per  day. 

780 


Use  and  Occupancy — Moore 

Reduction  in  production,  (57  working  days)  97,000  lbs.  or  average 

of  1,701.7  lbs.  per  day. 

Limit  of  liability  per  day,  $166.67;  57  days,  $9,500.19. 

Companies  contribute  to  $9,500.19  in  such  proportion  as  average 
reduction  of  production  per  day  bears  to  full  daily  average 
production  for  3  months  preceding  the  fire;  that  is,  1,701.7/- 
10,695.2  of  $9,500.19  and  pay  $1,511.56 

Add  freight  as  per  agreement  94.92 


Loss    $1,606.48 

As  against  adjustment  of  $3,295.92 

The  adjustment  was  re-opened. 

It  is  apparent  that  in  the  original  adjustment,  production  of 
the  entire  plant  for  the  three  months  next  preceding  the  fire  was  not 
taken  into  account  but  simply  the  production  of  that  part  of  the 
plant  involved  in  the  fire,  as  the  readjustment  showed  a  marked 
increase.  The  period  of  prevention  was  also  increased  from  57  to 
63  days,  the  adjustment  being  as  follows: 

Production  Feb.  16  to  May  16,  lbs. 1,081,380 

Average  per  day,  75  days  previous  to  fire,  lbs.  14,418 

Production    May    16    to   July   31    (63    days'    impair- 
ment), lbs.  660,156 

Average  per  day,  63  days  or  to  time  of  full  operation,  lbs.  10,479 

Prevention  of  production,  lbs.  3,939 

Limit  of  liability   per  day,  $166.67;   63   days,   $10,500.21 

Liability  of  companies  for  loss,  3.939/14.418  of  $10,500.21  or $2,868.65 

Add    freight  94.92 


Total  loss  - $2,963.57 

Original  adjustment   3,295.92 

Saving  to  companies   332.35 

Example  No.  7. 

This  form  reads  as  follows: 

On  the  use  and  occupancy  of  assured's  entire  property  and  equip- 
ment, which  shall  be  construed  to  mean  net  annual  profits  plus  general 
maintenance  cost  to  extent  of  taxes,  interest  on  bonds,  mortgage  in- 
debtedness, dividends,  heating  and  lighting,  and  legal  liability  for  royal- 
ties and  salaries,  and  such  fixed  charges  and  expenses  incident  to  the 
business  which  may  not  be  discontinued  during  partial  or  total  suspen- 
sion of  operation  caused  by  fire  or  lightning. 

If  under  the  terms  of  the  preceding  paragraph  assured  is  en- 
tirely prevented  from  operating  or  carrying  on  their  business,  the 
companies  shall  be  liable  at  a  rate  not  exceeding  1/300  part  of  the 
insurance  per  day,  and  for  impairment  for  actual  loss  in  such  pro- 
portion of  a  sum  not  exceeding  1/300  of  the  insurance  as  the  im- 
pairment bears  to  the  daily  use  and  occupancy  for  the  12  months 
next  preceding  the  date  of  fire. 

781 


The  Fire  Insurance  Contract 

Total  insurance,  $100,000. 
Limit  of  liability  per  day,  $333.33  1-3. 
Date  of  fire,  October  24,  1917. 

Business  of  assured,  public  utility  of  supplying  water  and  electricity, 
operating  365  days  per  year. 
Non-valued  form. 
Adjuster's  statement  of  loss: 

Net  earnings  12  months  immediately  preceding  the  fire $80,500.91 

Average  per  day,  365  days 220.55 

Total  earnings  from  date  of  fire  to  January  1  (68  days),  being 

period  of  impairment $19,294.46 

Or $283.74  per  day\ 

Assured  paid  for  hired  power  from  Oct.  24  to  Dec.  1--$  1,500.00 

Incurred  extraordinary  expense  for  tem- 
porary and  permanent  repairs  in  main- 
tenance and  continuance  of  operation 
from  Oct.  24  to  Jan.  1 $11,857.17 

$2954.23  of  which  was  for  repairs  to  roof 
to  which  the  property  insurance  of 
$210,000  was  made  to  contribute  in  pro- 
portion as  the  property  insurance  bore 
to  the  total  property  and  U.  &  O.  in- 
surance of  $310,000,  or  21/31,  making 
the  property  insurance  proportion  of 
the  roof  expense  of  $2954.23 $  2,00L?? 

U.  &  O.  insurance  proportion  of  the  ex- 
traordinary expense  $  9,855.92 


Total  expense  chargeable  to  U.  &  O.  ins.  $11,355.92 

Difference  being  actual  net  earnings  during  68  day  period  of 

impairment $  7,938.54 

Or,  per  day 1 16.74 


Average  daily  net  earnings  for  12  months  preceding  the  fire $     220.55 

Average    daily    net    earnings   68    days'    partial    prevention    of 

operation  116.74 


Reduction  in  average  daily  net  earnings .- $  103.81 

Loss  68  days  x  103.81 ■..  $  7,059.08 

Less  salvage  value  of  material  used  in  maintenance  of  plant  in 

full  operation 449.43 


Loss $  6,609.65 

The  adjuster  appears  to  have  been  incorrect  in  his  method  of 
arriving    at    the    impairment    of    net    earnings,    which    he 

shows  to  be,  per  day $      103.81 

The  impairment  probably  amounted  to,  per  day 160.39 


Probable  average  net  earnings  for  the  68  days  had  no  fire  oc- 
curred, per  day $  283.74 

Actual  net  earnings  during  the  68  days'  impairment,  per  day 116.74 

DiflFerence,  per  day $  167.00 

Less  salvage  $449.43  for  68  days  or,  per  day 6.61 

Net  impairment,  per  day ~ $  160.39 

782 


Use  and  Occupancy — Moore 

making  the  loss  for  68  days'  impairment  at  $160.39  per  day $10,906.58 

While  the  assured  also  arrived  at  a  loss  of 10,906.58 

he  made  a  claim  for  but 7,950.47 

arriving  at  that  amount  by  apparently  misinterpreting  the 
meaning  of  the  words  "a  sum"  referred  to  in  the  form.  The  as- 
sured evidently  believed  "a  sum"  referred  to  the  actual  amount  ot 
his  loss  of  $160.39  per  day  and  figured  his  claim  on  that  basis, 
whereas,  according  to  our  interpretation,  the  amount  of  the  "sum" 
is  $283.74,  being  the  amount  of  the  companies'  liability  per  day 
in  the  event  of  total  suspension.  It  is  assumed  that  $283.74  per  day, 
which  was  actually  earned  during  the  period  of  impairment,  would 
also  represent  the  amount  of  net  earnings  had  no  fire  occurred,  as 
assumed  made  no  claim  for  suspension  of  operation  or  loss  of  profits, 
simply  for  the  expense  of  outside  power  and  temporary  repairs. 

Applying  the  actual  conditions  of  the  form  to  the  figures  given,  the  result 
would  be  as  follows  (illustrating  the  danger  of  overpayment,  with  such  a 
form,  in  case  of  an  increasing  volume  of  business): 

Impairment  per  day $      160.39 

Average  net  profits  per  day  for  the  12  months  next  preceding 

the  fire 220.55 

Net  profits  per  day  (had  no  fire  occurred) 283.74 

Loss  160.39/220.55  of  $283.74  or,  per  day 206.34 

and  for  68  days'  impairment 14,031.12 

which  amount  the  assured  might  perhaps  have  collected  had 
he  followed  the  actual  conditions  of  the  form  as  against 
his  actual  claim  of 7,950.47 

The  danger  of  overpayment  of  a  claim  for  partial  suspension  in 
event  of  an  increasing  volume  of  business  is  shown  by  the  above 
illustration  and  could  probably  be  largely  overcome  by  the  form 
providing  that  liability  for  partial  suspension  be  measured  as  im- 
pairment of  product.Vn  or  profit  (as  the  case  may  be)  bears  to 
the  amount  which,  but  for  the  fire,  would  normally  have  been  pro- 
duced (or  earned)  instead  of  the  usual  formula  of  impairment  over 
average  for  a  specified  period  previous  to  the  fire. 
Applied  to  the  claim  in  question,  the  fraction 

impairment  of  profit  over  the  profit  which 

but  for  the  fire  would  normally  have  been 

earned  may  be  expressed  as 160.39/283.74  or  about  57% 

whereas  the  impairment  over  the  average 

profits     for    the     preceding     12     months 

would  be  160.39/220.55  or  about  72% 

The  first  fraction  represents  a  smaller  per  cent  and  probably  more  nearly 

approximates  the  actual  percentage  of  impairment  than  the  latter. 

Whenever  a  plant  is  of  a  nature  (as  in  this  case)  to  require  oper- 
ation during  365  days  per  year,  the  form  should  provide  that  the  in- 
surance shall  be  liable  at  a  rate  not  exceeding  1/365  of  the  in- 
surance instead  of  1/300,  otherwise  a  policy  might  exhaust  itself 

783 


The  Fire  Insurance  Contract 

in  about  ten  months,  and  the  daily  limit  would  appear  to  be  too 
large,  being  1/300  of  the  sum  insured  instead  of  1/365. 

This  form  states,  as  many  forms  do,  that  for  partial  prevention 
the  insurance  shall  be  liable  for  actual  loss  sustained  in  such  pro- 
portion of  a  sum,  not  exceeding  1/300  of  the  amount  of  the  policy 
per  day,  as  the  use  and  occupancy  so  impaired  bears  to  the  full 
daily  average  use  and  occupancy.  The  reference  to  such  propor- 
tion of  a  sum  apparently  means  that  if  the  companies'  Hability 
for  a  possible  total  prevention  is  found  to  be  less  than  the  limit 
of  liability  per  day  stated  in  the  form,  contribution  to  partial  pre- 
vention shall  be  on  basis  of  the  lesser  sum.  For  example,  the  limit 
of  liability  for  total  prevention  under  this  form  is  $333  1/3  per  day. 
The  full  net  profits  for  the  68  days  of  impairment,  had  no  fire 
occurred,  were  found  to  be  but  $283.74  per  day.  The  impairment 
should  therefore  apparently  be  figured  on  that  amount.  If  the 
reference  to  in  such  proportion  of  a  sum  means  actual  amount  of 
impairment,  whatever  it  is  found  to  be,  it  would  probably  be  better 
understood,  as  has  been  pointed  out,  for  forms  to  state  in  plain  terms 
that  for  partial  prevention  the  insurance  shall  be  liable  for  such 
proportion  of  whatever  sum  the  companies  would  be  liable  for  in 
event  of  total  suspension  as  impairment  bears  to  full  daily  average, 
not  exceeding  the  daily  limit  of  liability  named  in  the  form. 

Summarizing  the  comments  herein,  the  main  features  to  keep 
foremost  in  mind  are  that  forms  should  be  based  on  the  number 
of  working  days  per  year  of  the  particular  business  insured ;  that 
twenty- four  hours  should  constitute  a  day;  that  liability  for  partial 
prevention  of  operation  should  be  pro  rata  of  liability  for  total  pre- 
vention ;  that  if  a  plant  is  composed  of  more  than  one  unit,  it  should 
be  made  clear  that  the  insurance  attaches  to  all  (unless  made  plain 
it  shall  only  cover  certain  parts  of  the  plant),  so  that  in  case  of 
loss  assured,  if  underinsured,  could  not  claim  that  the  insurance  was 
intended  to  apply  only  to  the  particular  part  sustaining  loss;  that 
the  form  should  make  it  plain  whether  the  adjustment  is  to  be  made 
on  basis  of  impairment  of  production  of  goods,  profits,  sales,  or 
otherwise;  that  in  case  of  seasonal  insurance,  the  daily  limit  of 
liability  after  expiration  of  the  policy  should  not  exceed  the  re- 
spective limits  of  the  daily  limit  of  liability  before  expiration;  that 
where  forms  provide  for  adjustment  on  basis  of  actual  loss  sus- 
tained, they  should  so  clearly  provide  for  adjustment  on  that  basis 
that  no  question  could  arise  as  to  settlement  on  any  other  basis ;  that 
where  it  is  intended  that  liability  be  based  on  production  for  a  period 

784 


Use  and  Occupancy — Moore 

prior  to  the  loss,  it  should  be  made  clear  that  the  adjustment  is  to  be 
so  based  by  using,  for  example,  the  words  "fixed  at"  or  ''considered 
to  be"  instead  of  the  words  "based  upon;"  that  where  the  form  in- 
cludes time  necessary  to  replace  stock  damaged  or  destroyed,  it 
should  be  made  plain  whether  it  is  intended  to  cover  raw  stock, 
stock  in  process  of  manufacture,  or  finished  stock,  bearing  in  mind 
that  it  may,  in  certain  cases  at  least,  be  undesirable  to  include  finished 
stock;  that  in  connection  with  the  use  of  the  words  "'d  sum"  in 
respect  to  the  daily  limit  of  liability,  a  more  definite  term  should  be 
used;  that  the  form  should  provide  clearly  that  the  company  as- 
sumes liability  for  loss  only  at  assured's  premises,  unless,  of  course, 
it  is  intended  that  liability  be  assumed  as  a  result  of  fire  at  other 
stated  locations ;  that  when  clauses  are  taken  from  property  forms, 
the  wording  should  be  applicable  to  use  and  occupancy  insurance; 
that  where  a  form  contains  a  permit  to  cease  operations,  it  should 
provide  that  liability  cease  during  such  time  as  the  plant  would  have 
remained  inoperative  had  no  fire  occurred;  that  where  a  policy 
covers  pro  rata  of  a  general  form,  it  should  provide  that  the  daily 
limits  of  the  policy  remain  fixed  amounts  regardless  of  the  total 
insurance  maintained;  that  forms  should  contain  a  co-insurance 
feature  in  respect  to  partial  loss  which  would  practically  operate 
as  a  100%  co-insurance  clause. 

While  use  and  occupancy  forms  have  yet,  perhaps,  to  be  de- 
vised which  would  be  ideal  in  every  respect,  there  has  been  a  marked 
improvement  with  the  increasing  demand  for  that  class  of  insurance, 
but  so  long  as  forms  fall  short  of  measuring  up  to  the  necessities 
of  each  case,  perhaps  the  ingenuity  of  the  adjuster  can  supply 
the  deficiency  by  seeing  that  substantial  justice  at  least  is  accorded 
both  the  assured  and  the  company  in  '.he  adjustment. 

In  connection  with  the  adjustment  of  use  and  occupancy  losses, 
the  information  to  be  determined  from  assured's  records  as  to  loss 
of  profit,  etc.,  will  necessarily  differ  somewhat  from  the  data  re- 
quired for  determining  the  profit  in  settlement  of  losses  on  property 
insurance  covering  merchandise.  In  arriving  at  the  percentage  of 
profit  in  connection  with  property  losses  on  merchandise,  it  is  neces- 
sary to  determine  the  gross  profit  only — that  is,  the  percentage  by 
which  the  selling  price  of  goods  sold  during  a  stated  period  exceeds 
the  cost  of  such  merchandise.  Having  found,  for  example,  that 
assured  earned  :a  gross  profit  of  2S%  on  cost  of  merchandise  and 

785 


The  Fire  Insurance^  Contract 

that  his  sales  for  a  certain  period  amount  to,  say,  $125,000,  the 
cost  of  the  merchandise  sold  can  be  determined  by  dividing  the 
sales  of  $125,000  by  125%— making  the  cost  of  the  goods  sold 
$100,000.  In  the  adjustment  of  use  and  occupancy  losses,  however, 
we  are  not  directly  concerned  with  the  excess  of  selling  price  over 
cost  (that  is,  the  gross  profit)  but  rather  with  the  net  profit,  being 
the  gross  profit  less  all  expenses.  If  assured's  records  have  been 
accurately  kept,  his  net  profit  (or  loss)  during  any  fiscal  period 
should  be  indicated  by  the  balance  of  his  Profit  and  Loss  Account. 
Theoretically,  at  least,  the  net  profit  could  also  be  obtained  by  first 
finding  the  gross  profit  by  the  method  used  in  the  adjustment  of 
property  losses,  and  deducting  therefrom  all  cost  and  expense  items. 
It  may  be  desirable  in  some  cases  to  employ  this  method  of  arriving 
at  net  profit  as  a  means  of  roughly  verifying  the  net  profit  as  shown 
by  the  Profit  and  Loss  Account,  in  event  of  the  profit  appearing  to 
be  excessive. 

Practically  all  the  use  and  occupancy  forms  now  in  use  pro- 
vide that  the  company  is  liable,  in  addition  to  loss  of  net  profits,  for 
"such  charges  and  expenses  as  cannot  be  discontinued."  The  ad- 
juster should,  therefore,  carefully  review  all  cost  and  expense  items, 
as  shown  by  assured's  records,  eliminating  all  expenses  that  could 
be  discontinued  in  event  of  total  suspension  of  business.  As  a.  gen- 
eral rule,  there  is  little  difficulty  in  separating  the  "fixed"  charges  or 
expenses  from  those  which  could  be  discontinued  in  the  event  of 
total  suspension.  Among  the  expense  items  which  could  probably 
be  discontinued  in  event  of  total  suspension  of  business  would  be 
wages  and  salaries,  depreciation,  bad  debts,  fuel,  light,  heat,  power, 
rent  (according,  of  course,  to  whether  rent  is  abated  under  terms 
of  lease  or  by  agreement),  and  practically  all  miscellaneous  ex- 
pense. The  cost  and  expense  items  which  could  probably  not  be 
discontinued  would  naturally  vary,  according  to  the  nature  of  the 
business.  Generally  speaking,  however,  the  so-called  "fixed" 
charges,  or  expenses  which  could  not  be  discontinued  in  event  of 
total  suspension  of  business,  would  be : 

Salaries  of  oflficers  and  employees  under  contract,  including  possibly 
certain  valued  or  expert  employees  whom  assured  desired  to  retain  until 
business  could  be  resumed, 

Taxes, 

Interest  on  indebtedness, 

Royalties  (according,  of  course,  to  terms  of  contract), 

General  office  expense  necessary  to  be  continued,  etc. 

Most  use  and  occupancy  forms  now  in  use  provide  that  liability 
for  total  suspension  of  business  shall  be  based  on  net  profit  plus  fixed 

786 


Use  and  Occupancy — Moore 

charges,  not  exceeding  the  stated  daily  limit  of  liability,  and  that  in 

the  event  of  partial  suspension  the  liability  of  the  company  shall  be 

determined  by  the  fraction : 

T         .           .     r      1       /              J     ^-      \  the  per  diem  liability  which 

Impairment  of  sales  (or  production) ^^     ^^^^^\^    j^^^^    ^^^^    incurred 

Full  daily  average  sales  (or  production)  ^y  a  total  suspension. 

Whether  the  suspension  of  business  is  total  or  partial,  it  will 
be  necessary  in  every  case  to  determine  from  assured's  records  the 
total  net  profit  which  would  have  been  earned,  plus  fixed  charges 
which  would  have  continued  during  the  period  of  suspension  if  no 
loss  had  occurred.  If  the  result  is  found  to  be  in  excess  of  the  daily 
limit  of  liability,  the  actual  figures  of  net  profit  and  fixed  charges 
are  not  used  in  the  adjustment — that  is,  the  daily  limit  of  liability  is 
used  instet.d  for  the  third  term  of  the  proportion  for  determining 
the  company's  liability. 

While  the  Profit  and  Loss  Account  may  generally  be  used  as 
a  basis  for  determining  the  net  profit,  the  account  should  be  care- 
fully scrutinized  and  the  various  items  verified  so  far  as  possible 
from  other  records  of  assured.  It  would  be  well  to  examine  previ- 
ous Profit  and  Loss  Accounts,  in  order  to  detect  any  imdue  increase 
in  net  profit  which  may  require  explanation ;  also  for  the  purpose  of 
determining  whether  any  items  which  ordinarily  appear  in  that  ac- 
count had  been  omitted  or  overlooked.  For  example,  the  matter  of 
bad  debts  charged  to  Profit  and  Loss  Account  should  be  carefully 
considered.  In  some  cases  it  may  be  justly  claimed  by  assured  that 
during  the  latest  fiscal  period  he  was  obliged  to  charge  off  an  ex- 
ceptionally large  item  which  he  had  regarded  as  uncollectible  for 
several  years,  having  kept  the  account  open,  hoping  that  some  re- 
turns might  be  realized.  In  such  a  case  it  would  seem  equitable  to 
amend  the  Profit  and  Loss  Account  by  charging  off  only  a  fair  aver- 
age of  uncollectible  accounts.  If,  on  the  other  hand,  it  is  found  that 
no  bad  debts  have  been  charged  in  the  latest  Profit  and  Loss  Ac- 
count, previous  accounts  should  be  examined,  in  order  that  the  net 
profit  as  shown  by  the  latest  account  may  be  reduced  by  a  fair  av- 
erage of  customers'  accounts  annually  charged  oflf  as  uncollectible. 

After  having  arrived  at  the  net  profit  and  fixed  charges  during 
the  latest  fiscal  period  as  shown  by  assured's  records,  it  is  necessary 
to  determine  or  agree  upon  what  the  net  profit  and  fixed  charges 
would  have  been  during  the  period  of  impairment  following  the 
fire,  if  no  fire  had  occurred,  as  it  must  be  borne  in  mind  that  in 
arriving  at  the  loss  which  would  have  been  incurred  by  total  sus- 
pension, we  have  to  deal  with  future  rather  than  with  past  experi- 

787 


The  Fire  Insurance  Contract 

ence.  The  latest  Profit  and  Loss  Account,  or  possibly  the  average 
result  of  two  or  more  of  the  more  recent  accounts,  may  be  used  as 
a  basis,  and  in  order  to  bring  the  figures  up  or  down,  as  the  case 
may  be,  to  what  may  reasonably  have  been  expected  during  the 
period  of  impairment,  due  allowance  should  be  made  for  recent 
changes  in  volume  of  business,  increase  or  decrease  in  expenses, 
price  fluctuations  and  general  business  conditions. 

While  what  we  have  said  applies  more  particularly  to  the  ad- 
justment of  mercantile  losses,  the  same  general  principles  will  apply 
to  manufacturing  risks. 

Since  writing  the  foregoing  certain  changes  have  been  adopted 
in  most  use  and  occuj^ancy  forms,  affecting  more  particularly  the 
partial  suspension  clause,  which  now  provides  that : 

"The  per  diem  liability  under  this  policy  during  the  time  of  a  part'al 
suspension  of  business  shajl  be  limited  to  the^  'actual  loss  sustained,' 
not  exceeding  that  proportion  of  the  per  diem  liability  that  would  have 
been  incurred  by  a  total  suspension  of  business  which  the  actual  per 
diem  loss  sustained  during  the  time  of  such  partial  suspension  bears 
to  the  per  diem  loss  which  would  have  been  sustained  by  a  total  sus- 
pension of  business  for  the  same  time  of  all  properties  described  herein, 
due  consideration  being  given  to  the  experience  of  the  business  before 
the  fire  and  the  probable  experience  thereafter." 

It  will  be  observed  that  the  amended  form  provides  for  meas- 
urement of  losses  involving  partial  suspension  of  business  by  the 
fraction : 

Per  diem  loss  sustained Per    diem    liability    which 

Per  diem  loss  which  would  have  of  would  have  been  incurred 

been  incurred  by  total  suspension.  by   a   total    suspension. 

The  terms  of  the  fraction  for  measuring  partial  losses  in  the 
new  forms  are  composed  of  figures  representing  net  profit  and  fixed 
charges,  whereas  under  the  old  forms  the  terms  of  the  fraction  were 
composed  of  figures  representing  sales  in  a  mercantile  risk  or  pro- 
duction in  a  manufacturing  risk.  Under  the  new  forms  the  numer- 
ator of  the  fraction  is  "per  diem  loss  sustained."  In  order  to  deter- 
mine this  figure,  the  adjuster  should  ascertain  or  agree  upon  how 
much  the  net  profit  actually  earned  during  the  period  of  suspension 
fell  short  of  the  net  profit  which  would  have  been  earned  during  the 
same  period  had  no  fire  occurred.  The  denominator  of  the  fraction 
is  the  pei  diem  loss  which  would  have  been  incurred  (by  assured) 
in  the  event  of  total  suspension — that  is,  net  profit  plus  fixed 
charges. 

The  denominator  of  the  fraction  represents  loss  which  would 
have  been  incurred  by  assured  in  event  of  total  suspension.     Tlie 

788 


Use  and  Occupancy — Moore 

third  term  of  the  proportion  represents  per  diem  Habihty  which 
would  have  been  incurred  hy  the  company  in  event  of  total  suspen- 
sion. The  two  will  be  identical  when  the  loss  which  would  have 
been  incurred  by  the  assured  is  not  greater  than  the  per  diem  limit 
of  liability  named  in  the  form.  If,  however,  the  loss  which  would 
have  been  incurred  by  the  assured  in  the  event  of  total  suspension 
exceeds  the  daily  limit  of  Hability  named  in  the  form,  then  the  daily 
limit  is,  in  fact,  "the  per  diem  liability  whch  would  have  been  in- 
curred by  the  company  in  event  of  total  suspension,"  and  is  there- 
fore used  as  the  third  term  of  the  proportion.  The  form  thus  con- 
tains a  pro-rata  feature  wherein  it  provides  that  the  company's  lia- 
bility shall  not  exceed  a  pro-rata  proportion  of  the  daily  limit  of 
liability  based  on  the  percentage  of  decrease  of  net  profit  below 
what  the  net  profit  and  fixed  charges  would  have  been  had  no  loss 
occurred. 

The  following  examples  will  illustrate  the  relative  results  ob- 
tained by  applying  the  conditions  of  the  old  and  new  forms : 

INCREASING  BUSINESS 

Daily  limit  of  liability $  1,000 

Production  during  stated  period  prior  to  the  fire $10,000  per  day 

Net   profit    and    fixed    charges  during   stated    period   prior 

to  the  fire    $  1,000    "      " 

Probable  production   during  period  of  suspension  had   no 

fire  occurred $15,000    "      " 

Probable  net  profit  and  fixed  charges  during  period  of  sus- 
pension had  no  fire  occurred $  1,500   '*      " 

Impairment  of  production  due  to  fire $  5,000    "      " 

Decrease  in  net  profit  due  to  fire $     600   "      " 

Companies  pay: 

Old  Form  New  Form 

5000/10000  of  $1,000,  or  $500  600/1500  of  $1,000,  or  $400 

DECREASING  BUSINESS 

Daily  limit  of  liability $  1,000 

Production  during  stated  period  prior  to  the  fire $12,000  per  day 

Net   profit   and   fixed   charges   during   stated   period   prior 

to  the  fire $  1,200    "      " 

Probable  production  during  period  of  suspension  had  no 

fire  occurred    $  8,000    "      " 

Probable  net  profit  and  fixed  charges  during  period  of  sus- 
pension had  no  fire  occurred $      800    "      " 

Impairment  of  production  due  to  fire $  4,000    "      " 

Decrease  in  net  profit  due  to  fire $     600    "      " 

Companies  pay: 

Old  Form  New  Form 

4000/12000  of  $800,  or  $266.67  600/800  of  $800,  or  $600 

There  would  appear  to  be  two  principal  reasons  for  the  greater 
equity  and  accuracy  of  the  new  forms  as  against  the  old. 

789 
26 


The  Fire  Insurance  Contract 

FIRST :  The  pro  rata  feature  in  the  new  forms  is  based  on  the 
conditions  which  would  probably  have  obtained  during  the  period  of 
suspension  rather  than  upon  the  experience  of  some  stated  prior  pe- 
riod. In  applying  the  pro  rata  clause  to  property  losses,  the  pro  rata 
feature  is  based  on  the  value  of  the  property  at  the  time  of  the  fire, 
rather  than  on  the  valuation  at  some  prior  date.  It  is  equally  reason- 
able in  the  adjustment  of  use  and  occupancy  losses  to  base  the  pro 
rata  provision  on  the  business  which  would  probably  have  obtained 
during  the  period  of  impairment  rather  than  on  the  business  of 
some  prior  period,  as  the  old  forms  provide.  The  new  forms  are 
based  on  use  and  occupancy  values  which  could  reasonably  have 
been  expected  to  obtain  during  the  period  of  suspension  had  no  fire 
occurred.  The  pro  rata  feature  is  thereby  kept  intact,  notwithstand- 
ing fluctuation  in  volume  of  business,  whereas  the  old  clause  (as 
shown  by  the  foregoing  illustrations)  is  apt  to  overpay  in  the  event 
of  an  increasing  business  and  underpay  in  the  case  of  a  decreasing 
business. 

SECOND :  Liability  under  the  new  forms  is  based  on  the  per- 
centage of  decrease  of  net  profit,  whereas  under  the  old  forms  the 
basis  of  liability  was  percentage  of  impairment  of  ''business''  (that 
is,  production  in  a  manufacturing  business,  or  sales  in  case  of  a 
mercantile  risk).  It  frequently  happens  that  a  fire  causing  an  im- 
pairment of  production  (or  sales)  of,  say,  50%,  will  result  in  the 
net  profits  being  impaired  perhaps  75%,  or  even  100%.  On  the 
other  hand,  a  partial  suspension  of  operation  of  certain  units  of  a 
manufacturing  plant  will  under 'certain  conditions  in  no  way  inter- 
fere with  the  profit-producing  end  of  the  business  and  cause  little 
or  no  loss  of  net  profit — the  loss  of  physical  property  being  covered 
by  property  insurance.  Inasmuch  as  use  and  occupancy  insurance  is 
intended  to  aflFord  protection  against  loss  of  net  profit  and  fixed 
charges  rather  than  decrease  in  production  or  sales,  the  new  form 
would  appe-ar  more  equitable  than  the  old  in  view  of  its  basing  lia- 
bility on  percentage  of  impairment  of  net  profit  plus  fixed  charges 
rather  than  percentage  of  impairment  of  sales  or  production. 

The  partial  payment  clause  in  the  new  form  makes  no  direct 
reference  to  fixed  charges  and  expenses.  Fixed  charges  are,  how- 
ever, referred  to  elsewhere  in  the  form  and  are  intended  to  be  cov- 
ered by  the  partial  suspension  clause.  This  clause  provides  that  lia- 
bility for  partial  suspension  shall  be  determined  by  the  use  of  the 
following  formula: 

790 


Use  and  Occupancy — Moore 

Per  diem  loss  sustained Per     diem     liability     which 

Per  diem  loss  which  would  have  of         wou^    have    been    incurred 

been  incurred  (by  assured)  in  (by  the  company)   m  event 

event  of  total  suspension.  o^  total  suspension. 

This  formula  is  composed  of  three  terms,  each  of  which  in- 
cludes both  loss  of  net  profit  and  fixed  charges.  In  arriving  at  the 
numerator  of  the  fraction  which  ^represents  the  per  diem  loss  sus- 
tained, it  .should  be  borne  in  mind  that  the  decrease  in  net  profit  due 
to  the  fire  will  automatically  include  fixed  charges.  If,  therefore, 
an  amount  is  included  by  the  adjuster  in  the  numerator  as  fixed 
charges,  in  addition  to  the  decrease  in  net  profit  due  to  the  fire,  the 
item  of  fixed  charges  will  be  included  twice,  thereby  overpaying 
the  loss. 

Suppose,  for  example,  that  a  flour  mill  is  composed  of  two 
units,  similar  in  every  respect  and  each  producing  50  barrels  per 
day,  making  total  production  100  barrels  per  day ;  that  the  mill  nor- 
mally earns  a  net  profit  of  $100  per  day,  being  $1.00  per  barrel, 
each  unit  producing  50  barrels  and  earning  a  net  profit  of  $50  per 
day ;  that  one  of  the  two  divisions  is  totally  destroyed  by  fire,  caus- 
ing an  impairment  of  production  of  50% — the  remaining  unit  con- 
tinuing at  full  capacity  and  turning  out  50  barrels  per  day  as  before. 
The  output  of  the  plant  as  a  whole  is  thus  reduced  from  100  barrels 
to  50  barrels  per  day.  If  all  expenses  could  be  reduced  by  50%  fol- 
lowing the  burning  of  one  of  the  two  units,  the  remaining  unit  could 
still  realize  a  net  profit  of  $1.00  per  barrel,  or  $50.00  per  day  for  50 
barrels.  Unfortunately.,  however,  the  entire  expense  cannot  be  re- 
duced to  50%  of  normal  by  a  50%  reduction  in  output,  as  there  are 
certain  expenses  or  '"'fixed  charges"  which  will  continue  after  the 
fire  the  same  as  before. 

Let  us  assume  that  the  daily  business  were  as  follows: 

Entire  Plant  Each  Unit     Remaining 

under  normal  under  normal    unit  after 

conditions  conditions  the  fire 
Cost    of    raw    material,    plus    expense 
which  can  be  discontinued  in  event 

of  fire    $850  $425  $425 

Expense  which  cannot  be  discontinued     50  25  50 

Total   cost    $900  $450  $475 

Net   Profit    100  ,    50  25 

Selling  price   $1,000  $500  $500 

If  all  expenses  could  be  reduced  50%  by  the  burning  of  one  of 
the  units,  the  business  of  the  remaining  unit  would  correspond  with 

791 


The  Fire  Insurance  Contract 

the  figures  in  the  second  column  above,  showing  net  profit  of  $50.00. 
While  it  is  no  doubt  true  that  certain  of  the  expense  can  be  reduced 
to  50%  of  normal,  the  $50.00  designated  as  fixed  charges  will  re- 
main as  before,  and  the  operations  of  the  remaining  unit  following 
tohe  fire  will  be  as  shown  in  the  third  column  above,  showing  the  net 
profit  realized  after  the  fire  to  be  but  $25  per  day,  as  against  a  nor- 
mal profit  of  $100.00  per  day  if  no  fire  had  occurred. 

The  decrease  in  net  profit,  therefore,  is  the  diflPerence  between 
the  net  profit  actually  earned  ($25.00)  and  the  net  profit  which  but 
for  the  fire  would  have  been  earned  ($100.00  per  day),  or  $75.00 
per  day,  showing  a  shrinkage  of  net  profit  of  75%  as  against  a  de- 
crease In  production  of  50%.  The  assured  is  obliged  to  pay  his  full 
overhead  of  $50.00  per  day  during  the  period  of  impairment,  and 
still  realizes  a  net  profit  of  $25.00  per  day.  He  can  sustain  no  fur- 
ther use  and  occupancy  loss  than  $75.00  per  day,  being  the  differ- 
ence between  net  profit  earned  ($25.00)  and  net  profit  which  but 
for  the  fire  would  have  been  earned  ($100.00).  The  item  of  fixed 
charges  has  been  fully  taken  into  consideration  in  these  figures. 

The  net  profit  prei^ented  from  being  made  is  $50.00  per  day, 
being  the  net  profit  which  but  for  the  fire  would  have  been  earned 
in  the  burned  unit.  If  the  unit  involved  in  the  fire  could  be  disre- 
garded entirely,  including  the  overhead,  and  the  amount  of  net  profit 
for  the  unit  still  in  operation  remaining  the  same  as  before  the  fire, 
the  loss  of  net  profit  would  be  50%  of  $100.00,  or  $50.00.  How- 
ever, owing  to  the  overhead  expense  of  $50.00  continuing  as  before 
the  fire,  the  assured,  in  addition  to  the  prevented  profit  of  $50.00, 
will  sustain  further  loss  of  the  proportion  of  the  overhead  applying 
to  the  unit  destroyed— that  is,  50%  of  $50.00,  or  $25.00. 

Upon  analysis  as  above,  the  assured's  loss  of  $75.00  per  day 
is  found  to  be  composed  of : 

Net  profit  prevented  in  the  burned  unit $50.00 

Continuing  fixed  charges  applying  to  the  burned  unit 25.00 

Total   $75.00 

While  the  $75.00  loss  is  arrived  at  without  giving  any  consider- 
ation to  the  question  of  fixed  charges — that  is,  by  simply  deducting 
net  profit  earned  from  net  profit  which  but  for  the  fire  would  have 
been  earned — the  fixed  charges  are  as  shown  by  the  foregoing  analy- 
sis automatically,  and  perhaps  unconsciously,  taken  into  considera- 
tion. If,  therefore,  an  additional  allowance  is  made  for  fixed 
charges  in  the  numerator  of  the  fraction,  such  additional  allowance 
will  be  a  duplication. 

792 


Use  and  Occupancy — Moore 

The  denominator  of  the  fraction,  being  "Per  diem  loss  which 
would  have  been  incurred  (by  assured)  by  total  suspension,"  should, 
of  course,  include  the  net  profit  which  would  have  been  earned,  plus 
the  fixed  charges  which  would  have  been  incurred  during  the  period 
of  suspension  had  no  fire  occurred. 

The  third  term  of  the  formula,  being  "^per  diem  liability  which 
would  have  been  incurred  (by  the  company)  in  event  of  total  sus- 
pension," will  include  fixed  charges,  etc.,  as  provided  by  the  total 
suspension  clause  of  the  form,  not  exceeding,  of  course,  the  daily 
limit  of  liability  named  in  the  form. 

The  purpose  of  the  new  form  is  to  correct  the  shortcomings  of 
the  old.  Whether  they  will  develop  other  or  greater  difficulties  than 
those  they  are  designed  to  remove,  the  future  will  determine. 


793 


XL 
FOKMS— FKUlvi  THE  COMPANY'S  STANDPOiiNT 

\V.  N.  Bament, 
General  Adjuster  The  Home  Insurance  Company. 

The  subject  of  insurance  forms  is  such  an  exceedingly  broad 
one,  that  it  will  be  impossible  in  an  address  such  as  this  to  do  more 
tlian  touch  upon  it  in  a  general  way,  and  direct  attention  to  some  of 
the  more  important  forms,  which,  although  in  general  use,  may 
possess  features  which  are  not  fully  understood. 

The  best  form,  whether  viewed  from  the  standpoint  of  the  in- 
surance company  or  the  insured,  is  a  fair  form,  one  which  expresses 
in  clear,  unambiguous  language  the  mutual  intention  of  the  parties, 
and  affords  no  cause  for  surprise  on  the  part  of  either  after  a  losb 
has  occurred.  But  the  preparation  of  such  a  form  is  not  always  an 
easy  task,  and  it  is  right  at  this  point  that  the  ability  of  the  broker 
and  the  underwriter  come  into  play. 

A  distinguished  Englishman  declared  that  the  English  Con- 
stitution was  the  greatest  production  that  had  ever  been  conceived 
by  the  brain  of  man,  but  it  was  subjected  to  the  most  scathing 
criticisni  and  violent  assaults  by  Bentham,  the  great  subversive  critic 
of  English  law.  Twenty-five  years  ago  the  New  York  Standard 
Policy  was  prepared  by  the  best  legal  and  lay  talent  in  the  insurance 
world,  and  the  greatest  care  was  taken  to  present  not  only  a  rea- 
sonable and  fair  form  of  contract  between  the  insurer  and  the  in- 
sured, but  one  which  could  be  easily  read  and  understood. 

While  no  such  extravagant  claims  have  been  made  for  the 
Standard  Policy  as  were  made  for  the  "Matchless  Constitution,"  it 
has  for  a  quarter  of  a  century  stood  the  test  of  criticism  fully  as 
well,  if  not  better  than  its  most  ardent  friends  could  have  reason- 
ably expected,  yet  some  of  its  more  important  provisions  have 
frequently  been  before  the  courts  for  construction,  and  the  var- 
ious tribunals  have  diflfered  radically  in  their  decisions. 

A  perfect  constitution  and  a  perfect  policy  may  therefore  be 
safely  placed  in  the  list  of  things  unattainable,  but  if  there  is  any 
one  who  can  make  a  nearer  approach  to  perfection  in  the  art  of 
constructing  a  written  form  which  will  result  in  a  maximum  of  loss 
collection  with  a  minimum  of  co-insurance  or  other  resistance  than 
a  present  day  broker,  he  has  not  yet  been  discovered. 

794 


Forms — From  the  Company's  Standpoint 

The  ornate  policies  in  use  thirty  years  ago,  with  no  uniformity  in 
conditions,  with  their  classification  of  hazards  which  no  one  could 
understand  and  their  fine  print  which  few  could  read,  have  given 
way  to  plainly  printed  uniform  Standard  Policies  with  materially 
simplified  conditions.  But  the  written  portion  of  the  insurance  con- 
tract owing  to  our  commercial  and  industrial  growth,  instead  of  be- 
coming more  simple,  has  taken  exactly  the  opposite  direction,  and 
we  now  have  covering  under  a  single  policy  or  set  of  policies,  the 
entire  property  of  a  coal  and  mining  company,  the  breweries,  pub- 
lic service  or  traction  lines  of  a  whole  city  and  the  fixed  property, 
rolling  stock  and  common  carrier  liability  of  an  entire  railroad  sys- 
tem involving  millions  of  dollars  and  containing  items  numbering 
into  the  thousands.  This  forcibly  illustrates  the  evolution  of  the 
policy  form  since  the  issuance  of  the  first  fire  insurance  contract  by 
an  American  company  one  hundred  and  sixty  years  ago,  in  favor 
of  a  gentleman  bearing  the  familiar  name  of  John  Smith,  cover- 
ing 

"500  £  on  his  dwelling  house  on  the  east  side  of  King  Street,  be- 
tween Mulberry  and  Sassafras,  30  feet  front,  40  feet  deep,  brick, 
9-inch  party  walls,  three  stories  in  height,  plastered  partitions,  open 
newel  bracket  stairs,  pent  houses  with  board  ceilings,  garrets  fin- 
ished, three  stories,  painted  brick  kitchen,  two  stories  in  height, 
15  feet  9  inches  front,  19  feet  6  inches  deep,  dresser,  shelves, 
wainscot  closet  fronts,  shingling  1-5  worn." 

It  will  be  observed  that  in  the  matter  of  verbiage  this  primitive 
form  rivals  some  of  our  present  day  household  furniture  forms  and 
all  will  agree  that  this  particular  dwelling  might  have  been  covered 
just  as  effectually  and  indentified  quite  as  easily  without  such  an 
elaborate  description. 

Any  one  who  has  an  insurable  interest  in  property  should  be 
permitted  to  have  any  form  of  contract  that  he  is  willing  to  pay  for, 
provided  it  is  not  contrary  to  law  or  against  public  policy,  and  judg- 
ing from  a  contract  of  insurance  issued  by  a  certain  office  not  long 
ago  the  insuring  public  apparently  has  no  difficulty  in  securing  any 
kind  of  a  policy  it  may  desire  at  any  price  it  may  be  willing  to  pay. 
The  contract  in  question  was  one  for  £20,000,  covering  stock 
against  loss  from  any  cause,  except  theft  on  the  part  of  employes, 
anywhere  in  the  Western  Hemisphere,  on  land  or  water,  without 
any  conditions,  restrictions  or  limitations  whatsoever,  written  at 
less  than  one-half  the  Exchange  rate  in  the  insured's  place  of  bus- 

795 


The  Fire  Insurance  Contract 

iness.  An  insurance  agent  upon  being  asked  whether  he  thought  it 
was  good,  said  that  if  the  company  was  anywhere  near  as  good  as 
the  form,  it  was  all  that  could  be  desired,  but  vouchsafed  the  opin- 
ion that  it  looked  altogether  too  good  to  be  good. 

In  these  days  we  frequently  find  concentrated  within  the  walls 
of  a  single  structure  one  set  of  fire  insurance  policies  covering  on 
building,  another  on  leasehold  interest,  another  on  rents  or  rental 
value — and  in  addition  to  this,  policies  for  various  tenants  covering 
stock,  fixtures,  improvements,  profits  and  use  and  occupancy,  sub- 
ject to  the  100%  average  or  co-insurance  clause,  to  say  nothing  of 
steam  boiler,  casualty  and  liability  insurance,  thereby  entirely 
eliminating  the  element  of  personal  risk  on  the  part  of  the  owners, 
and  producing  a  situation  which  will  account  in  some  measure  for 
the  17,000  annual  fire  alarms  and  $15,000,000  fire  loss  in  New  York 
City ;  $230,000,000  annual  fire  loss  in  the  country  at  large,  and  for 
the  constantly  increasing  percentage  of  cases  where  there  are  two 
or  more  fires  in  the  same  building  and  two  or  more  claims  from 
the  same  claimant. 

The  most  common  and  perhaps  least  understood  phrase  found 
in  policies  of  fire  insurance  is  what  is  known  as  the  "Commission 
Clause,"  which  reads  "his  own  or  held  by  him  in  trust  or  on  com- 
mission or  sold  but  not  delivered"  or  ''removed."  This  clause  in  one 
form  or  another  has  been  in  use  for  many  years,  and  it  was  original- 
ly the  impression  of  underwriters  that  owing  to  the  personal  nature 
of  the  insurance  contract  a  policy  thus  worded  would  simply  cover 
the  property  of  the  insured  and  his  interest  in  the  property  of 
others,  such  as  advances  and  storage  charges,  but  the  courts  have 
disabused  their  minds  of  any  such  narrow  interpretation  and  have 
placed  such  a  liberal  construction  upon  the  words  "held  in  trust" 
that  they  may  be  justly  regarded  as  among  the  broadest  in  the  in- 
surance language  and  scarcely  less  comprehensive  than  the  familiar 
term  "for  account  of  whom  it  may  concern";  in  fact,  the  principles 
controlling  one  phrase  are  similar  to  those  governing  the  other. 

It  has  been  held  that  whether  a  merchant  or  bailee  has  as- 
sumed responsibility,  or  agreed  to  keep  the  property  covered  or 
whether  he  is  legally  liable  or  not,  if  his  policies  contain  the  words 
"held  in  trust,"  the  owner  may,  after  a  fire,  by  merely  ratifying  the 
insurance  of  the  bailee,  appropriate  that  for  which  he  paid  nothing 
whatever  and  may  file  proofs  and  bring  suit  in  his  own  name 
against  the  bailee's  insurers.     Nor  is  this  all,  for  in  some  jurisdic- 

796 


Forms — From  the  Company's  Standpoint 

tions,  if  the  bailee  fails  to  include  the  loss  on  property  of  the 
bailor  in  his  claim  against  his  insurers,  or  if  he  does  include  it  and 
the  amount  of  insurance  collectible  is  less  than  the  total  loss,  the 
bailee  may  not  first  reimburse  himself  for  the  loss  on  his  own  goods 
and  hold  the  balance  in  trust  for  the  owners,  but  must  prorate  the 
amount  actually  collected  with  those  owners  who  may  have  adopted 
the  insurance,  although,  if  he  has  a  lien  on  any  of  the  goods  for 
charges  or  advances,  this  may  be  deducted  from  the  proportion  of 
insurance  money  due  such  owners. 

The  phrase  "for  account  of^  whom  it  may  concern"  was  for- 
merly confined  almost  entirely  to  marine  insurance,  but  in  recent 
years  there  has  been  an  increasing  tendency  to  introduce  it  into, 
policies  of  fire  insurance. 

All  authorities  are  agreed  that  the  interests  protected  by  a  policy 
containing  these  words  must  have  been  within  the  contemplation^ 
of  him  who  took  out  the  policy  at  the  time  it  was  issued.  It  is  not 
necessary  that  he  should  have  intended  it  for  the  benefit  of  some 
then  known  and  particular  individuals,  but  it  would  include  sucli"~ 
classes  of  persons  as  were  intended  to  be  included  and  who  these 
were  may  be  shown  by  parol.  The  owners  or  others  intended  to  be 
covered  may  ratify  the  insurance  after  a  loss  and  take  the  benefit  of 
it,  though  ignorant  of  its  existence  at  the  time  of  the  issuance  of  t^e 
poHcy,  just  the  same  as  under  the  term  "held  in  trust." 

The  words  "for  account  of  whom  it  may  concern"  are  noj_ 
limited  in  their  protection  to  those  persons  who  were  coneerned  at- 
the  time  the  insurance  was  taken  out,  but  will  protect  those  having 
an  insurable  interest  and  who  are  concerned  at  the  time  when  the  loss  " 
occurs.    They  will  cover  the  interest  of  a  subsequent  purchaser  of 
a  part  or  the  whole  of  the  property  and  supersede  the  alienation 
clause    of  the  policy  (U.  S.  S-  C),  Hagan  and  Martin  v.  Scottish 
Union  and  National  Ins.  Co.,  32  Ins.  Law  Journal,  p.  47;  186  U.  S. 
423.) 

A  contract  of  insurance  written  in  the  name  of  "John  Doe  & 
Co.  for  account  of  whom  it  may  concern"  should  contain  a  clause 
reading  ^Xoss,  if  any,  to  be  adjusted  with  and  payable  to  John  Doe 
&  Co.,"  not  "loss,  if  any,  payable  to  them"  or  "loss,  if  any,  payable 
to  the  assured,"  as  forms  sometimes  read. 

Policies  are  frequently  written  in  the  name  of  a  bailee  cov- 
ering "On  merchandise,  his  own  and  on  the  property  of  others  for 
which  he  is  responsible,"  or  "for  which  he  may  be  liable" — and  it  has 

797 


The  Fire  Insurance  Contract 

been  held  that  the  effect  of  these  words  is  to  limit  the  liability  of  the 
insurer  fo  the  loss  on  the  assured's  own  goods  and  to  his  legal  lia- 
bility for  loss  on  goods  belonging  to  others,  but  the  words  *'for  which 
they  are  or  may  be  liable"  have  been  passed  upon  by  the  Supreme 
Court  of  Illinois,  and  they  have  been  given  an  entirely  different  in- 
terpretation. That  tribunal  in  the  case  of  Home  Insurance  Com- 
pany V.  Peoria  &  Pekin  Union  Railway  Co.  (28  Insurance  Law 
Journal,  p.  289;  178  Ills.  64)  decided  that  the  words  quoted  were 
merely  descriptive  of  the  cars  to  be  insured;  that  the  word  "liable" 
as  used  in  the  policy  did  not  signify  a  perfected  or  fixed  legal  lia- 
bility, but  rather  a  condition  out  of  which  a  legal  liability  might  arise. 

As  illustrative  of  its  position  the  court  said  that  an  assignor 
of  a  negotiable  note  may.  with  no  incorrectness  of  speech,  be  said 
to  be  liable  upon  his  assignment,  but  his  obligation  is  not  an  absolute 
fixed  legal  liability  but  is  contingent  upon  the  financial  condition 
of  the  maker ;  and  accordingly  held  that  the  insurance  company  was 
liable  for  loss  on  all  the  cars  in  the  possession  of  the  railroad  com- 
pany, notwithstanding  the  fact  that  the  latter  was  not  legally  liable 
to  the  owners. 

In  view  of  the  exceedingly  broad  construction  which  the  courts 
have  placed  upon  the  time  honored  and  familiar  phrases  to  which 
reference  has  been  made,  it  is  important  for  the  party  insured, 
whether  it  be  a  railroad  or  other  transportation  company,  a  ware- 
houseman, a  laundryman,  a  tailor,  a  commission  merchant  or  other 
bailee  to  determine  before  the  fire  whether  he  desires  the  insurance 
to  be  so  broad  in  its  cover  as  to  embrace  not  only  his  own  property 
and  interest,  but  atso  the  property  of  everybody  else  which  may 
happen  to  be  in  his  custody;  if  so,  he  should  be  careful  to  insure  for 
a  sufficiently  large  amount  to  meet  all  possible  co-insurance  con- 
ditions, and  if  he  wishes  to  make  sure  of  being  fully  reimbursed  for 
his  own  loss,  his  only  safe  course  is  to  insure  for  the  full  value  of  all 
the  property  in  his  possession. 

At  this  point  the  inquiry  which  naturally  presents  itself  is,  how 
should  a  policy  be  written  if  a  merchant,  warehouseman  or  other 
bailee  desires  to  protect  his  own  interest  but  not  the  interest  of  any 
one  else?  The  following  form  is  suggested:  "On  merchandise  his 
own,  and  on  his  interest  in  and  on  his  legal  liability  for  property  held 
by  him  in  trust  or  on  commission  or  on  joint  account  with  others, 
or  sold  but  not  removed,  or  on  storage  or  for  repairs,  while  con- 
tained, etc."    This  will,  it  is  believed,  limit  the  operation  of  co-in- 

798 


Forms — From  the  Company's  Standpoint 

surance  conditions  and  at  the  same  time  prevent  the  owners  from 
adopting,  appropriating  or  helping  themselves  to  the  bailee's  insur- 
ance, for  which  they  pay  nothing  and  to  which  they  are  not  equita- 
bly entitled. 

Many  of  the  household  furniture  forms  now  in  use,  in  addition 
to  embracing  almost  every  conceivable  kind  of  personal  property 
except  that  specifically  prohibited  by  the  policy  conditions,  are  also 
made  to  cover  similar  property  belonging  to  any  member  of  the 
family  or  household,  visitors,  guests  and  servants. 

This  form  would  seem  to  indicate  considerable  ingenuity  on  the 
part  of  the  broker,  broad  liberaUty  on  the  part  of  the  insurance 
company  and  commendable  generosity  on  the  part  of  the  insured, 
and  the  latter  would  probably  feel  more  than  compensated  by  being 
able  to  reimburse  his  guest  for  any  fire  damage  he  might  sustain 
while  enjoying  his  hospitality,  but  the  amount  of  insurance  carried 
under  such  a  form  should  anticipate  the  possibility  of  his  having  a 
number  of  guests  at  one  time  and  a  corresponding  increase  in  the 
value  at  risk. 

It  must  be  borne  in  mind  that  in  localities  where  co-insurance 
conditions  prevail  the  value  of  property  belonging  to  all  members  of 
the  household,  guests  and  servants  will  be  taken  into  account  for 
co-insurance  purposes  in  event  of  loss,  and  as  guests  frequently  have 
with  them  wearing  apparel  and  jewelry  of  considerable  value,  a  sit- 
uation might  easily  arise  which  would  result  in  quite  a  large  part  of 
the  loss  being  uncollectible. 

But  aside  from  the  element  of  co-insurance,  w^hich  is  not  gen- 
erally applicable  to  household  furniture  risks,  the  fact  remains  that 
under  such  a  form  the  members  of  the  household,  visitors,  guests 
and  servants  are  insured  quite  as  effectually  as  the  party  specifically 
named  as  the  "insured"  in  the  policy,  and  by  merely  adopting  the  in- 
surance which  has  been  generously  provided,  they  will  have  just  as 
much  right  to  the  proceeds,  to  the  extent  of  their  interest,  as  the 
nominal  insured,  for  a  policy  so  written  is  controlled  by  the  same 
principles  as  those  governing  property  held  in  trust  or  for  account  of 
whom  it  may  concern. 

If,  therefore,  the  insured  does  not  desire  to  carry  insurance  for 
an  amount  sufficiently  large  to  meet  these  possible  contingencies,  he 
should  content  himself  with  a  less  ambitious  form  of  policy,  other- 
wise he  may  under  certain  conditions  find  himself  the  victim  of  his 
own  generosity. 

799 


V 


The  Fire  Insurance  Contract 

In  the  absence  of  co-insurance  conditions,  this  broad,  all-in- 
clusive form  need  not  give  the  average  householder  any  special 
concern  for  it  is  highly  improbable  that  a  guest  at  a  private  resi- 
idence  would  presume,  uninvited,  to  avail  himself  of  his  host's  in- 
surance, although  servants  and  members  of  a  household  who  are  not 
members  of  the  family  might  not  be  so  considerate. 

It  is,  however,  an  exceedingly  dangerous  form  for  use  in  pol- 
icies covering  the  contents  of  quasi  public  institutions,  hotels  and 
boarding  houses,  for  it  is  hardly  conceivable  that  the  managers  or 
proprietors  would  desire  to  carry  and  pay  premium  on  insurance 
sufficient  to  cover  the  uncertain  and  constantly  changing  value  of  the 
property  of  their  guests,  especially  when  they  are  under  no  obliga- 
tion to  do  so. 

The  question  is  frequently  asked  whether  goods  in  bond  should 
be  covered  for  the  value  with  or  without  the  inclusion  of  customs 
duties  or  internal  revenue  tax ;  also  whether  the  policy  form  should 
affirmatively  include  or  exclude  the  duty  or  tax  or  make  no  mention 
of  it  whatever. 

According  to  the  internal  revenue  laws  (Sections  3221  and 
3223),  when  any  distilled  spirits  in  bond  are  destroyed  by  accidental 
fire  or  other  casualty,  without  any  fraud,  collusion  or  negligence 
of  the  owner  thereof,  no  tax  shall  be  collected  on  such  spirits  so  de- 
stroyed, or,  if  collected,  it  shall  be  refunded  upon  the  production  of 
satisfactory  proof  that  the  spirits  were  destroyed  as  specified  in  the 
statute.  But  when  the  owners  may  be  indemnified  against  such  tax 
by  a  valid  claim  of  insurance,  for  a  sum  greater  than  the  actual 
value  of  the  distilled  spirits,  before  and  without  the  tax  being  paid, 
the  tax  shall  not  be  remitted  to  the  extent  of  such  insurance.  In 
short,  the  insurance  would  be  regarded  as  covering  the  tax  to  that 
extent,  and  the  insurance  companies  would  have  no  subrogation 
rights.  As  virtually  all  losses  on  spirits  in  bond  occur  without  neg- 
ligence on  the  part  of  the  owner,  and  as  the  statute  makes  the  re- 
fund or  cancellation  of  the  bond  mandatory,  there  would  seem  to  be 
no  necessity  whatever  for  insuring  the  tax,  and  the  usual  and  better, 
practice  is  to  affirmatively  exclude  it  in  the  policy  forms. 

As  respects  duties  on  imports,  the  situation  is  somewhat  dif- 
ferent. According  to  Section  2984  of  the  United  States  Revenue 
Statutes,  the  Secretary  of  the  Treasury  is  "authorized,"  upon  pro- 
duction of  satisfactory  proof  of  the  actual  injury  or  destruction, 
in  whole  or  in  part,  of  any  merchandise  while  in  bond,  by  accidental 

800 


Forms — From  the  Company's  Standpoint 

fire  or  other  casualty,  to  abate  or  refund,  as  the  case  may  be,  the 
amount  of  import  duties  paid  or  accruing  thereupon;  and,  like- 
wise to  cancel  any  warehouse  bond  or  bonds  in  whole  or  in  part, 
as  the  case  may  be.  .<- 

Although  there  is  no  court  decision  definitely  passing  upon  the 
question  as  to  whether  the  above  provision  is  mandatory  or  whether 
the  matter  is  left  by  the  statute  entirely  within  the  discretion  of  the 
Secretary  of  the  Treasury,  it  has  for  years  been  the  practice  of  the 
Treasury  Department  to  treat  it  as  if  it  were  mandatory,  and  it  is 
practically  certain  that  the  owner  of  goods  in  a  bonded  warehouse 
would  not  lose  anything  on  account  of  duties  in  event  of  de- 
struction of  the  property  by  fire. 

Some  very  good  authorities  entertain  the  opinion  that  it  is  not 
advisable  to  affirmatively  exclude  duties  from  the  cover  of  the  pol- 
icies, and  that  in  the  absence  of  special  mention  ofT:he  duties  in  the 
form,  the  imported  value,  without  duties,  will  be  the  basis  of  set- 
tlement for  loss  and  co-insurance  purposes. 

All  the  decisions  prior  to  the  enactment  of  Section  2984,  pro- 
viding for  the  refund  or  abatement,  were  to  the  effect  that  as  the 
insured  was  absolutely  liable  to  pay  the  duties,  even  though  the 
goods  were  destroyed,  his  only  relief  was  to  look  to  his  insurers,  but 
there  does  not  appear  to  have  been  any  decision  since  the  enactment 
of  said  section  as  to  its  effect  upon  the  Hability  of  the  insurers. 

On  the  other  hand,  some  good  authorities  entertain  the  opinion 
that  if  the  insurance  is  sufficient  in  amount  and  the  duties  are  not 
expressly  excluded,  it  would  be  held  to  cover  them,  because  they  be- 
come an  obligation  immediately  upon  importation,  and  the  owner  is 
liable  for  them  until  he  obtains  their  remission.  In  this  view  of  the 
matter,  the  fact  that  it  is  more  or  less  easy  to  get  the  duties  remitted 
is  immaterial,  and  it  is  believed  by  those  who  entertain  the  above 
opinion,  that  the  courts  would  not  allow  the  insurance  company  to 
compel  the  insured  to  reduce  his  claim  against  it  by  enforcing  his 
rights  against  the  United  States  Government. 

This  might  possibly  be  true  if  the  duties  were  already  paid 
at  the  time  of  the  fire  or  paid  subsequently  in  order  to  secure  the 
release  of  the  property  for  salvage  purposes,  but  in  this  event  the  in- 
surance company  would  be  subrogated  to  the  rights  of  the  insured 
against  the  Government.  If,  however,  the  property  is  totally  de- 
stroyed and  the  duties  remain  unpaid,  it  is  difficult  to  perceive 
how  the  insured  can  collect  anything  beyond  the  invoice  value,  for 

801 


The  Fire  Insurance  Contract 

Linlil  he  actually  pays  the  duties,  he  sustains  no  loss  thereon,  even 
temporarily,  and  if  they  are  remitted,  he  never  will  sustain  any 
loss  thereon. 

The  mere  fact,  however,  that  there  has  been  no  final  court 
decision,  and  that  there  are  differences  of  opinion  on  the  subject, 
emphasizes  the  advisability  of  having  it  definitely  stated  in  the  pol- 
icy form  whether  the  duty  is  to  be  considered  a  part  of  the  value  in- 
sured or  not;  and  it  is  also  desirable  to  have  it  determined  before 
the  fire  occurs  by  whom  the  duty  and  warehouse  charges  shall  be 
paid,  in  event  of  it  being  necessary  to  remove  the  btock'  from  the 
bonded  warehouse  to  protect  it  from  further  damage,  or  for  sal- 
vage or  other  purposes. 

The  following  form,  which  is  used  by  some  companies,  would 
seem  to  meet  the  necessities  of  the  situation  when  it  is  desired  to 
exclude  the  duty  as  a  part  of  the  value: 

It  is  understood  and  agreed  that  the  Custom  House  duties  payable 
to.  the  United  States  Government  on  property  covered  by  this  poircy 
sliall  not  be  considered  as  part  of  the  value  insured  in  event  of  loss  or 
damage. 

It  is  also  understood  and  agreed  that  on  demand  of  this  Company, 
in  the  event  of  loss,  the  insured  shall,  "to  protect  the  property  from  fur- 
ther damage,"  promptly  pay  all  government  duties,  warehouse  and  other 
charges  necessary  for  the  purpose  of  removal  of  said  merchandise  to  such 
other  location  as  may  be  designated  by  this  Company. 

In  view  of  the  statute  providing  for  remission  or  abatement, 
and  the  well  settled  policy  of  the  Treasury  Department  in  inter- 
preting it,  there  does  not  appear  to  be  any  particular  necessity  of  in- 
suring the  duty,  and  to  pay  premium  on  this  additional  valuation 
would  be  an  expense  without  compensating  benefits  commensurate 
with  the  outlay. 

The  question  as  to  the  proper  form  to  use  when  property  is 
sold  under  contract  is  one  concerning  which  there  is  considerable 
misapprehension,  a  great  many  entertaining  the  erroneous  belief 
that  so  long  as  the  legal  title  remains  in  the  vendor,  he  is  the  owner 
of  the  property  and  that  it  should  be  insured  in  his  name. 

Where  the  contract  is  silent  upon  the  subject,  courts  differ  as 
to  whether  the  vendee  must  complete,  despite  the  intermediate  de- 
struction of  the  building  by  fire.  The  English  rule,  followed  by 
some  other  courts,  is,  in  general,  that  the  vendee,  whether  posses- 
sion has  been  given  or  not,  is  to  be  regarded  as  the  equitable  owner, 
liable  meanwhile  for  all  losses  and  entitled  to  all  benefits,  If  not  in 
default  under  the  terms  of  the  executory  contract,  and  that  de- 
struction of  the  building  by  fire  is  no  bar  to  an  action  for  specific 

802 


Forms — From  the  Company's  Standpoint 

performance  of  the  contract  of  sale.  But  the  tendency  of  the  de- 
cisions in  this  country  lends  support  to  the  rule  that  the  executory 
contract  falls  at  the  option  of  the  vendee,  i4-the^endor  cannot  de- 
liver the  premises  in  substantially  as  good  condition  as  when  the 
contract  was  made.  (Browning  v.  Home  Ins.  Co-,  71  N.  Y.  508; 
Wood  V.  American  Fire  Ins.  Co.,  149  N.  Y.  372;  Tieman  v.  Citizens 
Ins.  Co.,  76  App.  Div.  5;  O'Neill  v.  Franklin  Fire  Ins.  Co.,  159 
App.  Div.  313.) 

But  where  the  vendee  has,  in  addition  to  his  executory  con- 
tract, and  pending  its  fulfillment,  taken  actual  possession  and  con- 
trol of  the  property  and  is  in  a  position  to  enforce  specific  pei*- 
formance,  it  has  been  quite  generally  held  that  he  is  the  equitable 
or  real  owner  of  the  property.  It  is^endible  as  his,  chargeable 
as  his,  capable  of  being  encumbered  as  his;  it  may  be  devised 
as  his,  would  descend  to  his  heirs,  and  while  living  is  insur- 
able as  his.  The  vendor  who  retains  the  legal  title  simply  has  a 
lien  on  the  property  for  the  unpaid  balance  due  on  the  contract; 
the  substance  of  ownership  has  passed — only  the  shadow  remains. 
As  the  vendee  under  these  conditions  can  insure  the  property  for  its 
full  value  as  his  own,  it  logically  follows  that  the  vendor  cannot 
insure  it  as  owner,  for  it  can  hardly  be  maintained  that  there  can  be 
two  sole  and  unconditional  ow^ners  of  the  same  property  at  the  same 
time.  Therefore,  a  New  York  Standard  Policy  which  contains  a 
stipulation  against  change  in  interest,  title  or  possession  becomes 
void  unless  properly  endorsed,  if  the  property  is  sold  under  contract 
and  the  vendee  is  given  possession.  (Sewell  v.  Underbill,  197  N. 
Y.  168,  affirming  s.  c.  127,  App.  Div.  92;  Sewell  v.  Home  Ins.  Co.. 
113  App.  Div.  728,  affirmed  without  opinion,  189  N.  Y.  526.) 

''When  the  vendee  under  an  executory  contract  binds  himself 
absolutely  to  complete  and  to  take  the  whole  title,  whether  of  real 
or  personal  property,  he  is  held  to  be  the  sole  and  unconditional 
owner.  But  where  the  agreement  to  purchase  is  conditional  or  con- 
tingent, whether  of  real  or  personal  property,  so  that  a  fire  loss  will 
not  fall  upon  the  vendee,  then  his  interest  is  not  sufficient  to  sat- 
isfy the  warranty  as  to  sole  and  unconditional  ownership.  The 
beneficial  owner  of  the  entire  property  is  the  real  owner."  (Rich- 
ards on  Insurance,  3rd  Edition,  336.) 

If  it  is  desired  to  protect  the  interest  of  the  vendor  only,  it 
can  be  done  by  issuing  policy  in  his  name,  but  it  is  absolutely  neces- 
sary to  state  therein  that  the  property  has  been  sold  under  contracl 

803 


The  Fire  Insurance  Contract 

or  that  a  bond  has  been  given  for  a  deed.  The  only  interest  the 
vendor  has  left  to  protect  is  that  of  a  vendor's  Hen  (an  interest 
somewhat  similar  to  that  of  a  mortgagee),  and  upon  payment  of 
the  loss,  which  cannot  exceed  the  unpaid  balance  due  on  the  con- 
tract, the  insurance  company  will  be  subrogated  to  the  extent  of 
the  amount  paid. 

If  it  is  desired  to  protect  the  interest  of  the  vendee  only,  the 
policy  should  be  issued  in  his  name  just  as  if  he  also  held  the  legal 
title.  It  is  customary  to  state  in  the  policy  form  that  he  holds  a 
bond  for  a  deed  or  a  contract  of  purchase,  although  under  a  New 
York  Standard  Policy  this  would  hardly  seem  to  be  necessary. 

If  it  is  desired  to  protect  the  interest  of  both  vendor  and  vendee 
it  can  be  done  by  issuing  the  policy  in  the  names  of  both  and  stating 
therein  that  the  property  has  been  sold  under  contract  by  one  to 
the  other,  and  making  loss,  if  any,  payable  as  their  respective  in- 
terests may  appear. 

A  policy  issued  to  the  vendor  setting  forth  the  fact  that  the 
property  has  been  sold  under  contract  to  the  vendee  (naming  him) 
and  making  loss  if  any  payable  to  each  as  their  respective  interests 
may  appear,  would  probably  be  held  to  indicate  an  intention  to  cover 
both  interests,  although  this  is  getting  the  cart  before  the  horse  and 
would  be  analogous  to  issuing  a  policy  in  the  name  of  the  mortgagee 
with  loss  if  any  payable  to  the  mortgagor.  If  both  interests  are  in- 
tended to  be  covere;d  the  policy  should  so  state. 

A  policy  issued  in  the  name  61*  the  vendee  in  possession,  with 
loss  if  any  payable  to  the  vendor,  as  his  interest  may  appear,  with 
a  mortgagee  clause  attached,  is  probably  the  best  protection  that  the 
latter  can  possibly  have. 

The  law  in  Maine  is  a  notable  exception  to  the  general  rule.  In 
that  state,  even  if  the  vendee  be  in  possession,  if  the  building  is  de- 
stroyed by  fire  the  vendee  cannqt  be  compelled  to  take  a  deed  of  the 
land  alone  and  pay  the  purchase  money.  Gould  v.  Murch,  79  Me., 
288. 

In  Georgia,  by  reason  of  the  "Georgia  Loan  Deed"  statute, 
when  the  property  has  been  sold  under  contract,  neither  the  vendor 
nor  vendee  is  deemed  the  sole  and  unconditional  owner  of  the 
property ;  hence  it  is  absolutely  necessary  that  the  interest  to  be  in- 
sured be  fully  set  forth  in  the  form.  Orient  Ins.  Co.  v.  Williamson, 
98  Ga.,  464;  Williamson  v.  Orient  Ins.  Co.,  100  Ga.,  791 ;  Palatine 
Ins.  Co.  V.  Dickenson,  116  Ga.,  794;  Athens  Mut.  Ins.  Co.  v.  Evans, 
132  Ga.,  703. 

,  f  804 


•  Forms — From  the  Company's  Standpoint 

Some  forms  contain  a  stipulation  that  the  policy  shall  not  be 
invalidated  if  contracts  for  sale  of  the  property  are  executed  and 
delivered.  This  will  save  the  policy  from  forfeiture,  but  it  will  only 
cover  the  remaining  interest  of  the  vendor. 

Several  years  ago  the  Uniform  Bill  of  Lading  was  adopted  by 
railroads  and  other  transportation  companies,  with'  the  endorsement 
of  the  Interstate  Commerce  Commission  acting  in  an  advisory 
capacity.  The  only  provision  therein  of  special  interest  to  insur- 
ance companies  reads  as  follows:  "Any  carrier  or  party  liable  on 
account  of  loss  of  or  damage  to  any  of  said  property  shall  have 
the  fiiirEenefit  oT  any  insurance  that  may  have  been  effected  upon 
or  on  account  of  said  property,  so  far  as  this  shall  not  avoid  the 
policies  or  contracts  of  insurance."  The  insertion  of  the  closing 
words  of  this  last  paragraph  was  secured  through  the  efforts  of 
marine  underwriters,  who  lost  no  time  in  preparing  suitable  clauses 
to  counteract  the  effect  of  the  insurance  provision.  . 

From  the  various  warranties  prepared  by  marine  companies 

to  meet  the  situation,  the  following  have  been  selected : 

Warranted  by  the  insured  freedom  any  liability  for  merchandise  in 
the  possession  of  any  carrier  or  other  bailee  who  may  be  liable  for  any 
loss  or  damage  thereto,  and  any  stipulation  or  agreement  that  such  car- 
rier or  bailee  shall  have  the  benefit  of  this  insurance,  shall  void  this 
policy  or  contract  of  insurance. 

also, 

Warranted  by  the  assured  free  from  any  liability  for  merchandise 
in  the  possession  of  any  carrier  or  other  bailee,  who  may  be  liable  for 
any  loss  or  damage  thereto;  and  free  from  any  liability  for  merchandise 
shipped  under  a  Bill  of  Lading  containing  a  stipulation  that  the  carrier 
may  have  the  benefit  of  any  insurance  thereon;  and  that  any  insurance 
against  fire  granted  herein  shall  not  cover  where  the  assured  or  any  car- 
rier or  other  bailee  has  fire  insurance  which  would  attach  if  this  policy 
had  not  been  issued. 

Fire  insurance  companies  have  apparently  taken  no  action 
toward  protecting  themselves  in  this  direction,  and  unless  they  do  so 
the  insurance  issued  by  them  will  inure  to  the  benefit  of  the  carrier. 
Although  the  Supreme  Judicial  Court  of  Maine  in  the  case  of  Dyer 
V.  Maine  Central  R.  R.  Co.  (99  Me.  195)  held  that  an  insurance 
provision  in  the  statute  of  that  State  in  favor  of  a  railroad  company 
will  not  deprive  an  insurance  company  of  its  subrogation  rights  in 
event  of  negligence,  the  Supreme  Judicial  Court  of  Massachusetts, 
in  a  recent  decision  under  a  similar  statute,  held  to  a  contrary  doc- 
trine ;  New  England  Box  Co.  v.  N.  Y.  C.  &  H.  R.  R.  R.  Co.  (41 
Ins.  Law  Journal,  p.  517;  99  N.  E.  Rep.  140).  And  the  United 
States  Supreme  Court  has  held  that  a  stipulation  in  a  bill  of  lading 

805 


The  Fire  Insurance  Contract 

that  the  carrier  shall  have  the  benefit  of  any  insurance  on  the  goods 
is  a  valid  one,  and  in  such  a  case,  even  though  the  loss  be  oc- 
casioned by  the  negligence  of  the  carrier,  the  insurance  company 
cannot  be  subrogated  to  the  rights  of  the  shipper  to  recover  dam- 
ages for  such  negligence;  Phoenix  Ins.  Co.  v.  Erie  &  Western 
Transportation  Co.  (15  Ins.  Law  Journal,  p.  574;  117  U.  S.  312). 

The  recent  action  of  the  New  York  Insurance  Exchange  in 
abrogating  the  old  pattern  dause  and  requiring  patterns,  models, 
moulds,  matrices,  drawings,  designs,  dies,  solutions,  photographic 
negatives  or  lithographic  plates  or  stones  or  engravings  thereon  to 
be  specifically  insured,  and  in  preparing  a  clause  precluding  the  pos- 
sibility of  their  being  coveredr  hy  general  terms  under  other  items 
of  the  policy,  was  a  move  in  the  right  direction,  and  the  rule 
should  be  universally  adopted  not  only  as  a  matter  of  sound  under- 
writing practice,  but  in  the  interest  of  convenience  in  adjustments 
and  as  a  matter  of  simple  fairness  between  the  insured  and  the  com- 
pany. All  of  the  articles  mentioned  are  of  uncertain  value  and  be- 
long in  a  class  by  themselves ;  and  to  include  them  with  machinery 
and  fixtures,  the  value  of  which  is  easily  ascertainable,  invariably 
complicates  the  adjustment,  especially  when  the  policies  contain  the 
full  co-insurance  clause  with  no  limit  on  the  articles  in  question,  for 
the  oldest  adjuster  present  never  heard  of  a  poor  horse  (covered  by 
insurance)  ever  being  killed  by  lightning  or  a  dead  pattern  ever  be- 
ing destroyed  by  fire. 

A  case  is  now  pending  in  a  distant  city  under  the  following  con- 
ditions: blanket  policies  were  issued  for  over  $150,000,  with  full 
co-insurance  clause,  and  no  limit  on  patterns.  '  A  comparatively 
small  fire  occurred  in  the  basement  of  one  building  belonging  to  the 
plant  which  was  used  for  the  storage  of  patterns  and  drawings.  If 
the  fire  had  occurred  in  some  other  part  of  the  plant,  the  prob- 
abilities are  that,  in  figuring  value  for  purposes  of  co-insurance,  the 
basement  of  the  burned  building  would  have  been  regarded  as  a  sort 
of  pattern  cemetery,  but  through  the  revivifying  influence  of  the 
fire  the  patterns  and  drawings  therein  instantaneously  assumed  a 
valuation  of  about  $50,000,  or  about  one-third  the  value  of  the  en- 
tire plant  and  contents. 

In  naming  a  specific  amount  on  patterns  and  drawings,  the 
company  knows  just  what  it  is  doing  and  just  what  to  expect;  in 
insuring  them  blanket  without  limit,  it  ought  to  know  from  exper- 
ience what  to  expect,  although  it  does  not  know  just  what  it  is  doing. 

806 


Forms — From  the  Company's  Standpoint 

The  precaution  taken  by  the  framers  of  the  pattern  clause  to 
avoid  having  patterns  and  other  kindred  articles  covered  by  general 
terms  in  other  items  of  the  policy,  directs  attention  to  the  fact  that 
in  preparing  any  kind  of  form,  special  care  should  be  taken  to  have 
each  item  embrace  exactly  the  property  intended  to  be  protected  by 
it,  and  neither  by  general  nor  specific  terms  have  the  same  property 
covered  under  more  than  one  item.  As  there  are  a  number  of  ex- 
ceedingly broad  general  terms  such  as  "supplies,"  "appurtenances," 
etc.,  they  should  be  used  exactly  where  intended  and  not  elsewhe.re. 

Among  the  new  elements  which  have  been  introduced  into 
policies  of  fire  insurance  during  the  past  thirty  years,  by  far  the 
most  important  is  that  of  co-insurance,  which  has  its  practical 
manifestation  in  various  forms  familiarly  known  as  the  "eighty 
percent  co-insurance  clause,"  "the  percentage  average  clause"  and 
the  "reduced  rate  contribution  clause."  Co-insurance  is  fundamen- 
tally sound  in  principle  and  an  absolutely  necessary  factor  as  an 
equalizer  of  rates;  and  although  by  some  strange  providence  it 
almost  invariably  happens  that  the  relative  sound  value  of  property 
saved  is  much  less  than  that  destroyed,  yet  the  co-insurance  or 
average  clause,  by  maintaining  a  proper  relation  between  sound 
value  and  loss,  operates  in  a  large  measure  as  a  kind  of  automatic 
regulator  in  loss  adjustments. 

Co-insurance,  or  average  conditions,  if  a  proper  amount  of  in- 
surance be  carried,  are  in  themselves  perfectly  harmless,  but  if  used 
in  connection  with  the  average  distribution  clause,  special  care 
should  be  taken  by  the  insured  or  his  broker  to  see  that  all  policies 
are  strictly  concurrent  and  that  all  contain  the  average  distribution 
clause,  for  if  some  contain  the  clause  and  others  do  not,  the  insured 
may  be  compelled  to  stand  a  portion  of  the  loss  himself,  notwith- 
standing the  fact  that  the  aggregate  insurance  may  exceed  the  ag- 
gregate value.  All  the  policies  should  contain  the  average  distribu- 
tion clause  or  none  of  them  should. 

Policies  are  sometimes  issued  to  John  Doe  and/or  Richard  Roe. 

A  policy  so  issued  may  cover  one    two  nr  thrf^p  Hi«;tinrf  jp|^r^t^|-c^  ^r.^ 

the  property  described  therein,  to-wit : — It  may  cover  the  interest 
of  John  Doe  individually,  the  interest  of  Richard  Roe  individually, 
and  the  interest  of  both  jointly.  But  if  the  policy  be  subject  to  co- 
insurance or  reduced  rate  average  conditions,  it  is  only  proper  that 
the  combined  value  of  all  the  interests  should  be  taken  as  the  basis 
for  their  application. 

807 


The  Fire  Insurance  Contract 

Although  the  form  "lohn  Doe  and/or  Richard  Roe"  has  come 
into  use  quite  generally  during  recent  years,  it  is  doubtful  whether 
it  is  any  broader  in  its  cover  than  a  policy  issued  to  ''John  Doe  and 
Richard  Roe,  as  interest  may  appear" ;  in  fact,  good  argument  might 
be  advanced  in  support  of  the  view  that  a  policy  so  issued  would  be 
more  comprehensive  and  protective  to  the  insured  than  one  issued  to 
''John  Doe  and/or  Richard  Roe,"  unless  the  latter  should  also  con- 
tain the  words  ^'as  interest  may  appear^" 

If_one_of^the_£arties  violates  the  conditions  of  the  policy  it  will 
be  void  only  as  to  his  rndTvidual  interesf,  and  might  be  as  to  the 
jojnt  interest,  but  not  as  to  the  individual  interest  of  the  party  not 
participating  in  the  violation.  A  possible  exception  to  this  general 
statement  should  perhaps  be  noted,  for  it  may  be  that  the  few  states 
which  have  declared  unqualifiedly  in  favor  of  the  doctrine  that  the 
policy  is  indivisible,  and  those  which  have  decided  in  favor  of  con- 
ditional indivisibility,  may  hold  that  if  it  is  void  as  to  one  interest, 
it  is  void  as  to  all.  It  is  also  possible,  however,  that  they  might 
differentiate  a  policy  covering  several  different  interests  from  one 
covering  several  different  items.  About  one-half  of  the  states,  how- 
ever, which  have  passed  on  the  question  have  held  to  the  view  that 
the  policy  is  divisible,  notwithstanding  the  plain  provision.  "This  en- 
tire policy  shall  be  void,  etc."  This  opinion  evidently  assumes  that 
sufficient  significance  is  given  to  the  word  "entire"  if  it  is  construed 
as  applicable  to  specific  items  of  the  policy  instead  of  the  entire 
instrument. 


THe  question  is  frequently  asked  as  to  how  a  draft  in  payment 
of  a  loss  under  a  policy  so  issued  should  be  drawn  in  order  to  fully 
protect  the  company.  The  opinion  is  quite  general  among  under- 
writers and  adjusters  that  when  paying  a  loss  the  draft  should  be 
made  out  precisely  as  the  policy  is  written,  without  any  variation  or 
shadow  of  turning,  and  as  a  general  rule  this  is  correct.  But  is  this 
true  in  respect  of  a  policy  issued  to  "John  Doe  and/or  Richard 
Roe?"  The  answer  to  this  question  depends  on  the  answer  to  two 
others : 

First : — Does,  a  draft  so  drawn  require  the  endorsement  of  both 
parties,  or  can  the  insurer  be  legally  compelled  to  honor  it  upon  the 
endorsement  of  either? 

Second : — If  a  draft  so  drawn  is  honored  upon  the  endorsement 
of  one  of  the  parties  only,  will  the  insurer  thereby  secure  a  full  re- 

808 


Forms — From  the  Company's  Standpoint 

lease,  or  can  it  be  compelled  to  respond  to  a  subsequent  claim  by  the 
party  who  did  not  endorse  the  draft? 

The  opinion  seems  to  be  that  the  endorsement  of  one  of  the 
parties  will  be  sufficient  to  enable  said  endorser  to  collect,  and  that 
the  insurer  will  not  be  relieved  of  liability  in  respect  of  any  later 
claim  by  the  other  party  to  the  contract.  If  these  conclusions  be 
correct,  is  it  evident  that  the  insurer  cannot  safely  issue  a  loss  draft 
in  the  manner  indicated,  and  that  in  the  absence  of  a  written  release 
or  authorization  from  one  of  the  parties,  the  draft  shiouTd  be  issued 
in  the  names  of  both  "John  Doe  and  Richard  Roe,"  omitting  the 

If  the  draft  is  drawn  in  the  name  of  "John  Doe  and/or  Richard 
Roe,"  several  possibilities  present  themselves,  to-wit : 

(1)  If  the  loss  is  confined  to  the  property  belonging  to  one 
party  only,  who  files  his  claim,  and  the  draft  falls  into  the  hands  of 
the  other  party,  who  collects  on  his  own  endorsement,  the  com- 
pany is  not  released. 

(2)  If  claim  is  made  by  both  parties  for  loss  on  property  be- 
longing to  each  individually,  and  the  draft  is  endorsed  by  one  only, 
who  makes  collection,  the  company  is  not  released  as  to  the  interest, 
of  the  other. 

(3)  If  claim  is  made  by  one  or  both  parties  for  loss  on  per- 
sonal property  belonging  to  both  jointly,  and  the  draft  is  endorsed 
and  collected  by  one  only,  the  Company  is  released  as  to  the  joint 
property.  This,  however,  is  not  necessarily  so  with  respect  to  real 
property. 

(4)  If  claim  is  made  by  one  party  only  for  the  full  face  of  the 
policy,  for  loss  on  property  belonging  to  himself  individually,  and 
the  draft  is  endorsed  by  him  only,  and  collection  made,  and  if  a  later 
claim  is  also  made  for  the  full  face  of  the  policy  by  the  other  party 
for  loss  on  his  individual  interest  in  the  property,  the  insurer  would 
be  compelled  to  pay  the  second  claimant  to  the  extent  of  his  ratable 
interest  in  the  policy.  In  other  words,  in  such  circumstances  the 
insurer  will  have  the  privilege  of  paying  out  probably  one  hundred 
and  fifty  percent  of  its  policy  in  settlement  of  the  two  claims. 

(5)  If  claim  is  made  by  one  party  only  for  loss  on  his  individ- 
ual interest  in  the  property,  and  the  other  party  gives  a  release  or 
authorizes  payment  to  the  first  party,  the  draft  could  with  perfect 
safety  be  made  payable  to  said  first  party  only,  or  it  could  be  made 
payable  to  both  jointly,  in  the  form  "John  Doe  and  Richard  Roe," 

809 


The  Fire  Insurance  Contract 

but  it  would  not  be  absolutely  safe  to  issue  it  in  the  names  of  both 
with  the  conjunctions  "and/or"  for,  as  above  stated,  if  it  should 
happen  to  fall  into  the  hands  of  the  wrong  party,  who  endorses  and 
collects,  the  company  would  not  be  released. 

Is  the  property-owner  absolutely  safe  in  accepting  a  policy  in 
the  form  "John  Doe  and/or  Richard  Roe?"  This  depends  on  cir- 
cumstances. Assuming  that  the  value  of  all  interests  must  be  the 
basis  for  the  application  of  co-insurance  conditions  in  all  cases,  if 
both  parties  to  the  contract  are  so  situated  with  respect  to  the  prop- 
erty that  they  are  at  all  times  fully  posted  as  to  the  total  value  at 
risk,  so  that  the  amount  of  joint  insurance  can  be  regulated  in  ac- 
cordance with  their  co-insurance  necessities,  they  have  nothing  to 
fear  on  that  score,  but  if  either  one  or  the  other  is  not  so  situated, 
he  runs  the  risk  of  being  a  co-insurer  in  the  event  of  loss. 

In  those  states  which  have  held  unqualifiedly  that  the  policy 
is  divisible  the  assured  may  safely  accept  policies  in  the  form  ''John 
Doe  and/or  Richard  Roe,"  but  in  those  states  which  have  held  to  the 
contrary,  one  party  may  possibly  be  running  the  risk  of  having  the 
entire  contract  rendered  void  by  some  act  on  the  part  of  the  other. 

It  is  for  the  parties  insured  to  determine  for  themselves 
whether  or  not  the  advantages  of  this  form  outweigh  the  disadvan- 
tages, but  when  a  policy  is  so  issued  the  insurers  are  entitled  to  a 
full  and  complete  release  in  the  event  of  loss,  even  though  the  giv- 
ing of  same  may  at  times  cause  one  or  both  of  the  parties  some  in- 
convenience. 

The  safest  course,  and  in  fact  the  only  absolutely  safe  course 
for  the  insurer,  is  to  issue  the  loss  draft  in  all  instances  in  the  form 
"John  Doe  and  Richard  Roe,"  thereby  securing  a  release  as  to  each 
individual  interest,  and  the  joint  interest,  if  any. 

Virtually  every  insurance  company  doing  business  is  requested 
with  more  or  less  frequency,  when  the  loss  is  less  than  $100,  and 
sometimes  when  it  is  more,  to  eliminate  from  the  loss  draft  the 
name  of  the  mortgagee  to  whom  the  loss  is  payable,  on  account  of 
the  difficulty  attendant  upon  securing  his  receipt  and  endorsement. 
In  most  instances  this  can  be  done  with  comparative  safety,  but 
inasmuch  as  the  loss  payable  clause  is  placed  on  the  policy  at  the  re- 
quest of  the  insured,  the  insurance  company  should  not  be  asked  to 
ignore  the  request  after  it  has  become  a  contractual  obligation  and 
assume  all  responsibility  therefor.  The  possible  inconvenience  con- 
nected with  securing:  the  mortgagee's  release  is  well  known  when  the 

810 


Forms — From  the  Company's  Standpoint 

policy  is  issued,  and  if  the  parties  do  not  desire  small  losses  paid 
to  the  mortgagee,  it  can  be  very  easily  arranged  by  making  loss  if 
any  above  a  certain  fixed  amount  payable  to  him  as  his  interest 
may  appear,  and  in  some  instances  this  is  done. 

If  a  policy  covers  on  building  and  stock  under  separate  items 
and  it  is  the  desire  of  the  parties  that  the  loss  if  any  on  building  only 
shall  be  payable  to  a  third  party,  it  should  so  state,  otherwise  the 
loss  under  the  entire  policy  will  be  payable  to  him. 

Is  the  insurer  liable  for  loss  when  property  owner  has  released 
railrc^d  company  from  liability?  When  the  insured  has,  prior  to 
issue  of  the  policy,  released  a  railroad  company  or  wrong  doer  from 
liability  for  fire  due  to  negligence  or  other  cause,  and  fails  to  advise 
the  insurer  of  such  release,  has  he  concealed  or  misrepresented  any 
material  fact  or  circumstance  which  precludes  recovery  from 
his  insurer;  in  other  words  where  the  insured  has  by  his  own  act 
deprived  the  insurer  of  its  subrogation  rights,  is  it  a  good  defense 
to  an  action  on  the  policy  ? 

In  England  in  the  case  of  Tate  v.  Hyslop  (1884,  15  C.  B.  Q., 
3688  Eng.),  the  Upper  Court  reversed  the  finding  of  the  Lower 
Court  and  held  that  when  the  insured  released  the  common  carrier 
from  liability  (except  negligence)  and  knew  or  should  have  known 
that  the  underwriters  charged  a  higher  premium  on  goods  carried 
under  such  conditions,  the  insured's  failure  to  disclose  such  release 
would,  (and  in  this  case  did)  defeat  recovery  from  the  under- 
writers. 

.    There  are  several  American  decisions  bearing  on  the  subject, 
among  which  may  be  mentioned  the  following : 

Pelzer  v.  St.  Paul  F.  &  M.  Ins.  Co.,  USCC.  19  Ins.  Law  Journal,  p. 
372;  41  Fed.  271; 

Pelzer  v.  Sun  Insurance  Office,  South  Carolina  S.  C.  21  Ins.  Law 
Journal,  p.  952; 

Greenwich  Ins.  Co.  v.  L.  &  N.  Ry.  Co.,  Ky.,  1902.  Vol.  31  Ins.  Law 
Journal,  p.  298;  112  Ky.  598;  66  S.  W.  411. 

The  Courts  of  this  country  have  not  been  as  generous  to  the 

underwriters  as  the  English  courts,  but  from  an  analysis  of  the  de- 
cisions, we  feel  warranted  in  drawing  the  following  conclusions,  viz : 

Such  agreements  are  valid  if  there  is  a  proper  consideration 
therefor,  and  they  are  not  against  public  policy. 

When  the  insured  has,  previous  to  the  fire,  and  before  the  issue 
of  the  policy,  released  the  railroad  company  from  liability  and  neg- 
lected to  disclose  such  fact  to  the  insurer  when  applying  for  insur- 
ance, it  is  a  question  for  the  jury  to  determine  whether  the  failure 
to  make  such  disclosure  was  concealment  of  a  material  fact,  and 

811 


The  Fire  Insurance  Contract 

where  the  insurers  discriminate  against  property  subject  to  such 
release  to  the  extent  of  charging  a  higher  rate,  and  this  fact  is 
known  to  the  insured,  but  not  to  the  insurer  or  his  agent,  and  he 
fails  to  pay  the  higher  rate  and  have  notice  of  release  endorsed  on 
the  policy,  there  would  be  a  reasonable  chance  of  defeating  the  claim 
on  this  ground;  but  where  there  is  no  such  discrimination  on  the 
part  of  the  companies,  it  would  seem  that  the  insurer  would  have 
no  hope  of  a  successful  defense. 

All  courts  which  have  passed  on  the  question,  with  the  ex- 
ception of  the  Supreme  Judicial  Court  of  Massachusetts,  the  Court 
of  Errors  and  Appeals  of  New  Jersey,  the  United  States  Supreme 
Court  and  the  English  Courts  (all  of  very  high  calibre),  have  de- 
cided that  a  fact  known  to  an  agent  at  the  time  the  policy  is  issued 

C^/  cannot  be  taken  advantage  of  by  the  insarer  as  a  defense,  but  most 
courts  have  held  that  a  fact  coming  to  the  knowledge  of  an  agent 
after  a  policy  has  been  issued,  must  be  endorsed  in  writing  on  the 
policy  in  order  to  be  binding  upon  the  insurer. 

If,  therefore,  the  agent  of  the  insurance  company  is  aware  of 
the  fact  that  a  release  has  been  given  by  the  property  owner  to 
the  railroad  company  when  he  issues  the  policy,  the  insurance  com- 
pany, in  most  states  would  be  estopped  from  setting  up  this  fact 
as  a  defense,  but  in  the  states  of  Massachusetts  and  New  Jersey, 
or  where  a  case  might  be  transferred  to  the  Federal  Court,  the  in- 
surance company  could  take  advantage  of  this  defense. 

When,  after  the  issue  of  the  policy,  the  insured  enters  into  a 

contract  w^ith  a  railroad  company,  agreeing  to  hold  it  harmless  from 

.y*^  any  liability  from  loss  by  fire,  there  can  be  no  recovery  against  the 

^f^\  insurer  (Down's  Farmers  Warehouse  Association  v.  The  Pioneer 
Mutual  Insurance  Association,  Washington,  S.  C,  35  Ins.  Law 
Journal,  p.  273). 

It  is  the  practice  of  the  insurance  companies  to  make  an  extra 

charge  of  from  five  to  fifteen  percent  of  the  annual  premium  in  the 

JO    Northern  States,  and  as  high  as  twenty-five  percent  in  the  Southern 

.-A*^  »  States,  on  account  of  the  existence  of  such  agreements,  and  notwith- 
standing the  well-known  inclination  of  the  courts  to  favor  the  in- 
sured, it  would  be  the  part  of  wisdom  for  him  to  pay  the  additional 
premium  and  be  fully  protected  by  having  the  following  endorse- 
ment made  on  his  policies:     "In  consideration  of  $ Dollars, 

additional   premium,   notice   is   hereby   accepted   that   the   assured 

has  waived  the   right  of   recovery   from any  damage 

by  fire  occuring  to  the  property  described  herein  or  affected  thereby." 

812 


Forms — From  the  Company's  Standpoint 

There  are  two  kinds  of  insurance  which  have  in  recent  years 
become  quite  popular,  to-wit :  use  and  occupancy  insurance  and 
profit  insurance. 

The  term  "use  and  occupancy"  is  somewhat  vague  and  in- 
definite. It  usually  involves  the  idea  of  earnings  and  profits,  but 
they  are  not  necessarily  synonymous  terms.  Use  and  occupancy 
insurance  is  analogous  to  rent  insurance  or  profit  insurance,  but  it 
is  broader  than  either,  as  the  insurance  companies  discovered  in  the 
Buffait)  Elevating  Company  case  several  years  ago  (Michael  v. 
Prussian  National  Insurance  Company,  171  N.  Y.  25),  where  the 
Court  permitted  the  insured  to  collect  over  $60,000  for  an  alleged 
loss  of  use,  a  large  part  of  which  was  not  really  sustained,  because 
the  insured,  as  members  of  a  poo-l,  composed  of  many  elevator  own- 
ers, was  by  agreement  to  receive,  and  subsequently  did  receive, 
their  full  share  of  the  pool  earnings  in  spite  of  fire  destroying  the 
elevator  in  question. 

Use  and  occupancy  insurance  is  adapted  more  particularly 
to  manufacturing  risks  and  profit  insurance  to  mercantile  risks, 
although  it  is  customary  for  manufacturers  to  take  out  profit 
insurance  on  finished  goods,  sold  or  contracted  for.  There  has 
been  a  feeling,  which  still  exists  in  some  quarters,  that  this  c^iss 
of  insurance  has  a  tendency  to  increase  the  moral  hazard,  but 
probably  on  account  of  the  discriminating  care  on  the  part  of 
the  insurers  in  selecting  their  risks,  the  record  thus  far  has 
failed  to  justify  these  fears. 

'Fhis  class^  qf__iriLSurance  should  not  be  written  indis- 
criminately. In  fact  it  would  seem  to  be  against  public  policy 
for  it  to  become  universal.  It  should  not  be  granted  to  any 
individuals,  firms,  or  corporations,  except  those  of  the  highest 
standing,  doing  a  profitable  business,  and  it  calls  for  the  ut-  , 
most  good  faith  on  the  part  of  the  contracting  parties. 

In  a  distant  city  some  time  ago,  a  comparatively  small 
fire  occurred  in  the  assembling  department  of  a  large  manufact- 
uring plant  which  consisted, of  sixteen  buildings.  This  depart- 
ment was  the  one  which  of  all  others,  could  be  shut  down  and 
discommode  the  insured  the  least,  and  on  the  basis  of  the  pay- 
roll, it  constituted  as  a  factor  in  production  a  little  over  five  per- 
cent of  the  plant. 

The  adjusters  figured  the  actual  use  and  occupancy  loss  at 
less  than  $1,000,  but  claim  was  presented  for  $27,000  or  $9,000 

813 


The  Fire  Insurance  Contract 

per  day  for  three  days,  just  as  if  the  entire  plant  had  been  thrown 
out  of  commission ;  and  in  addition  to  this,  v$9,000  for  profit  on 
stock  which  had  been  destroyed,  making  a  total  claim  of  $36,- 
000  which  modest  figure  was  subsequently  raised  by  the  filing  of 
amended  proofs  for  v$61,000. 

The  form  provided  that  if  any  of  the  buildings  or  the  con- 
tents thereof  should  be  so  damaged,  destroyed  or  disabled  so  as 
to  entirely  prevent  the  insured  from  producing  "finished  goods," 
the  companies  should  be  liable  per  day  for  each  working  day  of 
such  prevention,  for  an  amount  not  exceeding  the  net  average 
daily  yield  of  the  plant  for  three  hundred  working  days  im- 
mediately preceding  the  fire.  It  also  contained  the  usual  pro- 
vision in  regard  to  partial  prevention.  It  did  not,  however,  con- 
tain any  element  of  co-insurance  and  the  insurance  actually  car- 
ried amounted  to  only  thirty-five  percent  of  the  annual  net 
profits. 

The  insured  contended,  not  that  they  were  entirely  pre- 
vented from  carrying  on  their  business  of  manufacture,  but  that 
they  were  entirely  prevented  from  producing  "finished  goods" — 
as  if  the  production  of  finished  goods  did  not  require  the  use  of 
the  entire  plant,  but  only  the  finishing  department.  During 
these  three  days  they  were  p^'oducing  finished  engines,  finished 
transmissions,  finished  bodies,  and  all  such  parts,  but  in  the  opin- 
ion of  the  insured's* counsel,  all  this  counted  for  naught,  because 
they  were  in  the  business  of  producing  finished  automobiles. 

The  claim  was  finally  compromised  for  $10,000,  but  if  the 
word  "finished"  can,  in  a  given  case  engross  the  attention  of 
three  firms  of  attorneys,  consume  several  thousand  dollars  in 
expenses,  and  protract  the  adjustment  of  a  three  days'  partial 
loss  for  fifteen  months,  it  would  surely  seem  as  if  it  were  a  good 
one  to  eliminate  from  the  use  and  occupancy  form. 

There  are  many  use  and  occupancy  forms  in  current  use 
which  it  will  be  impossible  even  briefly  to  analyze.  In  fact, 
use  and  occupancy  insurance  and  the  kindred  subjects  of  rent, 
rental  value,  leasehold  and  profit  insurance  if  fully  considered, 
would  each  possess  in  itself  sufficient  material  for  a  special  paper. 

When  insuring  commissions  and/or  profits  the  form  should 
limit  the  liability  of  the  insurer  to  not  exceeding  a  certain  per- 
cent of  the  sound  value  of  the  stock,  and  it  should  also  contain 
a  stipulation  that  the  loss  of  commissions  and/or  profits  shall 

814 


Forms — From  the  Company's  Standpoint 

not,  in  any  event,  exceed  said  percent  of  the  amount  of  damage 
which  the  merchandise  itself  shall  be  found  to  have  sustained, 
irrespective  of  w^hether  said  damage  be  ascertained  by  agree- 
ment, by  appraisement,  or  whether  the  stock  be  surrendered  to 
the  companies  covering  same,  and  the  net  loss  ascertained 
through  sale  of  the  salvage.  The  policy  should  also  be  sub- 
ject to  average  or  co-insurance  conditio^as. 

The  following  ''market  value"  clause  is  now  frequently  used 
in  connection  with  lumber  risks : 

It  is  understood  and  agreed  that  in  event  of  loss  or  damage  to  lum- 
ber, the  basis  of  settlement  and  application  of  the  average  (co-insurance) 

clause   shall  be  the.  market  value  at the   day   of  the  fire,  less  cost 

of  transportation  and  marketing  at  the  time  and  place  of  fire. 

The  following  is  used  in  policies  covering  on  stock  in  tan- 
neries : 

It  is  understood  and  agreed  that  in  the  event  of  loss  or  damage 
to  the  property  hereby  insured  the  basis  of  settlement  on  tanned  leather, 
finished,  unfinished  or  in  the  rough,  shall  be  the  market  price  of  similar 
leather  in  Boston,  Mass.,  the  day  of  the  fire,  less  cost  of  finishing  and 
transportation. 

and  somewhat  similar  clauses  are  inserted  in  policies  covering 
on  whiskey,  sugar  and  other  staple  products  in  the  hands  of  a 
manufacturer. 

The  Supreme  Court  of  Michigan,  in  1892,  (Mitchell  v.  St. 
Paul  German  Ins.  Co.,  92  Mich,  594),  and  the  Texas  Court  of 
Civic  Appeals,  in  1898,  (Hartford  Fire  Ins.  Co.  v.  Cannon),  de- 
cided that  the  basis  of  indemnity  for  lumber  is  the  market  value. 
The  Supreme  Court  of  Pennsylvania  had  decided  that  the 
"Actual  cash  value  of  sewing  machines  was  the  cost  to  the  in- 
sured, who  was  a  manufacturer,  to  reproduce  them."  (Standard 
Sewing  Machine  Co.  v.  Royal  Ins.  Co.,  201  Pa.  State,  645).  But 
when  the  same  Court  ran  up  against  whiskey,  because  of  the 
peculiar  nature  of  that  commodity,  it  staggered  and  fell  into 
the  market  value  column.  (Frick  v.  United  Firemen's  Ins.  Co., 
218  Pa.  State,  409). 

The  United  States  Circuit  Court  of  Appeals  followed  with 
a  similar  decision  (Mechanics  Ins.  Co.  v.  C.  A.  Hoover  Distilling 
Co-,  vol.  40  Ins.  Law  Journal,  p.  347 ;  182  Fed.  590)  so  that  un- 
less the  parties  to  the  contract  agree  that  the  words  "actual 
cash  value"  and  "cost  to  replace,"  as  applied  to  goods  in  the 
hands  of  a  manufacturer,  shall  be  construed  to  mean  "cost  to  re- 
produce," there  appears  to  be  no  good  reason  why  the  market 
value  clause  should  not  be  used  in  policies  covering  on  lumber 
and  whiskey  at  least,  for  it  is  more  than  probable  that  other 

815 


The  Fire  Insurance  Contract 

jurisdictions  will  follow  the  precedents  already  established  and 
that  the  companies  will  be  under  the  necessity  of  settling  fu- 
ture losses  thereon  on  that  basis,  whether  the  policies  contain 
such  a  provision  or  not. 

To  just  what  extent  the  judicial  inclination  may  feel  impelled 
to  go  in  favor  of  market  value  as  applied  to  goods  in  the  hands 
of  a  manufacturer  in  construing  the  New  York  Standard  Policy 
remains  to  be  seen,  but  in  the  meantime  the  market  value  clause 
should  not  be  inserted  in  policies  issued  to  manufacturers  ex- 
cept on  risks  where  the  companies  would,  if  liability  were 
limited  to  cost  of  production,  be  perfectly  willing  to  write  profit 
insurance.  After  all,  the  difference  between  having  cost  of  pro- 
duction and  profit  merged  in  one  set  of  policies  and  having  pol- 
icies covering  each  separately  is  not  very  great;  in  fact,  in  prin- 
ciple, the  difference  is  the  same  as  that  between  blanket  and 
specific  insurance,  and  in  cases  where  insurance  of  both  cost  and 
profit  are  not  objectionable,  the  terrors  of  the  market  value 
clause  would  be  in  a  large  measure  neutralized  by  average  or  co- 
insurance conditions,  and  no  such  risk  should  be  written  unless 
subject  to  such  conditions. 

It  would  be  interesting  to  consider  forms  covering  common 
carrier  liability,  improvements  and  betterments,  leasehold  inter- 
est, mortgagee's  interest,  rents,  rental  value,  reinsurance;  also 
clear  space,  iron  safe  and  three-fourth  value  clauses;  policies 
issued  to  heirs,  administrators,  estates,  etc.  But  it  was  diflScult 
enough  to  know  where  to  begin  this  subject,  and  it  is  still  more 
difficult  to  wnow  where  to  stop. 

In  general,  policy  forms  contain  maray  superfluous  words. 
For  instance,  in  that  relic  of  the  past  commencing:  "On  house- 
hold and  kitchen  furniture,  useful  and  ornamental,"  five  words 
out  of  the  eight  are  unnecessary,  and  in  that  other  inheritance 
from  our  ancestors,  reading:  "On  merchandise,  hazardous,  non- 
hazarous  and  extra  hazardous,"  six  words  out  of  the  eight  are 
redundant,  and  the  same  criticism  will  apply  to  a  large  majority 
of  the  forms  in  current  use.  The  longest  form  ma}^  afford  the 
shortest  indemnity,  and  a  good  form  can  be  very  materially 
weakened  by  the  injudicious  addition  of  words,  although  it  is 
better  to  use  too  many  than  too  few.  Vital  points  should  be 
covered  and  useless  phrases  omitted.  The  three  graces  of  the 
ideal  insurance  form  are  clearness,  conciseness  and  complete- 
ness. 

816 


Forms — From  the  Company's  Standpoint 

One  of  the  best  things  in  the  New  York  Standard  Policy 
is  on  the  back  of  it:  "It  is  important  that  the  written  portions  of 
all  policies  covering  the  same  property  read  alike.  If  they  do 
not,  they  should  be  made  uniform  at  once."  If  proper  atten- 
tion were  given  to  this  admonition,  the  vocation  of  the  appor- 
tionment expert  would  be  gone  and  some  of  the  troubles  that 
now  vex  us  would  be  at  an  end. 


A/-t 


817 


APPENDIX 

Forms 

Forms  used  in  connection  with  loss  adjustments  at  San  Fran- 
cisco following  the  earthquake  and  fire  of  April  18-21,  1906. 

SUB-COMMITTEE   REPORT. 
Claim  No.  Claimant  Location 

To  the  Attorneys  of  the  Respective   Companies  interested  in  the  Above  Claim. 
Gentlemen : 

The  undersigned  having  proceeded  under  a  non-waiver  stipulation  to 
investigate  the  above  claim  do  now  render  to  you  the  following  report  based 
upon   information  thus   far   obtained : 

DESCRIPTION 

Sound  Value 
•  Ite'^  Before   Earthquake     Visible  Salvage 

1  I  $  ^ 

S 
4 
6 

6 
7 

I.  State  occupancy  of  the  building,  whether  it  contained  any  property 
prohibited  by  any  policy  Issued  thereon  or  therein — whether  claimant  was 
the  sole  owner — and  whether  there  were  any  mortgage  or  liens  upon  the 
property  real  or  personal. 

II.  Total    Insurance,    |  Attach    Schedule. 

III.  State  fully  the  condition  of  the  building  immediately  preceding  the 
fire,  attach  photographs  and  affldavits  and  give  all  information  as  to  what 
parts,  if  any,   of  the   building  had   fallen   at  that  time. 

IV.  All  information  as  to  the  condition  of  the  conteiJts  of  the  building  at 
the  same   point  of  time. 

V.  All  information  relating  to  the  nature  and  extent  of  the  damage  done 
to  the  property  by  the  earthquake.  State  your  opinion  as  to  the  amount  of 
that   damage   and   how   far    the   insured   agrees   in   the   same. 

VI.  Give  all  information  you  obtain  relating  to  the  damage,  destruction, 
or  appropriation  of  the  property.  If  by  order  of  civil  authority,  state  so  ;  if  not. 
by   whose  authority. 

VII.  If  property  was  stored  in  a  bonded  warehouse,  state  details  with 
reference  to   the   payment  of  duties  made   thereon. 


Sub-Committee. 
To  the  Companies  interested  : 

We  have   examined  the  foregoing  report  and 


Attorneys. 

This   form   of  sub-committee  report  contained  a  special  pro- 
vision for  Non-Waiver  Stipulation,  reading  as  follows: 

WHEREAS,  It  is  claimed  by  the  undersigned  policy  holder  that  he  sus- 
tained loss  and  damage  by  the  catastrophe,  which  occurred  in  San  Francisco, 
California,   on   or  about   the    18th  day    of   April,   1906: 

NOW,  THEREFOfJE,  It  is  hereby  stipulated  and  agreed  between  the  said 
policy  holder  and  the  undersigned  Companies  that  said  Insurance  Companies 
shall  cause  adjusters  of  losses  to  proceed  to  investigate  and  ascertain'  the  amount 
of  the  sound  value  and  loss  and  damage,  if  any,  sustained  by  the  said  Claimant, 
and  that  this  stipulation  and  such  investigation  and  ascertainment  is,  and 
shall  be,  without  any  reference  whatever  to  the  question  of  the  Insurance  Com- 
panies' liability,  and  shall  not  be  construed  as  an  admission  of  any  liability 
whatever,  or  as  a  waiver  of  any  provision  of  any  policy  or  of  any  right  or 
exemption  under  the  same,  or  a  waiver  of  any  other  right  by  the  Claimant 
or  by  any  of  said  Companies. 

Executed   in  duplicate  tliis day   of 1906. 


Accompanying  the  foregoing  sub-committee  report  was  an  Ad- 
juster's Agreement,  reading  as  follows: 

Pursuant  to  the  non-waiver  stipulation  entered  into,  the  sound  value  of  the 
property    described    in    the    policies    referred    to    therein    immediately    preceding 

818 


Appendix — Forms 

the  earthquake  of  April  18,  1906,  and  the  amount  of  salvage  thereon  are  hereby 
mutually  agreed  to  be  as  follows,  subject  to  all  the  terms  and  conditions  of 
the   policies  : 

Sound  Value               Salvage 
On $ $ 


$ 

$ $. 

$ $. 

$ % 

$ % 


Claimant. 
Sub-Committee. 


Forms  used  in  connection  with  adjustment  of  losses  in  Black 
Tom  Island.  N.  J.,  casualty  July  30.  1916. 

NON-WAIVER    STIPULATION. 

With  reference  to  the  above  mentioned  casualty  and  to  the  loss  or  damage 
caused  thereby,  it  is  claimed  by  the  undersigned  policyholder  that  such  loss  or 
damage  is  a  direct  loss  or  damage  by  fire  as  provided  in  the  policy  of  Insurance 
of  the  undersigned  insurance  company,  while  the  undersigned  insurance  company 
is  unable  to  determine  whether  such  claim  is  well  founded  or  whether  such  loss 
or  damage,  in  whole  or  in  part,  was  due  to  explosion  or  to  a  cause  or  agency, 
for  loss  by  which,  as  provided  in  said  policy  of  insurance,  said  company  is  not 
liable  ;    therefore. 

IT  IS  HEREBY  STIPULATED  that  no  action  which  may  be  taken  by  any 
of  the  undersigned  in  ascertaining  or  determining,  or  in  restricting  the  amount 
of  any  loss  or  damage  to  the  property  described  in  said  policy  of  insurance,  or 
in  any  handling  or  protecting  of  such  property  from  further  damage,  shall  be 
considered  in  any  way  as  recognizing  that  such  loss  or  damage  was  a  direct 
loss  or  damage  by  fire  within  the  meaning  of  said  policy  of  insurance,  or  shall 
be  deemed  to  impair,  waive  or  invalidate  any  of  the  terms  or  conditions  of  said 
policy  or  the  rights  of  any  party   thereto. 

Dated 1916. 

Policyholder.  ,  Insurance  Company. 

ADJUSTMENT  AGREEMENT. 

IT  IS  HEREBY  STIPULATED  AND  AGREED  by  and  between 

of  the  first  part,  and 


each  acting  for  itself  and  not  as  agent  for  the  other,  and  each  as  party  of  the 
second  part,  that  the  actual  net  sound  cash  value  of  the  property  of  the  party 
of  the  first  part  on  the  29th  day  of  July,  1916.  which  is  nacre  particularly  de- 
scribed in  a  certain  policy  or  policies  of  insurance  issued  by  the  respective  par- 
ties of  the  second  part  as •  •  • 


or  as  more  particularly  described  in  any  schedule  attached  hereto,  and  ihe 
actual  direct  loss  and  damage  caused  thereto  by  the  Black  Tom  Island  casualty, 
which  casualty  occurred  during  the  night  of  July  29-30,  1916,  are  respectively 
as  follows,  or  as  more  particularly  described  in  any  schedule  attached  hereto : 

Actual  Net  Sound  Cash  Value ...  $ 

Actual  Direct  Loss  and  Damage. .  $ 

IT  IS  FURTHER  STIPULATED  AND  AGREED  that  the  foregoing  deter- 
mination of  sound  value  and  of  loss  and  damage  shall  not  be  considered  in  any 
way  as  a  recognition  by  the  party  o»-  parties  of  the  second  part  that  such  loss 
or  damage  was  a  direct  loss  or  damage  by  fire  within  the  meaning  of  said 
policy  or  policies  or  as  admitting  that  any  of  said  policies  was  a  valid  outstand- 
ing contract  of  insurance  and  does  not  in  any  respect  waive  any  of  the  pro- 
visions or  conditions  of  said  policy  or  policies,  or  any  forfeiture  thereof,  or  the 
proof  of  such  loss  and  damage  therein  required. 

The  determination  herein  agreed  upon  is  a  determination  of  sound  value  and 
of  loss  or  damage  within  the  Non-Waiver  Stipulation  heretofore  entered  into, 
subject  to  which  stipulation  this  agreement  is  made. 

New  York 1916. 

APPRAISAL  AGREEMENT. 

IT  IS  HEREBY  STIPULATED  AND  AGREED  by  and  between 

of  the  first  part,  and 


each  acting  for  itself  and  not  as  agent  for  the  other,  and  each  as  party  of  the 

819 


The  Fire  Insurance  Contract 

second  part,  that ,  designatf^d 

by  the  part     of  the  first  part,  and 

designated  by  the  part  of  the  second  part,  shall  ascertain  the  sound  actual  cash 
value  of  the  property  of  said  party  of  the  first  part,  on  the  29th  day  of  July, 
1916,  which  is  more  particularly  described  in  a  certain  policy  or  policies  of 
insurance  issued  by  the  respective  parties  of  the  second  part  as 


or  as  more  particularly  described  in  any  schedule  attached  hereto,  as  well  as  the 
actual  direct  loss  or  damage  caused  thereto  by  the  Black  Tom  Island  casualty, 
which  casualty  occurred  during  the  night  of  July  29-30,  1916  ;  that  the  said  two 
appraisers  shall  first  select  a  competent  and  disinterested  person  who  shall  act 
as  umpire  where  the  appraisers  fail  to  agree  and  the  said  two  appraisers  together 
shall  then  estimate  and  appraise  the  loss,  stating  separately  sound  value  and 
damage,  and,  failing  to  agree,  shall  submit  their  differences  to  the  said  umpire  ; 
and  the  award,  in  writing,  of  any  two  shall  determine  the  amount  of  such  sound 
value  and  loss.  Such  loss  or  damage  shall  be  ascertained  or  estimated  according 
to  the  actual  cash  value  of  said  property  at  the  time  of  the  occurrence  of  said 
casualty,  with  proper  deduction  for  depreciation  however  caused,  and  shall  in  no 
event  exceed  what  it  would  then  cost  the  insured  to  repair  or  replace  the  same 
with  material  of  like  kind  and  quality,  but  neither  this  agreement  nor  such  ap- 
praisement and  award  shall  be  considered  in  any  way  as  a  recognition  by  the 
party  or  parties  of  the  second  part  that  such  loss  or  damage  was  a  direct  loss  or 
damage  by  fire  within  the  meaning  of  said  policy  or  policies  or  as  admitting  that 
any  of  said  policies  was  a  valid  outstanding  contract  of  insurance,  or  as  waiving 
in  any  respect  any  of  the  provisions  or  conditions  of  said  policy  or  policies  of 
insurance  or  any  forfeiture  thereof,  or  the  proof  of  such  loss  or  damage  therein 
required.  The  respective  parties  hereto  shall  pay  the  appraiser  respectively 
selected  by  them  and  shall  bear  equally  the  expenses  of  the  appraisal  and 
umpire. 

The  award  herein  provided  for  shall  be  a  determination  of  the  sound  value 
and  of  loss  or  damage  within  the  Non-Waiver  Stipulation  heretofore  entered 
into,  subject  to  which  stipulation  this  agreement  is  made. 

New  York 1916. 

Claimants.  Insurance  Companies. 

APPOINTMENT  OF  AN   UMPIRE. 

We,  the  undersigned,  do  hereby  appoint 

as  umpire,  as  provided  for  in  the  within  Agreement. 

..    ... 1916. 


Appraisers. 


DECLARATION. 

State  of 

County  of ss. : 

We,  the  undersigned,  do  solemnly  swear  that  we  are  not  interested,  either 
directly  or  Indirectly,  as  partners,  creditors,  or  otherwise,  or  related  to  either 
of  the  parties  to  the  foregoing  agreement ;  that  we  will  act  with  strict  Impar- 
tiality in  making  an  appraisement  agreeably  to  the  foregoing  appointment,  ac- 
cording to  the  best  of  our  knowledge,  skill  and  judgment. 

Witness  our  hands,  this day  of A.  D.,   1916. 

1  i .  .  !  i Appraisers. 

Umpire 


Sworn  to  before  me  by  said 

and    subscribed    by 

in  my  presence,  this  day  of , A.  D.   1916. 


AWARD. 
We,  the  undersigned,  pursuant  to  the  Within  appointment,  DO  HEREBY 
CERTIFY  that  we  have  truly  and  conscientiously  performed  the  duties  assigned 
us  agreeably  to  the  foregoing  stipulations,  and  have  appraised  and  determined 
the  actual  sound  cash  value  of  said  property  on  the  29th  day  of  July,  1916,  and 
the  actual  direct  loss  and  damage  thereto  by  said  Black  Tom  Island  casualty, 
to  be  respectively  as  follows,  or  as  more  particularly  described  in  any  schedule 
attached  hereto : 

Actual  Net     Sound  Cash  Value .  .  $ 

Actual   Direct  I^ss  and   Damage.$ 

Witness  our  hands,  this day  of .1916. 

!!..!!!!!..!! Appr-alsers. 

*.'.'..'.*.. L'nipire 

820 


Appendix — Forms 


SUBROGATION  RECEIPT  AND  AGREEMENT. 


THIS  AGREEMENT,  made  the day  of. 

1916.  by  and   between 


(hereinafter 

called  the  Policyholder) ,  party  of  the  first  part,  and 

'. !....!!.!'......    (hereinafter  called  the  Company) ,  party  of  the  second 

part,  WITNESSETH: 

FIRST:  In  consideration  of  the  payment  to  the  Policyholder  by  the  com- 
pany of  the  .sum  of ($ ). 

the  receipt  of  which  is  hereby  acknowledged,  the  Policyholder  hereby  releases 
and  discharges  the  Company  from  all  claims  and  demands  whatsoever  for  loss  or 
damage  by  the  above  mentioned  casualty  of  July  30,  1916,  and  subsequent  days, 

to  property  described  in  policy  No issued  by 

the  Company. 

SECOND :  In  consideration  of  such  payment  and  of  other  good  and  valuable 
consideration  the  Policyholder,  at  the  request  of  the  Company,  by  an  instrument 
of  even  date  herewith,  has  assigned  and  transferred,  as  in  said  instrument  set 
forth,  any  arid  all  claims,  demands,  and  causes  of  action  whatsoever  against 
any  and  all  person  or  persons,  firm  or  firms,  corporation  or  corporations,  arising 
from  or  connected  with  such  loss  or  damage. 

THIRD:  In  connection  with  such  assignment,  it  is  mutually  agreed  as  fol- 
lows : 

1.  That  the  Policyholder  shall  receive  a  pro  rata  interest  in  the  net  proceeds 
derived  from  such  claims,  demands  or  causes  of  action,  such  pro  rata  interest  to 
be  the  unpaid  percentage  or  percentages  specified  in  a  certain  offer  of  compro- 
mise dated  October  7th.  1916,  made  on  behalf  of  the  Company  by  a  certain 
Special  Committee  on  Black  Tom  Island  Disaster. 

2.  The  Policyholder  shall  be  under  no  liability  for  contribution  to  the  ex- 
pense of  any  enforcement  of  such  claims,  as  hereinafter  provided,  except  from 
the  proceeds  thereof. 

3.  No  action  taken  or  failure  to  act  by  the  assignee  or  assignees  of  such 
claims  hereinabove  provided  for,  or  by  the  Company,  in  connection  with  any 
negotiation,  settlement,  compromise  or  legal  proceedings  or  discontinuance  or 
abandonment  of  any  of  the  same,  shall  be  questioned  in  any  i-espect  by  the 
Policyholder,  it  being  the  intention  to  give  to  the  Company  or  the  said  assignee 
or  assignees  the  same  control  as  if  they  were  solely  entitled  to  the  proceeds  of 
any  of  such  claims. 

4.  The  term  "net  proceeds"  as  used  herein  means  the  proceeds  received  on 
account  of  such  claims,  less  such  expenses  as  the  assignee  or  assignees,  or  the 
Company,  shall,  in  their  or  its  sole  discretion,  approve. 

5.  The  Policyholder  agrees,  at  the  request  of  the  Company,  to  execute  any 
further  instruments  necessary  or  desirable  to  carry  out  the  intent  of  this  agree- 
ment and  to  render,  without  expense  to  the  Company,  all  possible  aid  in  the 
enforcement  of  such  claims. 

6.  Any  salvage  of  the  property  hereinbefore  described  recovered  subsequent 
to  the  execution  of  this  agreement  shall  belong  to  the  Company  and  to  any  other 
insuring  companies  concerned. 

IN  WITNESS  WHEREOF  the  parties  hereto  have  executed  this  agreement 
the  day  and  year  first  above  mentioned. 

Witness 

Policyholder. 

Company. 


Acknowledgment  when  policyholder  is  an  individual) 
STATE   OF  NEW  YORK,    1 
City  of  New   York,  }  ss. : 

County  of  New  York.  J 

On  this day  of ,   1916,   before  me  personally  appeared 

to  me  personally  known  and  known  to  me  to  be  the  individual  described  in  and 
who  executed  the  foregoing  instrument  as  Policyholder,  and  acknowledged  that 
he  executed  the  same  for  the  uses  and  purposes  therein  mentioned!. 
(Acknowledgment  when   policyholder   is   a   corporation) 
STATE  OF  NEW  YORK,    "1 
City  of  New  York,  f  ss. : 

County  of  New  York.  J 

On   this day   of ,  1916,    before   me   personally   came 

to  me  known,  who  being  by  me  duly  sworn,  did  depose  and  say  that  he  resides 

in ;  that  he  is  the 

of  the    : 

821 

27 


I^ss. : 


The  Fire  Insurance  Contract 

the  corporation  described  In  and  which  executed  the  above  instrument  as  Policy- 
holder ;  that  he  knows  the  seal  of  said  corporation  ;  that  the  seal  affixed  to  said 
Instrument  is  such  corporate  seal ;  that  it  was  so  affixed  by  order  of  the  Board 
of  Directors  of  said  corporation  and  that  he  signed  his  name  thereto  by  like 
order. 

(Acknowledgment  when  policyholder  is  a  co-partnership) 
STATE  OF  NEW  YORK. 
City  of  New  York, 
County  of  New  York. 

On  this day  of ,   1916,   before  me  personally  came 

,  a.  member  of  the 

firm  of described  In  the 

foregoing  instrument  as  Policyholder,  to  me  known  and  known  to  me  to  be  a 
member  of  the  said  Arm  and  the  person  who  executed  the  said  agreement,  and 
acknowledged  to  me  that  he  executed  the  same  on  behalf  of  said  firm. 

(Acknowledgment  by  Company.) 
STATE  OF  NEW  YORK,    "I 
City  of  New  York.  }  ss. : 

County  of  New  York.  J 

On  the day  of 1916,  before  me  personally  came 

to  me  known,  who,  being  by  me  duly  sworn,  did  depose  and  say  that  he  resides 

In ;  that  he  Is  the 

of  the    

the  Corporation  described  in  and  which  executed  the  above  instrument  as  Com- 
pany; that  he  knows  the  seal  of  such  corporation;  that  the  seal  affixed  to  said 
instrument  is  such  corporate  seal ;  that  it  was  so  affixed  by  order  of  the  Board  of 
Directors  of  said  corporation,  and  that  he  signed  his  name  thereto  by  like  order. 

Forms  for  current  use  in  connection  with  New  York  Standard 
policy : 

1.  Appraisal  Agreement  for  use  with  the  new,  or  1917,  New 

York  State  Standard  policy ; 

2.  Appraisal  Agreement  for  use  in  connection  with  the  old, 

or   1886,   New  York  Standard  policy,   which  was  gen- 
erally adopted  by  other  states ; 

3.  Non- Waiver  Agreement; 

4.  Subrogation  Receipt ; 

5.  General  Release,  to  be  executed  by  corporation ; 

6.  General  Release,  to  be  executed  by  an  individual  or  part- 

nership. 

(1)  APPRAISAL  AGREEMENT 

IT  IS  HEREBY  stipulated  and  agreed  by  and  between 

of  the  first  part,  and 

each  acting  for  itself  and  not  as  agent  for  the  other,  and  each  as  party  of  the 

second  part,  that ; ,  designated  by  the  part of  the  first  part, 

and ,   designated  by  the  part of  the  second  part, 

shall  ascertain,  pursuant  to  the  terms  and  conditions  of  the  polic...  of  insur- 
ance issued  by  said  comp.  ....   to  the  party  of  the  first  part,  the  sound  actual 

cash  value  of  the  property  of  said  party  of  the  first  part,  on  the 

day  of 192,  which  is  more  particularly  described  in  the  policies 

as 

as  well  as  the  actual  direct  loss  and  damage  caused  thereto  by  a  fire  which 
occurred  on  that  day  and/or,  if  this  agreement  contemplates  personal  property. 
In  such  case  damage  if  any  caused  by  removal  from  premises  endangered  by 
fire  ;  that  the  said  two  appraisers  shall  first  select  a  competent  and  disinterested 
person  who  shall  act  as  umpire,  and  the  said  two  appraisers  together  shall  then 
estimate  and  appraise  the  loss,  stating  separately  sound  value  and  damage  to 
each  item,  and  failing  to  agree,  shall  submit  their  differences  only,  to  the  umpire. 
An  award,  in  writing,  so  Itemized,  of  any  two  when  filed  with  the  insurance 
companies  above  designated  shall  determine  the  amount  of  sound  value  and 
of  loss  or  damage.  Such  loss  or  damage  shall  be  ascertained  according  to  the 
actual  cash  value  of  said  property  at  the  time  of  the  occurrence  of  said  fire, 
with  proper  deduction  for  depreciation,  and  shall  in  no  ev^nt  exceed  what  it 
would  cost  to  repair  or  replace  the  same  with  material  of  like  kind  and  qunlity 
within  a  reasonable  time  after  such  loss  or  damage,  without  allowances  for  any 

822 


Appendix — Forms 

Increased  cost  of  repair  or  reconstruction  by  reason  of  any  ordinance  or  law 
regulating  construction  or  repair  and  without  compensation  for  loss  resulting 
from  interruption  of  business  or  manufacture,  but  such  appraisement  does 
not  in  any  respect  waive  any  of  the  provisions  or  conditions  of  said  policy 
or  policies  of  insurance,  or  any  forfeiture  thereof,  or  the  proof  of  such  loss 
and  damage  required  by  the  policy  or  policies  of  insurance  thereon. 

Each  appraiser  shall  be  paid  by  the  party  selecting  him  and  the  expenses 
of  appraisal  and  umpire  shall  be  paid  by  the  parties  equally.  ffl 

New  York,   192 

APPOINTMENT    OF  A    THIRD    PERSON 


We,  the  undersigned,  do  hereby  appoint 

umpire,  as  provided  for  in  the  within  Agreement. 


Appraisers 


DECLARATION 

State    of    1 

y  ss. 
County  of  J 

We,  the  undersigned,  do  solemnly  swear  that  we  are  not  Interested,  either 
directly  or  indirectly,  as  partners,  creditors,  or  otherwise,  or  related  to  either 
of  the  parties  to  the  foregoing  agreement ;  that  we  will  act  with  strict  impar- 
tiality in  making  an  appraisement  agreeably  to  the  foregoing  appointment,  ac- 
cording to  the  best  of  our  knowledge,  skill  and  judgment. 

WITNESS  our  hands,  this day  of A.  D..  192 


Appraisers 


Umpire 

Sworn  to  before  me  by  said and  subscribed  by 

, in  my  presence,  this day  of A.  D.,  192.  . . . 


AWARD 

We,  the  undersigned  ,  pursuant  to  the  within  appointment,  do  herert  cer- 
tify, that  we  have  truly  and  conscientiously  performed  the  duties  assigned  us, 
agreeably  to  the  foregoing  stipulations,  and  have  appraised  and  determined  the 

actual  cash  value  of  each  item  of  said  property  on   the.. •. day  of 

192 and   the    actual   direct   loss   and   damage 

thereto  by  the  fire  on  that  day,  to  be  as  follows,  (see  itemized  schedule  attached 
hereto)  to  wit: 

Total  Actual  Net  Cash  Value 

Total  Actual  Direct  Loss  and  Damage 

WITNESS   our   hands,    this day  'of 192 

y  Appraisers 

Umpire 

The  New  York  Board  of  Fire  Underwriters'  Form 
(2)  APPRAISAL   AGREEMENT 

IT  IS  HEREBY  stipulated  and  agreed  by  and  between 

of  the  first  part,  and '.'.'.". 

each  acting  for  itself  and  not  as  agent  for   the  other,  and  each  party   of   the 

second  part,  that designated  by  the  part of  the  first  part 

and   /•.••!:•  ••  .designated  by  the  part of  the  second  part] 

shall  ascertain,  pursuant  to  the  terms  and  conditions  of  the  polic of  insur- 
ance issued  by  said  comp to  the  party  of  the  first  part,  the  sound  actual 

cash  value  of  the  property  of  said  party  of  the  first  part,   on  the 

day  of 192 which  is  more  particularly  described   iii 

the   policies   as 

as  well  as  the  actual  direct  loss  or  damage  caused  thereto  by  a  fire  which  oc- 
curred on  that  day  ;  that  the  said  two  appraisers  shall  first  select  a  competent 
and  disinterested  person  who  shall  act  as  umpire,  and  the  said  two  appraisers 
together  shall  then  estimate  and  appraise  the  loss,  stating  separately  sound 
value  and  damage,  and  failing  to  agree  shall  submit  their  differences  to  the  said 
umpire ;  and  the  award,  in  writing,  of  any  two  shall  determine  the  amount  of 
such  loss.  Such  loss  or  damage  shall  be  ascertained  or  estimated  according  to 
the  actual  cash  value  of  said  property  at  the  time  of  the  occurrence  of  said 
fire,   with   proper   deduction   for   depreciation   however   caused,    and    shall    in   no 

823 


The  Fire  Insurance  Contract 

event  exceed  what  it  would  then  cost  the  insured  to  repair  or  replace  the  same 
with  material  of  like  kind  and  quality,  but  such  appraisement  does  not  in  any 
respect  waive  any  of  the  provisions  or  conditions  of  said  polic...  of  insurance, 
or  any  forfeiture  thereof,  or  the  proof  of  such  loss  and  damage  required  by 
the  polic...    of  insurance  thereon. 

New  York 192  .... 


APPOINTMENT  OF  A  THIRD   PERSON 

We,  the  undersigned,   do  hereby  appoint 

umpire,   as  provided  for  in  the  within  Agreement. 
192.... 


\  Appraisers 
I 

DECLARx\TION 


State    of     1 

[  ss. 
County  of   J 

We,  the  undersigned,  do  solemnly  swear  that  we  are  not  interested,  either 
directly  or  indirectly,  as  partners,  creditors,  or  otherwise,  or  related  to  either  of 
the  parties  to  the  foregoing  agreement ;  that  we  will  act  with  strict  impartiality 
in  making  an  appraisement  agreeably  to  the  foregoing  appointment,  according 
to  the  best  of  our  knowledge,  skill  and  judgment. 

WITNESS  our  hands,   this day   of A.   D.,   192 

i  Appraisers 


Umpi  re 

Sworn  to  before  me  by  said. and  subscribed  by 

, in  my  presence,^^"iis ....  day  of A.   D. ,   192... 


AWARD 
We,   the  undersigned,  pursuant  to  the  within  appointment,   do  hereby  cer- 
tify that  we  have  truly   and   conscientiously   performed   the  duties  assigned   us, 
agreeably  to  the  foregoing  stipulations,   and  have  appraised  and  determined   the 

actual  cash  value  of  said  property  on  the day  of 19  2.  ..  . 

and  the  actual  direct  loss  and  damage  thereto  bj'^  the  fire  on  that  day,  to  be  as 
follows,  to  wit : 

Actual  Net  Cash  Value 

Actual  Direct  Loss  and  Damage 

*• 

WITNESS  our  hands,   this day  of 192 

j-  Appraisers 

I 

Umpire 

(3)  NON-WAIVER  AGREEMENT 

Whereas,  an  early  ascertainment  of  the  amount  of  both  Sound  Value  and 
Loss  or  Damage,  if  any,  is  desired  by  both  parties  to  this  agreement: 

It  is  hereby  mutually  understood  and  agreed  by  and  between 

part     

of  the  first  part  and  the of 

and   other   Insurance   Companies   signing   this   agreement,   or 

assenting  hereto,   part of  the  second  part,    that   this   asjrer- 

ment  and /or  any  action  taken  by  said  part of  the  second  part 

in  investigating  the  cause  of  fire  and/or  investigating  and  ascertaining  by 
appraisement  or  otherwise  the  sound  value  of  and  the  amount  of  loss  and 
damage   to  the    property,    described    in   the   policies    of   the    said    fire    Insurance 

Companies,   situated    

caused  by  fire  alleged  to  have  occurred  on 

shall  not  waive  or  invalidate  any  of  the  conditioms  of  the  polic of  the 

part of  the  second  part,  or  any  forfeiture  thereof,  and  shall  not  waive 

or  invalidate  any  rights  whatsoever  of  either  of  the  parties  to  this  agreement. 

The  intent  of  this  agreement  is  to  preserve  the  rights  of  all  partie.s  hereto  and 
provide  for  an  investigation  of  the  fire  and  the  determination  of  the  sound  value 
and  the  amount  of  the  loss  or  damage,  without  regard  to  the  liability  of  the 
part of  the  second  part. 

Signed  in  duplicate,  this day  of 19.  . . . 


824 


Appendix — Forms 

(4)  SUBROGATION  RECEIPT 

I Received  of  the 

by  the  hands  of Agent 

the  sum  of   DOLLARS. 

being  in  full  of   all  claims   and  demands   for  loss   and   damage  by   Are   on   the 

day  of 19 ... .   to  the  property  insured  By 

Policy  No issued  at  the 

Agency  of  said  Company. 

And  In  consideration  of  such  payment  the  undersigned  hereby  assigns  and 
transfers  to  the  said  Company  each  and  all  claims  and  demands  against  any 
person,  persons  or  property,  arising  from  or  connected  with  such  loss  or  dam- 
age, (and  the  said  Company  is  subrogated  in  the  place  of  and  to  the  claims  and 
demands  of  the  undersigned  against  said  person,  persons  or  property  in  the 
premises,)  to  the  extent  of  the  amount  above  named. 
Dated  this day  of 19 at 


(5)  GENERAL   RELEASE 

(Corporation) 

To  all  to  iohom  these  Presents  shall  come  or  may  concern^  Greeting; 

Know  ye,  That 

for  and  in  consideration  of  the  sum  of Dollars, 

lawful  money  of  the  United  States  of  America,  to In  hand  paid  by 

and  other  valuable  considerations,  the  receipt  whereof  is  hereby  acknowledged, 
has  remised,  released  and  forever  discharged  and  by  these  Presents  does  for 
itself.  Its  successors  and  assigns,  remise,  release  and  forever  discharge  the  said 

its   officers,    attorneys,    adjusters, 

agents,  servants  and  employees,  its  and  their  successors,  assigns,  heirs,  exec- 
utors and  administrators,  of  all  and  from  all,  and  all  manner  of  action  and 
actions,  cause  and  causes  of  actions,  suits,  debts,  dues,  sums  of  money,  accounts, 
reckonings,  bonds,  bills,  specialties,  covenants,  contracts,  controversies,  agree- 
ments, promises,  variances,  trespasses,  damages,  judgments,  extents,  executions, 
claims   and   demands   whatsoever   In   law   or   in  equity,   which   against   the   said 

Its   officers,    attorneys,    adjusters. 

agents,  servants,  or  employees  it  ever  had,  now  has  or  which  Its  successors  or 
assigns  hereafter  can,  shall  or  may  have  for,  up«n  or  by  reason  of  any  matter, 
cause  or  thing  whatsoever  from  the  beginning  of  the  world  to  the  day  of  the 
date  of  these  presents,  and  more  especially  (but  without  intending  by  this  par- 
ticular clause  to  waive  any  of  the  foregoing  provisions  of  this  release)  from 
any  and  all  claims,  actions,  or  rights  of  action  of  every  kind,  nature  and  de- 
scription whatsoever,  whether  on  its  Policy  of  Insurance  or  otherwise,  arising 
either  directly  or  indirectly  by  reason  of  the  fire  which  occui.ed  at  the  premises 

in  the  Borough  of , 

in  the  City  of on  the day  of 

,  19 .  . . .,  or  in  any  way  whatever  Incidental 

thereto  or  to  the  investigation  of  the  same. 

In   Witness   Whereof,  the  said 

has  caused  its  corporate  seal  to  be  hereunto  affixed  and  these  presents  to  be 

signed  by   its   proper   officer   thereunto   duly   authorized   this 

day  of In  the  year  of  our  Lord  one  thousand  nine  hun- 
dred and 

Attest 

State  of  1 

'  County  of  J 

On  this day  of In  the  year  one 

thousand  nine  hundred  and before  me  personally  came 

to  me  known,  who  being  by  me  duly  sworn  did  depose  and  say  that  he  resides  In 

;  that  he  Is  the of  the 

the  corporation  described  in  and  which  executed  the  foregoing  Instrument ;  that 
he  knows  the  seal  of  said  corporation;  that  the  seal  affixed  to  such  instrument 
Is  such  corporate  seal ;  that  It  was  so  affixed  by  order  of  the  Board  of  Directors 
of  said  corporation,  and  that  he  signed  his  name  thereto  by  like  order. 


(6)  (Individual)    GENERAL  RELEASE 

To  all  to  whom  these  Presents  shall  come  or  may  concern.  Greeting, 

Know  ye.  That 

for  and  In  consideration  of  the  sum  of Dollars, 

lawful  money  of  the  United  States  of  America,  to 

in  hand  paid  by 

and  other  valuable  considerations,  the  receipt  whereof  Is  hereby  acknowledged. 

have  remised,  released  and  forever  discharged  and  by  these  Presents  do for 

heirs,  executors  and  administrators,  remise,  release  and  forever  dis- 
charge the  said its  officers,  attorneys, 

adjusters,  agents,  servants  and  employees,  its  and  their  successors,  assigns, 
heirs,  executors  and  administrators,  of  all  and  from  all,  and  all  manner  of  ac- 
tion   and    actions,    cause    and   ouses    of   actions,    suits,   debts,    dues,    sums    of 

825 


The  Fire  Insurance  Contract 

money,  accounts,  reckonings,  bonds,  bills,  specialties,  covenants,  contracts,  con- 
troversies, agreements,  promises,  variances,  trespasses,  damages,  judgments, 
extents,  executions,  claims  and  demands  whatsoever  in  law  or  in  equity,   which 

against  the  said its  officers,  attorneys,   adjusters. 

agents,  servants  or  employees ever  had,  now  ha or  which 

heirs,  executors  or  administrators,  hereafter  can,  shall  or  may  have  for,  upon 
or  by  reason  of  any  matter,  cause  or  thing  whatsoever  from  the  beginning  of 
the  world  to  the  day  of  the  date  of  these  preisents,  and  more  especially  (but 
without  intending  by  this  particular  clause  to  waive  any  of  the  foregoing  pro 
visions  of  this  release)  from  any  and  all  claims,  actions  or  rights  of  action  of 
every  kind,  nature  and  description  whatsoever,  whether  oni  its  Policy  of  Insur- 
ance or  otherwise,  arising  either  directly  or  indirectly  by  reason  of  the  fire  which 

occurred  at  the  premises in  the  Burough  of 

in  the  City  of on  the dny  of 

19 or  in  any  way  whatever  incidental 

thereto  or  to  the  investigation  of  the  same. 

In   Witness  Whereof,    have   hereunto   set 

hand ....   and  seal ....   the day  of 

,  in  the   year  of   our   Lord  one   thousand    nine 

hundred  and 


Sealed  and  Delivered  in  the  Presence  of. 
State  of  1 


County  of  J 

On   this day   of in   the   year   one 

thousand  nine  hundred  and before  me  personally   came  and 

appeared ,  to  me  personally  known  and  known 

to  me  to  be the  person described  in  and  who  executed  the 

foregoing  instrument,  and acknowledged  to  me 

that ....  he ... .  executed  the  same. 


MEMORANDUM  OF  VALUE  AND  LOSS 
New  New  York  Board   Form 


19, 


Assured    

Location    

Property  involved  in  claim   

Date  of  Are 

This  memorandum  is  without  admission  of  liability.  The  sound  value  of  the 
property  claimed  to  be  insured  and  the  loss  thereon  have  been  ascertained  as 
shown  below,  without  prejudice  to  any  defenses  and  subject  to  all  and  singular 
the  terms  and  conditions  of  the  policies  upon  which  claim  is  made. 


926 


INDEX  TO  CASES 


Aachen  &  Munich  Fire  Ins.  Co.,  Pennsylvania  Co.  v.,  257  Fed.  189 211 

A.  B.  Banks  et  al.,  Phoenix  Ins.  Co.  v.,  169  S.  W.  233,  L.  R.  A.  1915  A.  860.  .    186 

Abresch,   Johnston   v.,   123    Wis.   130 725 

Adair   v.    Ins.    Co.,    107    Ga.    297 125 

Adams,  Orient  Ins.  Co.  v.,  123  U.  S.  67 241 

Adams   v.    State.    35   Tex.    Crim.    285 178 

Adamson  v.  Schreiner,  N.  Y.  Law  Journal  Dec.   9,   1915 641 

Adsit,  Lee  v.   37   N.   Y.   78 718,   722 

Aetna  Ins.  Co.,   Cassville  Roller  Mill  Co.  v.,  105  Mo.  App.  146 188 

Aetna  Ins.  Co.,  Crown  Point  Iron  Works  .v.,  127   N.  Y.  608 174.   319 

Aetna  Ins.  Co.,  Ellsworth  et  al.  v.,  89  N.  Y.  186 ,  .    252 

Aetna  Ins.   Co.,   Hoffman  v.,    1   Robt.    501 245 

Aetna  Ins.  Co.,  Kelley  v.,  84  S.  E.  502 179 

Aetna   Ins.   Co.,   v.   McGuire,    51   111.    342 171 

Aetna  Ins.  Co.,  McNillis  v.,  176  111.  App.  575 173 

Aetna   Ins.  Co.,  v.   Simmons,   49    Neb.   811 325 

Aetna   Ins.   Co.    v.   Thompson,    68    N,    H.    20,    40    Atl.    396 200 

Aetna  Ins.  Co.  v.  Tyler,  16  Wend.  385,  397 605 

Aetna  Life   Ins.    Co.   v.    Middleport,    124   U.    S.    534 617 

Aetna   Life  Ins.   So.   v.   Wimberley,   23   L.   R.   A.    (N.    S.)    759 176 

Agricultural  Ins.  Co.,  Bishop  v.,  130   N.  Y.   488 322 

Agricultural  Ins.   Co.,   Stephenson  v.,   116   Wis.   277.    93   N.    W.   19 540 

Albion  Lead  Works  v.  Williamsburgr  City  Fire  Ins.  Co.,  2  Fed.   479 128 

Aldrich    v.    Great   American    Ins.    Co 556 

Allen,    Barrett    v.,    10    Ohio    426 177 

Allen,   Springfield  Fire  &  Marine   Ins.    Co.  v.,   43   N.  Y.   389 634 

Alliance  Cooperative  Ins.  Co.,  Burns  v.,  176  Pac.  985,  33  Ins.  L.  J.  229 207 

Alter  V.  Home   Ins.   Co.,   50   La.   Ann.    1316 245 

American  Art  Gold   S.   Co.  v.   Glens   Falls  Ins.  Co.,   1   Misc.   114 97 

American   Automobile    Ins.    Co.   v.    Watts,    67    So.    758 175 

American   Bonding   Co.   v.    Bank,    97    Md.    598,    60.^ 602 

American   Central   Ins.   Co.,    Bailey   v.,    13    Fed.    250 216 

American  Central  Ins.  Co.  v.  Boston  Cooperative  Bank,  87  N.  E.  594,  38  Ins. 

L.    J.     599 215 

American  Central  Ins.  Co.,  Grace  v.,  109  U.  S.   278 185,   187,  189 

American  Central  Ins.  Co.,  Nitsch  v.,  83  Hun.   614.   ir,2  N.  Y.   635 171 

American  Central  Ins.  Co.,  Rawle  v.,  77  S.  E.  1013,  45  L.  R.  A.  (N.  S.)  463.  . 

180,  181 

American   Central  Ins.   Co.,   Rothschild  v.,    74   Mo.    417 187,  188 

American  Central  Ins.  Co.,  Ruggles  v.,   114  N.  Y.   415 642 

American  Central  Ins.  Co.  v.  Stearns  Lumber  Co.,  41  Ins.  L.  J.  125 157,  159 

American    Employers    Ins.    Co.    v.    Fordyce,    62    Ark.    562 173 

American  Fire  Ins.  Co.  v.  Brooks,  83   Md.   22 175,  185,  188 

American  Fire  Ins.  Co.  v.  Minsker  Realty  Co.,  83   Misc.   N.  Y.  1 187 

American  Glove  Co.  v.  Penn.  Fire  Ins.  Co.,  15  Cal.  App.  77,  113  Pac.  688.  . .  . 

174,  176 

American   Ins.   Co.,   Boggs  v.,   30   Mo.   63 101 

American  Ins.  Co.,  Carpenter  v.,  1  Story's  C.  C.  57 108 

American   Ins.   Co.,    Freed   v.,   43    So.   947 620 

American  Ins  Co.,  Hartwig  v.,  154  N.  Y.  S.   801,   46  Ins.  L.  J.  455 198.   210 

American   Ins.   Co.,  Wood  v.,   149    N.   Y.   372 803 

American  Mutual  Ins.   Co.,  St.  John  v..   11  N.  Y.  516 159 

American  Mutual  Life  Ins.   Co..   Hammond  v.   10   Gray  306 177 

American  Tobacco  Co.,  United  States  v.,  166  U.   S.   468 608,   626 

American  Towing  Co.  v.  German  Fire  Ins.  Co.,  74  Md.   25 258 

Amis   v.    Kyle,    2    Yerg   31 177 

Anderson  v.  Baughmen,  6  Mich.  298 178 

Anderson  v.   Saugeen   Mutual  Fire   Ins.   Co.,   18    Ont.    355 ...  . 225 

Andes  Co.,  Illinois  Mutual  Fire  Ins.   Co.  v.,   67   111.  362 '. 282,  286 

Anglo-Nevada  Assurance  Corp..   Quong  The  Sing  v.,   10   L.  R.   A.   144 174 

Anonymous  Case,   2   Hill    (N.  Y.)    375. 178 

Appleton  Paper  Co.,  Firemen's  Ins.   Co.  v.,   101  111.   9 122 

Arkansas  Mutual  Fire  Ins.  Co.  v.  Woolverton,   82  Ark.   476 102 

Armenia   Ins.    Co.    v.    Paul,    91    Pa.   State    520 101 

Armour  v.   Transatlantic  Fire   Ins    Co.,    90    N.   Y.    450 108 

827 


The  Fire  Insurance  Contract 

Arnfeld  v.  Guardian  Assurance  Co.,  172  Pa,  State  605 195 

Arnold  v.    Green,   116   N.   Y.    566 617,  618 

Asher,  Ins.  Co.  v.  100  S.  W.  233 328 

Association,    Peabody    v.    89    Maine    96 654 

Association  v,  Rosenthal,  108  Pa.  State  474 169 

Association,   Williams  v.,   89   Maine   158 654 

Assurance  Co.,   White  v.,   93    Fed.    61 196 

Assurance   Co.,   Wolters   v.,    95   Wise.    265 245 

Assurance  Society,  Sims  v.,  129  Fed.  804 318,  326 

Atchison,  Topeka  &  Santa  Fe  Ry.  Co.  v.  Neet,  7  Kan.  App.  495 627 

Athens   Mutual   Ins.    Co.  v.   Evans,   132    Ga.    703 804 

Atlantic  Coast  Line  R.  R.  Co.,  Hamburg  Bremen  Fire  Ins.  Co.  v.,  132  N.  C. 

75    626 

Atlantic  Fire  Ins.  Co.  Grosvenor  v.,  17  N.  Y.   391 201 

Atlantic    Ins.    Co.    v.    Storrow,    5    Paige    285 615 

Atlas    Ins.    Co.,    Eager   v.,    14    Pick,    141 286 

Atlas  Reduction  Co.  v.  New  Zealand  Ins.   Co.,   121  Fed.   929,   34   Ins.  L.  J. 

805     208 

Attleborough  Savings  Bank  v.  Security  Ins.  Co..  168  Mass.  147 220 

Atwood,  Potomac  Ins.  Co.  v.,  118   111.   App.   349 175 

Aurora  Fire  Ins.  Co.  v.  Johnson,  46   Ind.  315,  326 252 

Austen   v.    Ins.    Co.,   16    App.    Div.    86 331 

Austin  V.  Drewe,    4   Campbell   360,   6   Taunt.    436 256 

Avery,  Dunlop  v.,  89  N.  Y.  592 223,   226 

Avery  v.   Stewart,   2  Conn.  69 177 

Backus  V.   Exchange  Fire  Ins.   Co.,   26  App.   Div.   91 171 

Bacot  V.  Phenix  Ins.  Co.,  96  Miss.  223,  50  So.  Rep.  729 200 

Badger  v.   Ins.   Co.,    49   Wise.   396 322 

Bailey   v.    American   Central    Ins.    Co.,    13    Fed.    250 216 

Bainbridge  v.  Neilson,  10  East  329 241.   282 

Balestracci  v.  Firemen's  Fund  Ins.  Co.,  34  La.  Ann.  844 247,  248 

Balkwill  V.  Bridgeport  Wood  Furnishing  Co.,   62  111.  App.  663 177 

Bally,  Germania  Ins.   Co.  v.,   173   Pac.   1052 205 

Baltimore  Asbestos  Co.,  National  Union  Fire  Ins.  Co.  v.,   89  Atl.   408,  122 

Md.   121    185,  189 

Baltimore  Warehouse  Co.  v.  Home  Ins.  Co.,  93  U.  S.  527,  6  Ins.  L.  J.  39   718,  724 

Baltimore  Warehouse  Co.,  Home  Ins.  Co.  v.,  93  U.  S.  527 181,  489 

Bank,   American  Bonding  Co.  v.,   97   Md.   598 602 

Bank,   Ins.   Co.  v.,   62   Fed.   222 323 

Bank  of  Anderson  v.  Home  Ins.  Co.,  Ill  Pac.  507 647 

Bank  of  Commerce,  Oaklai..  Home  Ins.   Co.  v.,   47  Neb.  717 205 

Bard  v.  Firemen's  Ins.  Co.,   108   Maine  506,   81  Atl.   870 178 

Barrett  v.    Allen,    10    Ohio    426 177 

Bartlett,   Le   Favour  v.,   42   N.  H.    555 178 

Barton  v.  Home  Ins.  Co.,  42  Mo.  156 .   156,  157 

Bauer  v.  Fireman's  Fund  Ins.  Co.,  N.  Y.  L.  J.  Feb.  2,  1906 194 

Baughmen,    Anderson    v.,    6    Mich.    298 178 

Baxter,  Nichols  v.,  5  R.  I.  491 226 

Bayless  v.  Merchants  Town  Mutual  Ins.  Co.,  106  Mo.  App.  684 182 

Beacon,    Miltenberger  v.,    9    Pa.    State    198 194 

Bean   v.    Stuport,    1    Dougl.    11 40,   81 

Beatty  v.   Ins.    Co.,    66   Pa.    State  9 316 

Bebel  v.  Hartford  County  Mutual  Ins.  Co.,  25   Conn.  51 100 

Bell  v.  Ins.  Co.   19  Hun.   238 320 

Bellinger  v.  Ins.  Co.,  51  Misc.  463,  Aff'd  113  App  Div.  917 330 

Benedict  v.   Security  Ins.  Co.,   147  App.  Div.    810 187 

Benson,  Providence  County  Bank  v.,  24  Pick.  204 227 

Bergson  v.  Builders  Ins.  Co.,  38  Cal.  541 174 

Berkshire,    ^Tuir   v.,    52    Ind.    149 618 

Biehl,    Kripvner   v.,    28    Minn.    139 156 

Bigelow,   Philadelphia  Uuderwriters  v.,   33   Ins.   L.   J.   948 661 

Bini  V.    Smith,   36   App.    Div.   463 646 

Bird  V.  St.  Paul  Fire  &  Marine  Ins.  Co.,  1918  Ins.  L.  J.  52,  120  N.  E.  86 26b 

Bishop  V.  Agricultural  Ins.   Co.,   130   N.   Y.    488 322 

Blackmar,  Coykendall  v.,  146  N.  Y.  S.  631 221 

Blake  v.  Exchange  Mutual  Ins.   Co.,   12   Gray  265 545 

Bland,  Citizens   Ins.  Co.  v.,   39   S.   W.    825 244 

Blum,  East  Texas  Fire  Ins.  Co.  v.,   76   Texas  653 187 

828 


Index  to  Cases 

Boak  Fish  Co.  v.  Manchester  Fire  Ins.  Co.,  84  Minn.  419 245 

Boardman,  International  Trust  Co.  v.,  149  Mass.   158 605,   629 

Boardman,  Lancashire  Fire  Ins.  Co.  v.,  58  Kan.   339 216 

Bogg^s   V.    American    Ins.    Co.,    30    Mo.    63 10 1 

Bohles  V.   Prudential  Ins.  Co.,   86   Atl.   438 178 

Boomer,   Norwich  Fire  Ins.   Co.   v.,   52   111.   442 605 

Boon,  Ins.  Co.  v.,  95  U.  S.  117 156,   157 

Borden  v.  Hingrham  Mutual  Ins.  Co.,  18  Pick.  523 268 

Boston  Cooperative  Bank  v.  American  Central  Ins.  Co.,   87  N.  Y.  594 215 

Boston  Ins.  Co.,  Collinsville  Savings  Society  v.,  31  Ins.  L.  J.  1031 215 

Boston   Ins.    Co.,   Steinberg  v.,    144   App.    Div.   110 331 

Boston   Ins.   Co.,  Wells  v.,   6    Pick.   182 " 270 

Boston  Safe  Deposit  &  Trust  Co.  v.  Thomas,  59  Kan.  470,  53  Pac.  472 222 

Boston.    Tuttle    v.,    215    Mass.    57 178 

Bound   Brook   Ins.   Co.  v.   Nelson,   41   N.   J.   Eq.    485 605 

Boutwell  V.  Globe  &  Rutgers  Fire  Ins.  Co.,  117  App.  Div.  104.  193  N.  Y.  323.. 

184,   194 

Bowles  V.   Brauer,    89   Va.    466 178 

Boyd  V.   McKee.    99  Va.    72 725 

Boyd  V.  Thuringia  Ins.  Co.,  65  Pac.  785,  55  L.  R.  A.  165 206 

Boyd    V.    Vanderbilt   Ins.    Co.,    90    Tenn.    212 672 

Boyden.  Suffolk  Fire  Ins.  Co.  v.,   91  Mass.  "'.23 605 

Boyle  V.   Ins.   Co..   169   Pa.   State   349 86 

Boylston  Mutual  Ins.   Co.,  Jackson  v.,  139   Mass.  508 621,   623 

Boynton  v.   Middlesex   Ins.   Co.,   4   Met.   212 177 

Brady  v.  Ins.   Co.,   11   Mich.   445 166,   169 

Bragg  v.   Royal   Ins.    Co.,   98   Atl.   632 179 

Braner,   Bowles   v.,   89    Va.    466 178 

Branch  v.  Milford  Savings  Bank,  51  Kan.  App.  246.  47  Pac.  555 227 

Brick,    Piatt   v.,    35    Hun.    121 620 

Bridgeport  Wood  Furnishing  Co.,  Balkwill  v.,  62  111.  App.   663 177 

Briggs  V.  North  British  &  Mercantile  Ins.  Co.,  53  N.  Y.  446 159,   164 

Brink  v.  Hanover  Fire  Ins.  Co.,  80   N.  Y.   108 320 

Britchet,    Mingus    v.,    14    N.    C.    78 177 

British  America  Assurance  Co.  v.   Colorado  &  Southern  Ry.  Co.,   125   Pac. 

508    60  4 

British  America  Assurance  Co.  v.   Cooper,   58   Pac.  592 197 

British  America  Assurance  Co.,  Hicks  v.,  162  N.  Y.   284 189 

British  America  Assurance  Co.,  Hocking  v.,   40   Ins.  L.   J.   799 154 

British  America  Asurance  Co.,  McElroy  v.,  94  Fed.   990 644 

British  America  Assurance  Co.,  Welch  v.,  82   Pac.   964.   148   Cal.   227 208 

British  America  Assurance  Co.  v.  Wilson,   77   Conn.   559 186 

Brooks,  American  Fire  Ins.  Co.  v.,  83  Md.  22 175,  185,  188 

Brooks  v.   Commonwealth,   61  Pa.   352 158 

Brown  V.  Hartford  Ins.  Co.,  52  Hun.   260,   132   N.  Y.   539 323 

Brown.   Henry   v.,    19    Johns    49 184 

Brown  v.  Ins.   Co.,   1  El.  &  El.   853 169 

Browning,  Hamburg  Bremen  Fire  Ins.  Co.  v.,  48  S.  E.  2 172 

Browning  v.  Home  Ins.  Co.,  71  N.  Y.  509 101,   803 

Buckley  v.  Citizens  Ins.  Co.,  118  N.  Y.  399 172,   179 

Buffalo  Steam  Engine  Works  v.  Sun  Mutual  Ins.  Co.,  17  N.  Y.  401 201 

Buick   V.   Mechanics   Ins.   Co.,    103   Mich.    75 .' 187 

Builders  Ins.   Co.,  Bergson  v.,   38   Cal.   541 174 

Bull  V.  North  British  Canadian  Investment  Co.,  15  Ont.   421,  Aff'd  18   Can. 

Sup.  .  R.    697 225 

B«llman  v.  North  British  &  Mercantile  Ins.  Co.,  159   Mass.   119 182 

Burgess  v.  Equitable  Marine  Ins.  Co.,  126  Mass.  70 40,  7  8 

Burke  V.  Continental  Ins.  Co.,  128  App.  Div.  391,  184  N.  Y.  77 724 

Burleigh  v.  Gebhard  Fire  Ins.  Co.,  90  N.  Y.  220 40.   81 

Burlington   Ins.    Co.,    Mickey  v.,    35    Iowa  174 253 

Burnard  v.  Rodocanachi,  7  App.   Cases  333 609 

Burns  v.  A41iance  Cooperative  Ins.  Co.,  176  Pac.  985,  33  Ins.  L.  J.   229 207 

Burritt  v.  Saratoga  County  Mutual  Fire  Ins.   Co.,   5  Hill  188 96 

Burt,    Salter   v.,    20    Wend.    205 177 

Buse  V.  National  Ben  Franklin.  161  N.  Y.  S.  566,  48  Ins.  L.  J.  404 543.  557 

Cabellero  v.  Home  Ins.  Co.,  15  La.  Ann.  517    266 

Cady,    German    8h>  mgs   Bank    v.,    114    Iowa    228 178 

C.  A.  Hoover  Distilling  Co.,  Mechanics  Ins.  Co.  v.  182  Fed.  590,  40  Ins.  L. 

J.   347 815 

829 


The  Fire  Insurance  Contract 

Caldwell,   Express   Co.    v.,   21   Wall   264 .- 623 

Caldwell  v.   Ins.   Co.,   61  Mo.  App.   4 319 

Caledonian  Ins.  Co.,  Perry  v.,  103  App.  Div.  113 320 

California  Ins.  Co.  v.  Union  Compress  Co.,  133  U.  S.  387 181 

Cameron  Coal  &  Mercantile  Co.   v.  Universal  Metal  Co.,   110   Pac.   720 493 

Campbell,   Johnson  v.,    120    Mass.    449 724 

Campbell   v.    International  Life  Assurance   Society,   4   Bosw.   298 177 

Campbell  v.   Monmouth  Mutual  Fire  Ins.   Co.,   59   Maine   430 251 

Campfleld    v.    Cook,    92    Mich.    626 178 

Cannon,  Hartford  Fire  Ins.  Co.  v.,  19  Texas  Ct.  of  Civ.  App.  305, 92  815 

Cannon  v.  Phoenix  Ins.   Co.,  110   Ga.   562 258 

Capital  Fire  Ins.   Co.  v.  King,   82  Ark.   400 40 

Carlton  v.  Patron's  Androscoggin  Fire  Ins.  Co.,  109  Me.  79 106 

Carpenter  v.   American   Ins.   Co.,    1   Story's   C.    C.   57 108 

Carpenter  v.   Ins.   Co.,  135  N.  Y,   298 322 

Carpenter  v.  Providence  Washington  Ins.  Co.,  16  Peters  495 278,  286,  604 

Carr,  Snow  v.,  61  Ala.  363    182,  725 

Carroll,    Symmers   v.,    149    App.    Div.    641,    207    N.    Y.    632 181  728 

Carson  v.  Jersey  City  Ins.  Co.,  43  N.  J.  L.  300 101 

Carstairs  v.  Mechanics  &  Traders  Ins.  Co.,  18  Fed.  473 10  4,  621,  624 

Case  v.  Hartford  Ins.  Co.,  13  111.  676 245.  247 

Casey   v.    Ins.    Co.,    33    Hun.    315 751 

C.  A.  Smith  Lumber  Co.  v.  Colonial  Assurance  Co.,  172  App.  Div.   149 171 

Cassidy    v.    Sauer,    114    App.    Div.    673 695 

Cassville  Roller  Mill  Co.  v.  Aetna  Ins.  Co.,   105  Mo.   App.   146 188 

Castellain  v.  Preston,  L.  R.  11  Q.  B.  D.  380,   49  L.  J.    (N.   S.)    29,   52  L.  J. 

Q.  B.  366 240,   242,   282,   286,   60J,   605,  609 

Central  Railroad,  York  Co.  v.,   3  Wall  107 623 

Chadbourne  v.  German   American  Ins.   Co.,    31   Fed.    533 171 

Chandler  v.   Ins.   Co.   of   North   America,   70   Vt.    562 545 

Chandler  v.  Worcester  Mutual  Fire  Ins.  Co.,  3  Cush.  328 252 

Chatfleld  v.   Ins.   Co.,   71   App.    Div.    164 747 

Chatham  Fire  Ins.  Co.,  Laurent  v.,  1  Hall   41 753 

Chattahoochie  Lumber  Co.,  Home  Ins.  Co.  v.,  126  Ga.   334 179 

Chenango  County  Mutual  Ins.  Co.,  Murdock  v.,   2  N.  Y.   210 286 

Chesapeake    Ins.    Co. ,    Marcardier    v 241 

Chesbro,   Washington  Fire  &  Marine  Ins.  Co.  v.,   35  Fed.    477 186 

Cheshire  B.  Co.  v.  Wilson,  86  Atl.  26 185 

Chicago,  etc.,  Ry.  Co.,  Gangler  v.,  197  Fed.   79 602 

Chicago,  etc.,  Ry.  Co.,  Hartford  Fire  Ins.  Co.  v.,  175  U.  S.  91 609 

Chicago,  etc.,  Ry.  Co.  V.  Pullman  Car  Co.  139  U.S.  79..   282,  286.  604.  616,  626.  627 

Chichester  v.  N.  H.  Fire  Ins.  Co. ,74  Conn.  510 177 

Chrisman  &  S.  Baking  Co.  v.  Hartford  Ins.  Co.,  75  Mo.  App.  310 171,  17S 

Christenson  v.  Fidelity  Ins.  Co.,   117   Iowa  77,    90   N.    W.   -iao i^^Jb 

Cincinnati  Mutual  Fire  Ins.  Co.  v.  May,  20  Ohio  211 252,  253 

Citizens  Fire  Ins.  S.  &  L.  Co..  v.  Doll,  35  Md.  89 183 

Citizens    Ins.    Co.   v.    Blond,    39    S.    W.    825 244 

Citizens  Ins.  Co.,  Buckley  v.,  188  N.  Y.   399 172.  179 

Citizens   Ins.   Co.,  Dunhem  v.,   34   Wash.   205 107 

Citizens   Ins.    Co.,   Lisk.   v.,    16    Ind.   App.    565 245 

Citizens  Ins.   Co.  v.  Marsh,  41   Pa.   State  386 252 

Citizens  Ins.  Co.,  National  Filtering  Oil  Co.   v.,   106   N.  Y.   535 142 

Citizens  Ins.  Co.,  Tieman  v.,   76   App.   Div.    5 803 

City  Fire  Ins.  Co.  v.  Corlies,  20  Wend.  367,  21  Wend.  367 152,   155.  159.  269 

City  Fire  Ins.  Co.  v.  Isaac  Mark,  45  111.  482 182 

Claflin  V.  Ins.  Co.,  110   U.  S.   81 327 

Clark  V.   Ins.   Co.,   89   Maine   26,    35   Atl.    1008 197 

Clark  V.  Union  Mutual  Ins.  Co.,  40  N.  H.   333 97 

Clarke,  German  Union  Fire  Ins.   Co.  v.,   116  Md.  622,  82  Atl.  974 171 

Clarkson  v.  Western  Assurance  Co.,   33  App.  Div.  23 99 

Clinton  v.   Hope  Ins.   Co.,    45   N.  Y.    454 635 

Clover  V.  Greenwich  Fire  Ins.  Co.,  101  N.  Y.   277 .• 329 

Cockrun    v.    West,    122    Ind.    372 618 

Cohen  v.  Niagara  Fire  Ins.   Co.,   60   N.   Y.   619 634 

Cole  V.   Germania  Fire  Ins.  Co.,   99  N.   Y.  36 135 

Collins  V.   Delaware  Ins.  Co.,   9   Pa.  Sup.  Ct.  576 258 

CoUinsville  Savings  Society  v.  Boston  Ins.  Co.,  31  Ins.  L.  J.   1031 215 

Colonial  Assurance  Co.,  C.  A.  Smith  Lumber  Co.  v.,  172  App.  Div.  149^.  ....  171 

830 


Index  to  Cases 

Colorado  &  Southern  Ry,  Co.,  British  America  Assur.  Co,  v.,  125  Pac.  508..    604 

Columbia  Fire  Ins.  Co.,  Evans  v.,  40  Misc.  316,  44  N.  Y.  146 110,  159 

Columbia  Ins.   Co.  v.   Lawrence,   10   Peters   507 278 

Columbian   Ins.   Co.,   Gardere  v.,   7   Johns   514 253 

Commercial  Ins.    Co.,   Hallock  v.,    27   N.   J.   L.   645 193 

Commercial  Mutual  Ins.  Co.,  Riggs  v.,  125  N.  Y.  7 142.   747 

Commercial  Union  Assurance  Co.,   Mauk  v.,  7  Pa.   Sup.  Ct.  633 180 

Commercial  Union  Assurance   Co.,   Nabors  v.,    125   La.    378 197 

Conmiercial  Union  Assurance  Co.,  National  Conduit  &  Cable  Co.  v.,  135  App. 

Div.    130,    203    N.    Y.    580 196 

Commercial  Union  Assurance  Co.,   Snyder  v.,   67   N.  J,  L.   7 187,  195 

Commercial  Union  Assurance  Co.,  St.  Louis,  etc.  Ry.  Co,  v.,  139  U.  S.  223, 

235    603,   618 

Commercial  Union  Assurance  Co.  v.  Urbansky,  113  Ky,  624 197 

Commercial  Union  Fire  Ins.   Co.  v.  King,  156   S.  W.  445 176 

Commonwealth    Ins.    Co.,   Brooks    v.,    61    Pa.    352 158 

Commonwealth  Ins.  Co.,  Claflin  v.,  110  U.  S.  81 Ill 

Commonwealth   Ins.    Co.,    Oilman  v.,   112    Maine    528 1«" 

Condo,   Goodman  v.,  12  Pa.   Super.   Ct.   466 158 

Condon  v.   Exton-Hall   Brokerage  Agency,   88   Misc.    130 188 

Cone  V.  Niagara  Fire  Ins.   Co.,  60   N,   Y,   619 634,  T4T 

Connecticut  Fire  Ins.  Co.,  Craddock  v.,   160  Ky.   519 107 

Connecticut  Fire  Ins.  Co.,  White  v.,  120  Mass.  330 185,  188 

Connecticut  Mutual  Life  Ins.  Co,  v,  Erie  .Railroad  Co.  73  N.  Y.  399 

602,   624,   636,   637 

Connor  v.  Manchester  Assurance  Co.,  130  Fed.  743,  70  L.  R.  A.  106 156,  157 

Continental  Ins.   Co.  v.  Aetna  Ins.   Co.,   38   N.   Y.   16 629 

Continental  Ins.  Co.,  Burke  v.,  184  N.  Y.  77 724 

Continental   Ins.   Co.,   Cooledge  v.,    67   Vt.    14 286 

Continental  Ins.  Co.,  Davis  v..   60  Pa.  Super.  Ct.  341 180 

Continental  Ins.  Co.  v.   Donell,   25  Ky.  Law  Rep.  1501 178 

Continental  Ins.   Co.,  Karow  v.,    57   Wise.    56 253 

Continental  Ins.  Co.  v.   Parkfcs,   142  Ala,   650 180 

Continental  Ins.  Co.,  Samuels  v.,  2  Pa.  Dist.  Ct.  397 257 

Continental  Ins.  Co.,  Taber  v„  213  Mass.  487,  42  Ins.  L.  J.  516 545,  548 

Continental  Ins.  Co.,  Wilcox  v.,   85   Wis.   193 659 

Continental  Ins.  Co.  v.  Wood,  50  Kan.  346,  31  Pac.  1079 216 

Cook,    Campfleld   v.,    92    Mich.    626 178 

Cooledge   v.    Continental   Ins.    Co.,    67   Vt.    14 286 

Cooper,   British   America   Ass.   Co.  v.,    58    Pac.    592 197 

Coos  County,  Imperial  Fire  Ins.  Co.  v.,   151  U.   S.   452 286 

Corbiere,  Taylor  v.,  8  How,  Pr.  385 ,  .* 178 

Corey   v,    Hilliker,    15    Mich,    314 ,. 178 

Corlies,  City  Fire  Ins,  Co.  v.,  20,  21  Wfend.  367 269 

Cornwell,  Connecticut  Mutual  Life  Ins.  Co.  v.,  72  Hun.   199 617,  619 

Cosmopolitan  Bank  v,  Vulcan  Ins.   Co.,  City  Court  of  N,  Y 557 

Coulter,    Ins.    Co.    v.,    3    Peters    222 746 

Council  Bluffs  Ins.  Co.,  Ellis  v.,   64   Iowa  507 18? 

Cowley  v.    McLoughlen,    141    Mass,   181 17" 

Cox  V.  Farmers  Mutual  l*»-e  Ins.  Co..  133  Ga.  175 17& 

Coykendall  v.  Blackmer,    146    N.   Y.    S.    631 221 

Craddock  v.   Connecticut  Fire   Ins.   Co.,   160   Ky.   519 107 

Craig  v.  U.  S.  Accident  &  Health  Co.,   61  S.  E.   423    (S.  C.) 178 

Crauford,  Lucena  v.,   (1802)   3  B.  &  P.  75,  1  Taunt  325 141,  192,  276 

Cressey  v.   Parks,   75  Maine  387 1^* 

Cressey  &  Fowler  Lumber  Co.  v.  Denver  &  Rio  Grande  R.  R.   Co.,   68  Pac 

Rep.     670     ,    619 

Cromie  v.  Kentucky  &  Louisville  Ins.  Co..  15  B.  Mon.  432 540 

Cross  V,  National  Fire  Ins,  Co.,  132  N.  Y.  133 268 

Crownpoint  Iron  Co.  v.  Aetna  Ins.  Co.,  127  N,  Y.  608 174,  319 

Cuesta  V.   Royal   Ins.   Co.,   98    Ga.   72 269 

Cumberland   Ins.   Co..  Marts  v.,   44   N.  J.  Eq.   478 194 

Cumberland  Valley  Farmers  Mutual,  Highlands  v.,   203   Pa,   134 635 

Cummer  v.  Ins.  Co.,  97  App.  Div.  151,  173  N.  Y.  633 316 

Cummings   v.   Ins.   Co.,    55   N,  H,    458 286 

Cunningham   v,    Mahon,    112    Mass,    58 178 

Curnen  v.  Law,  Union  &  Rock  Ins,  Co.,   159  App,  Div,   493 109   317 

Czerweny  v.  Ins,  Co.,  139   N.  Y.  Supp.  345 318 

831 


The  Fire  Insurance  Contract 

Dalton,   Norwich  Union  Fire  Ins.   Co.  v.,  175   S.   W.   459 186.  187.  19-i.  197 

Darrell  v.   Tibbetts,   L.    R.    5   Q.  B.   D.    560 280,   284,   605,   G15,  627 

Davidson  v.  Germania  Ins.  Co.,  13  L.  R.  A.   (N.  S.)   884 171 

Davidson   v.   Jones,    112    App.   Div.    254 694 

Davis  &  Co.  V.  Ins.  Co.  of  North  America,   115   Mich.  382 177 

Davis  Case,  15  Misc.   263,  157   N.  Y.   685 316 

Davis  v.  Continental  Ins.  Co.,   60   Pa.  Super.  Ct.  341 180 

Davis  Lumber  Co.  v.  Hartford  Fire  Ins.  Co.,  37  L.  R.  A.  131 188 

Day  V.  Hawkeye,   72   Iowa  597 106 

Dechman,  Southern  Cold  Storage  Co.  v.  73  S.  W.  545 191,  725,  728 

Dehahn   v.   Hartley    (1786)    1    T.   R.   343 40,   78 

Delaware  Ins.  Co.,  Collins  v.,  9  Pa.  Super.  Ct.  576 . , 258 

Delaware  Ins.  Co.,  De  Noyelles  v.,  78  Misc.  649 109 

Delaware  Ins.  Co.,  Farmers  National  Bank  v.,  83  Ohio  State  309 206,  214 

Delaware  Ins.  Co..  Kupfersmith  v.,  80  N.  J.  L.  191,  84  S.  J.  L.   271 216,  237 

Delaware  State  Grange  Mutual  Fire  Ins.  Co.,  Draper  v.,  91  Atl.  206 

278,  283,  286 

Dembrowsky,   Weisbrod  v.,   25    Misc.    485 649 

Deming  v.   Merchants   Cotton   Press,   90   Tenn.    306 286 

Denley  v.  Glens  Falls  Ins.  Co.,  184  N.  Y.  107 39 

Dennison  v.  Thomaston  Mutual  Ins.  Co.,  20  Me.   125 106 

De   Noyelles  v.   Delaware  Ins.   Co.,    78   Misc.    649 109 

Denver  &  Rio   Grande  Ry.  Co.,   Crissey  &  Fowler  Lumber  Co.   v.,    68    Pac. 

Rep.   670,  17  Colo.  App.   275 604,  619 

Des  Moines  Ice  Co.  v.  Niagara  Fire  Ins.  Co.,  99  Iowa  193,  68  N.  W.  600 253 

Detroit  v.  Grummond,  121  Fed.  963 242 

Devlin  v.  Queen  Ins  Ins.  Co.,  46  U.  C.  Q.  B.  611 244,  246 

Dibble  v.  Northern  Assurance  Co.  of  London,  70  Mich.  1 197 

Dick  V.  Franklin  Fire  Ins.  Co.,  10  Mo.  App.  384,  aff'd  81  Mo.  103 605 

Dickenson,   Palatine  Ins.  Co.  v.,  116   Ga.   794 804 

Dickert  v.  Ins.   Co.,  52   S.  C.   412 187 

Dilling  V.  Draemel,  9   N.  Y.  S.   497 635 

Dobson  V.  Ins.  Co.,  86  App.  Div.  115,  179  N.  Y.   557 321 

Dodge  V.  Hamburg-Bremen  Fire  Ins.   Co.,   4  Kan.   App.   415 216 

Dodwell  &  Co.,  Munich  Assurance  Co.  v.,  128  Fed.   410 181 

Doll,  Citizens  Fire  Ins.  Soc.  &  L.   Co.  v.,   35  Md.   89 183 

DollofC  V.  Phoenix  Ins.  Co.,  82  Maine  266 114 

Dollwer  v.   Ins.  Co.,   131   Mass.   39 323 

Donell,  Continental  Ins.  Co.  v.,  25  Ky.  Law  Rep.  1501 178 

Donley  case,   184  N.  Y.   107 ." 133 

Dorchester  Mutual  Fire  Ins.  Co.,  Mullen  v.,  121  Mass.   171 174 

Dorroh,  Hartford  Fire  Ins.  Co.  v.,  133  S.  W.  465 132 

Down's   Farmers  Warehouse  Association  v.   The  Pioneer  Mutual   Insurance 

Association,   35   Ins.  L.  J.   273 812 

Dows  V.  Ins.  Co.,  127  Mass.  346 162,  164 

Draemel,  Dilling  v.  9  N.  Y.  S.  497 635 

Drake   v.    Paige,    52    Hun.    292 620 

Draper  v.  Delaware  State  Grange  Mutual  Fire  Ins.  Co.,  91  Atl.  206 

278,    283,  286 

Draper  v.  Oswego  Fire  Relief  Association,  190  N.  Y.   12 313 

Drewe,   Austin  v.,   4   Campbell   360,    6  Taunt   436 256 

Duke,   Omaha  Ins.   Co.  v.,   43   Neb.   473 315 

Duncan  v.  Ins.  Co.   6  Wend.  488 153 

Dunhem  v.  Citizens  Ins.  Co.,  34  Wash.   205 107 

Dunkwater  v.  London  Assurance  Corporation,  2  Wils  363 154 

Dunlop  v.  Avery,    89   N.   Y.    592 223,  226 

Durante   v.   Bannaco,    65    App.   Div.    435 617,  618 

D'Utassy  v.   Southern  Pacific  Co.    (N.   Y.)    473 

Dyer   v.   Maine   Central   R.    R.    Co.,    99    Maine   195 805 

Eager    v.    Atlas    Ins.    Co.,    14    Pick.    141 286 

Eager  v.  Firemen's  Fund  Ins.  Co.,  71  Hun.   352,  148   N.  Y.  726 129 

Eagle   Fire   Ins.   Co.,   Harris   v.,    (N.   Y. ) 279 

Eagley,  United   States   Casualty   Co.   v.,   55   L.   R.    A.    616 620 

Eannaco,    Durante   v.,    65   App.    Div.    435 617 

East  V.  New  Orleans  Insurance  Association,  76  Miss.  697 206 

East  River  Ins.  Co.,  Ogden  v.,  50  N.  Y.  388 545,  546 

East  Texas  Fire  Ins.   Co.  v.   Blum,   76   Texas   653 187 

Eaton  v.  Hasty,   6   Neb.   419 638 

832 


Index  to  Cases 

Eddy  V.  London  Assurance  Corporation,  143  N.  Y.   311 203,  217,  235,   634 

Edie,   Mitchell   v.,    1   Term   Rep.    608 ; 241 

Edwards  v.  Home  Ins.   Co.,   100    Mo.   App.    695 187 

Ellis   V.    Council    Bluffs    Ins.    Co.,    64   Iowa    507 183 

Ellis  V.  Ins.  Co,  of  North  America,  32  Fed.  646 182,  183 

Ellis  V.   State   Ins.   Co.,    68   Pa.    578 183 

Ellsworth  et  al.  v.  Aetna  Ins.  Co.,   89  N.   Y.  311 252 

El  Paso  Reduction  Co.  v.  Hartford  Fire  Ins.  Co.,  121  Fed.   939 171 

Emery,  Thompson  v.,   27  N.  H.   267 184 

Emmott  V.  Slater  Mutual  Fire  Ins,  Co.,  7  R.  I.  562 176 

England   v.   Westchester  Fire   Ins,    Co.,    81   Wis.    583 663 

Ensel  V,  Lumber  Ins.  Co.,  102  N.  E.  955 103 

Eppens,  Smith  &  Wiemann  Co.  v.  Hartford  Fire  Ins.  Co.,  99  App.  Div.  221.  .    161 

Equitable  Marine  Ins.  Co.,  Burgess  v.,  126  Mass  70 40.     78 

Equitable   Trust   Fire   Ins.   Co.,    Kollitz   v.,    99    N,    W.    892 '. 177 

Erie  &  Western  Transportation  Co.,  Phoenix  Ins.   Co.  v.,   15   Ins.  L.  J.   574. 

117    U.    S,    312 609,   622.   623,   806 

Erie   Brewing  Co.,   Ins,   Co,   v„   30   Ohio  Cir.   Ct.   309 330 

Erie  Brewing  Co,  v.  Ohio  Farmers  Ins.  Co.,  89  N.  E.  1065,  39  Ins.  L.  J.  200.  .  212 
Erie  Railroad  Co.,  Connecticut  Fire  Ins.  Co,  v„  73  N.  Y,  399..  602,  624,   636.   637 

Ermentrout  v,  Girard  Fire  &  Marine  Ins.  Co.,  63  Minn,  305 268 

Esch   V,    Home   Ins,   Co,.    78    Iowa    334 216 

Evans,   Athens  Mutual  Ins,   Co.   v.,    132   Georgia  703 804 

Evans  v,  Columbia  Fire  Ins,  Co,,  40  Misc,  316,  44  N,  Y,  14C 110,  159 

Everett  v.   London  Assurance  Corporation,   19  C.   B.    (N,   &.)    126 267,   268 

Excelsior  Ins,  Co.  v.  Royal  Ins.  Co.,  55  N.  Y.  343 195,   604,  623,   633 

Exchange   Fire   Ins.    Co.,   Backus  v.,   26   App.    Div.    91 171 

Exchange  Mutual  Ins,   Co.,  Blake  v.,   12   Gray   265 545 

Express   Co.  v,   Caldwell,    21   Wall   264 623 

Exton-Hall  Brokerage  Agency,   Condon  v.,   88   Misc.   130 , 186 

Factors  Ins.  Co.  of  Memphis,  Kline  Bros,  v.,  156  App.   Div.  945 ,,,,.    324 

Fairhaven  Ins.   Co.,   Finney  v.,   5   Mete,   192,  38  Am,   Dec.   397 193 

Farmers  Feed  Co.  v.  Scottish  Union  &  National  Ins,  Co.,  173  N.  Y.  241 

209,     540,   556 

Farmers  Ins.  Co.  v.  New  Holland  Turnpike  Co.,  122  Pa.   37 270 

Farmers  Ins.  Co.,   Raymond  v.,   114  Mich.    386 ^44 

Farmers  Land  &  Trust  Co.  v.   Penn.  Glass  Co.,  186  U.  S.   431 223 

Farmers  Mutual   Fire  Ins.   Co.,   Cox  v.,   133   Ga.   175 179 

Farmers  Mutual  Fire  Ins.  v.  Phenix  Ins,  Co,   of  Brooklyn.   90  N.  W.   1000. 

65  Neb.  14  reversed.  S,  V.  95  N.  W.  3 172 

Farmers  National   Bank   v.    ., Delaware   Ins,   Co.,    83    Ohio    St.    309,    40    Ins. 

L.    J.     1248     206,   214 

Farnum  v.  Phoenix  Ins.  Co.,  83  Cal,  246 ;  174.  185 

Fayerweather  v.   Phoenix  Ins,   Co.,   118   N.   T.  324 104,  609,  624 

Feibelman  v.  Manchester  Assurance  Co.,  108  Ala.   180 254 

Fellmen  v.   Mercantile  Fire  &  Marine  Ins.  Co.,   116   La.   723 178 

Felt,   Thayer   v..    4   Pick.   354 178 

Ferguson  v.  Pekin  Plow  Co.,  141  Mo.  161 191 

Fernandez  v.  Merchants  Mutual  Ins.  Co.,  17  La.  Ann.  131 248 

Ferrar  v.  Western  Assurance   Co.,   159   Pac,    609 194 

Fidelity   and   Causalty  Co.,   Gaines   v.,   188   N.  Y.    411 40,   79 

Fidelity  Fire  Ins.  Co.,  Yoshimi  v.,  99  App.  Div.   69 195 

Fidelity  Ins.  Co.,  Christenson  v.,  117  la,  77,  90  N,  W,   495 206 

Fidelity  Ins.  Co.,  Foster  v.,   24  Pa,   Super,  Ct,    585 261 

Fidelity  Ins.  Co.,  Niagara  Ins.  Co.  v.,  123  Pa,  State  516 626 

Fidelity  Title  &  Trust  Co,,  Ins.  Co,  of  North  America  v„  123  Pa.  523 636 

Finlay  v.  New  Brunswick  Fire  Ins.  Co.,  193  Fed.  195 196 

Finney  v.  Fairhaven  Ins.  Co.,  5  Mete.  192,  38  Am.  Dec.  397 193 

Fire  Association  v.  Rosenthal,  108  Pa.   State    174 166 

Fire  Association,  St,  L,  A,  &  P,  R.  Co.  v.,  28  L.  R.  A.  83 620 

Fire  Association,  Washburn  Mill  Co.  v.,  60  Minn.  170,  61  N.  W.  828 216 

Fire  Association  of  Philadelphia  v.   ScheUinger,   95   Atl.    615 637 

Fireman's  Fund  Ins.  Co.,  Bauer  v.,  N.  Y.  L.  J.  Feb.  2,  1906 194 

Fireman's  Fund  Ins.  Co,,   Eager  v„  71  Hun.   352,   148   N.  Y.   726 12S 

Firemen's  Ins,  Co,  v,  Appleton  Paper  Co.,  101  111.  9 122 

Firemen's   Ins.    Co,,    Balestracci   v.,    34    La.    Ann.    844 247,   248 

Firemen's  Ins.  Co.,  Bard  v.,  108  Maine  506,  81  Atl.   870 178 

Firemen's  Ins,  Co.  of  New  Jersey.  Reed  et  al,  v.,  81  N.  J.  L.   523,   89  Atl. 

i62    215 

833 


The  Fire  Insurance  Contract 

First  National  Bank,  Phoenix  Ins.  Co.  v.,  85  Va.  765 611,   63.j 

First  National  Bank,   Queen  City  Fire  Ins.   Co.  v.,   120   N.  W.    545 186 

First  National  Fire  Ins.  Co.,  Mascott  v.,  69  Vt.  116 9  8,  101 

Fitzgerald  v.  German  American  Ins.  Co.,   62  N.  Y.   S.   824,   SO  Misc.  72 257 

Fleisch  v.   Ins.   Co   of  North  America,    56    Mo.  App.    596 232,   325 

Fletcher  v.   German  Alliance  Ins.    Co.,   79    Minn.    331 245 

Floyd,  Phoenix  Ins.  Co.  v.,  19  Hun.  287,  afC'd  83  N.  Y.  613 635 

Foley  V.  Manufacturers  &  Bldrs.  Ins.  Co.,  152  N.  Y.  131 283,  609,  012.  629,  631 

Fonereau,  Seaman  v.,  2  Strange  1183 40,  77 

Fordyce,   American   Employers   Ins.    Co.   v.,    62    Ark.    562 173 

Foster  v.   Fidelity  Ins.   Co.,   24  Pa.   Super.   Ct.  585 261 

Fournier  v.  Ins.   Co.,   23  R.  I.   36 322 

Fowler  Cycle  Works  v.  Western  Ins.  Co.,   Ill  111.  App.    631 188 

Fowler,    King    v..     16     Mass.    397 184 

Fowler   v.    Parsons,    143    Mass.    401 618 

Franklin  Fire  Ins.  Co.,  Dick  v.,  10  Mo.  App.  384,  aff'd  81  Mo.  103 605 

Franklin  Fire  Ins.  Co.,  Holtzman  v.,  12  Fed.  Cases  6649 247 

Franklin  Fire  Ins.  Co.,  O'Neil  v.,  159   App.  Div.   314,   216   N.   Y.    692 

225.    231.    237.   803 

Franklin  Fire  Ins.  Co.  v.  Sears,   21   Fed,   290 186 

Franklin  Fire  Ins.  Co.,   Stone  v.,  105  N.  Y.   543 .    187 

BYanklin  Fire  Ins.  Co.  Warren  v.,  143  N.  W.  554 195.   196 

Freed    v.    American   Fire   Ins.    Co.,    43    So.    947 620 

Freundlich,    Tannenbaum    v.,    39    Misc.    819 749 

Frick  V.  United  Firemen's  Ins.  Co.,  218  Pa.  St.  409 92.   815 

Friedman  v.  Ins.  Co.,  N.  Y.  L.  J.,  May  20,   1913 325 

Friemansdorf  v.   Ins.   Co.,    1   Fed.   68 231 

Frissell,   Phoenix   Ins.    Co.   v.,   142   N.  Y.    513 186 

Fritz  V.   Pennsylvania   Fire  Ins.  Co.,   88  Atl.   1065 174 

Fuller  V.    Jameson,   98   App.   Div.   53 613 

Gaines  v.  Fidelity  &  Causalty  Co.,  188  N.  Y.  411 40 

Gangler  v.  Chicago,  M.  &  R.  S.  Ry.  Co.,  197  Fed.  79 602 

Gardere  v.  Columbian  Ins.  Co.,   7   Johns   514 253 

Gardner  v.   Standard  Ins.   Co.,   58   Mo.   App.   611 173  185 

Gargill.  L.  &  L.  &  G.   Ins.   Co.   v.,  145   Pac.   1134.. 647 

Garland,   Ins.  Co.  of  North  America  v.,   108   111.   220 183 

Garlington,   Ins.   Co.   v.,    66    Tex.    103 ' 1G6   169 

Garrels,    Suppnier   v.,    20    111.    App.    625 618 

Garrow,   Post  v.,   18  Neb.   682.   26  Jf.  W.   580 177 

Gas    Co.,    Stoughton   v..    165   Pa.    State    428 603 

Gates,  Madison  County  Mutual  Ins.  Co.  v.,  5  N.  Y.  469 98 

Gates,    Tuttle    v.,    24    Maine    395 178 

Gebhard  Fire  Ins.  Co.,  Burleigh  v.,  90  N.  Y.   220 81 

Genesee  Savings  &  Loan  Association  v.  United  States  Fire  Ins.  Co.,  IG  App. 

Div.    587    216 

Georgia  Home  Ins.  Co.,  Wygal  v.  147  S.  W.   394.   148  Ky.   67 195 

Gerlach  v.   Grain   Shippers   Mutual  Fire   Ins.    Co.,    136    N.   W.    691 609 

German  Alliance  Ins.   Co.,  Heilbrunn  v.,   135   N.  Y.  S.  769,  140   App.  Div.  557. 

150  App.  Div.  670,  202  N.  Y.  610 62,  210,  212,  234,  288,  318,  331,  340,  614 

German  Alliance  Ins.   Co.,  Rosen  v.,   106  Maine  229,   76  Atl.   688 178 

German  American  Ins.  Co..  Chadbourne  v.,  31  Fed.  533 171 

German  American  Ins.  Co.  Fitzgerald  v.,  30  Misc.  72,  62  N.  Y.  S.  824 257 

German   American   Ins.   Co.   Fletcher  v.,    79    Minn.   331 245 

German  American  Ins.   Co.,   Mattlage  v 166 

German  American  Ins.  Co.  v.  Norris.  100  Ky.  29 102 

German  American  Ins.   Co.,  Scheel  v.,   228   Pa.   44 174,   196 

German  American  Ins.   Co.,  Todd  v..   2  Ga.  App.   789,  59   S.   E.   94 194 

German  Bank  v.   United   States,   148   U.  S.    573 620 

German  Fire  Ins.  Co.,  American  Towing  Co.  v.,  74  Md.  25 258 

German  Fire  Ins.  Co., Morris   McGraw  Woodenware  Co.   v.,   126   La.   32,    38 

L.  R.  A.    (N.   S.)    614 186 

German  Fire  Ins.  Co.,  Packham  v.,   91   Md,   515 604,   627 

German  Fire  Ins.   Co.  v.  Roost,   26   Ins.   L.  J.   699 267 

German  Fire  Ins.  Co.,  Russell  v.,   Ill  N.  W.   400 268 

German  Insurance  &  Saving  Institution,  Gibbons  v.,  30  111.  App.  263 254,   256 

German   Savings  Bank  v.   Cady,   114   Iowa  228 178 

German  Union  Fue  Ins.  Co.  v.  Clarke,  116  Md.  622,  82  Atl.  974 171.   175 

Germania   Fire  Ins.   Co.  v.  Bally,   173   Pac.   1052 205 

834 


Index  to  Cases 

Germania  Fire   Ins.   Co..   Cole  v.,   99    N.   Y.   36 135 

Germania  Fire  Ins.  Co.,  Davidson  v.,  65  Atl.  996,  13  L.  R.  A.  (N.  S. )  8S4 171 

Germania  Fire   Ins.   Co.,   Grollmund  v.,    83   Atl.   1108 548 

Germania  Fire   Ins.   Co.,   Latoix   v.,    27   La.   Ann.    113 185 

Germania  Fire  Ins.   Co.,  Nestler  v.,   44   Misc.   97 647 

Germania  Fire  Ins.   Co.,   Plinsky  v.,   32   Fed.    47 253 

Germania  Fire  Ins.  Co.,  Rohrbach  v..   62   N.   T.  47 142 

Germania  Fire  Ins.   Co.,  Weber  v.,  16  App.   Div.   596 317 

Gerwig,    Pfister,    Adm'r    v.,    122    Ind.    567 693 

Gery,  Nordyke  &  Marmon  Co.  v.,  112  Ind.  535,  13  N.  E.  683 226 

Gibb    V.    Philadelphia    Ins.    Co.,    59    Minn.    267 63.' 

Gibbons  v.  German  Ins.  &  Savings  Institution,  30  111.  App.  263 2"4,  256 

Gibbs,  Ins.   Co.  v.,  56  N.  J.  L.   579 32n 

Gib.son  Electric  Co.  v.  Ins.  Co..  10  App.  Div.  225,  159  N.  Y.   418 321 

Gifford  V.  Queen   Ins.   Co.,   1   Hanney    (N.   B.)    432 19". 

Gillett  V.  Liverpool  &  London  &  Globe  Ins.  Co.,'73  Wise.  203 239 

Gilman  v.   Commonwealth   Ins.   Co.,   112   Maine   528,   92   Atl.   721 180 

Girard  Fire  &  Marine  Ins.  Co.,  Ermentrout  v.,   63   Minn   305 268 

Glasgow  Provident  Investment  Society,  Westminster  Fire  Offices  v.,  13  App. 

Cas.    699    219 

Glasscock  v,  Liverpool  &  London  &  Globe  Ins.  Co.,  188  S.  W.  281 180 

Glazer  v.   Home   Ins.   Co.    (1912)    190    N.   Y.    6 647 

Glens  Falls  Ins.  Co.,  American  Art  Gold  S.  Co.  v.,  1   Misc.   114 97 

Glens  Falls  Ins.   Co.,   Denley  v..   184   N.  Y.   107 39 

Glens  Falls  Ins.  Co.,  Larkin  v.,  80  Minn.  527 166,  271 

Glens   Falls   Ins,    Co.,   Pitney  v.,    65    N.    Y.   6 214 

Glens  Falls  Ins.  Co.,   Smith  v.,    62   N.   Y.   85 331 

Glens  Falls  Ins.  Co.,  Titus  v.,   81  N.   Y.   410 316 

Glens  Falls  Ins.  Co.,  Wells  v.,   117  App.   Div.   346 108 

Globe  &  Rutgers  Fire  Ins.    Co.,   Boutwell  v.,    193   N,   Y.  323 184.  19  4 

Globe  &  Rutgers  Fire  Ins.  Co.  v.  Robbins  &  Myers,   43  Misc.   65,   109   App. 

Div.    530 646 

Globe  Ins.  Co.  v.   Sherlock,   25  Ohio  State  50,   68 622 

Goodman  v.   Condo,   12    Pa.   Sqper  Ct.   4^6 .' 158 

Gorge  Hotel  v.  Liverpool  &  London  &  Globe  Ins.  Co.,  122  App.  Div.  152 179 

Goss  v.   Withers,    2    Burr    683 241 

Gottlieb  v.   Ins.    Co.,    89   Hun.    36 323 

Gould  v.  Murch,   79   Maine   288 804 

Gove  v.  Ins.   Co.,  48  N.  H.   41 253 

Grace  v.  American  Central  Ins.  Co.,  109  U.  S.  278 185,  187,  189 

Gracie  v.  N.  Y.  Ins.  Co.,  8  Johns  246 614 

Grain  Shippers  Mutual  Fire  Ins.  Co.,  Gerlach  v.,  136  N.  W.   691 609 

Grand  Trunk  R.   R.   Co.  v.   Richardson,   91  U.   S.   454 156,  157 

Grandview  Building  Association,  Northern  Assurance  Co.  v„  183  U.  S.  308. .  .  656 

Granite   State  Fire   Ins.   Co.,   Webb   v..    129    N.    W.    19 172 

G.    R.    Booth     (The),    171    U.    S.    450 262 

Green,    Arnold    v.,    116    N.    Y.    566 617,  618 

Green,    State   v.,    66    Mo.    631 178 

Greengrass  v.  North  River  Ins.  Co.,  139   Supp.  937 317 

Greenlee   v.    Ins.    Co.,    104    Iowa    481 318 

Greenwich  Fire  Ins.  Co.,  Clover  v.,   101   N.   Y.  277 329 

Greenwich  Ins  Co.  v.  L.  &  N.  Ry.  Co.,  31  Ins.  L.  J.  298,  112  Ky.  598. 811 

Griffrey  v.  New  York  Central  Ins.  Co.,   100   N.  Y.   417 171 

Grim  v.  Ins.  Co.,  13  Johns  451 153 

Griswold  v.  Sawyer,  125  N.  Y.  411 694 

Grollmund  v.   Germania  Ins.   Co.,   83   Atl.   1108 548 

Grosvenor  v.   Atlantic  Fire  Ins.   Co.,   17   N.  Y.   391 201 

Grummond,   Detroit  v.,   121   Fed.   963 242 

Guardian  Assurance   Co.,   Arnfeld   v.,   172   Pa.   State  605 195 

Guardian  Fire  &  Life  Assurance  Co.,  Lewis  v.,  181  N.  Y.  392 214 

Guardian   Ins.   Co.,  Lett  v.,   52   Hun.    570,    125   N.   Y.   582 635 

Guardian  Ins.  Co.,  McPherson  v..  N.  J.  L.  Rep.   (1884-96) 248.  768 

Gulf  Compress  Co.  v.  Ins.  Co.  of  Pa.,   129  Tenn.  586 90 

Gunther,   Liverpool  &  London  &  Globe  Ins.   Co.  v.,  116  U.  S.  113 135 

Hagan   &  Martin   v.   Scottish   Union   &  National  Ins.   Co.,   32  Ins.  L.  J.    47, 

186    U.    S.    423 797i 

Hale,  State  Ins.  Co.  v.,  95  N.  W.  473 173! 

Hall  &   Hawkins  v.   National  Fire  Ins.   Co.,   35   Ins.   L.   J.   507 268' 

835 


The  Fire  Insurance  Contract 

Hall  V.  Peoples  Mutual  Ins.  Co.  72  Mass.   185 101 

Hall   V.    R.   R.    Co.,    13    Wall    367 603,   604 

Halpln  V.  Ins.  Co.  of  North  America,  10  N.  Y.  State  Rep.  345 122 

Halsell  V.  Renfrew,   112  U.   S.   287 492,   494 

Hamburg  Bremen  Fire  Ins.  Co.  v.  Atlantic  Coast  Line  R.  R.  Co..  132  N.  C.  75  .  .    626 

Hamburg  Bremen  Fire  Ins.  Co.   Dodge  v.,    4  Kan.   App.    415... 216 

Hamburg  Bremen  Fire  Ins.  Co.  v.  Garlington,  66  Tex.   103 271 

Hamilton  v.  Ins.   Co.,   156   N.  Y.   327 331 

Hamilton,  Ins.  Co.   v.,   59  Fed.   258 328 

Hamilton  v.  Liverpool  &  London  &  Globe  Ins.  Co.,  136  U.   S.  242 334,  337 

Hamilton,   Planters  Mutual  Insurance  Association  v.,   77   Ark.   27 316 

Hancock.  Phoenix  Ins.   Co.  v.,   123  Cal.   222 194 

Hann,  Western  Assurance  Co.  v.,   51  Ins.   L.  J.   648.  78  So.  232 269 

Hannum  v.  Tourtellot,  10  Allen  494 178 

Hanover  Fire  Ins,   Co.   Brink  v.,    80   N.   Y.   108 320 

Hanover  Fire  Ins.  Co.  Moore  v.,  141  N.  Y.  219,  36  N.  E.  101 214,   634 

Hanover   Fire   Ins.   Co.,  Walroth  v.,   139   App.   Uiv.    407 188 

Hanscom  v.   Ins.   Cos.,   90   Maine  333 653 

Harbinger     (The).     50     Fed.     941 177 

Harding,   Liverpool  &  London  &  Globe   Ins.   Co.   v.,    201    Fed.   515 174 

Hardy  v.  Lancashire  Ins.   Co.,  166   Mass.   210,   44  N.   E.    209 205 

Harmer,  Protection  Ins.  Co.  v.,   2   Ohio  State  452 99 

Harris  v.   Eagle  Fire   Ins.   Co.,   N.   Y.    (1810) 279 

Hart  V.   Pennsylvania  R.  R.  Co.,  112  U.   S.   331 623 

Hart  v.   Railroad   Corporation,   13    Mete.    100,   46   Am.   Dec.    719 619 

Hartford   County   Mutual   Ins.   Co.,   Bebel  v.,   25   Conn.    51 100 

Hartford  Fire  Ins.  Co.,  Brown  v.,   52  Hun.   260,  132   N.  Y.   539 323 

Hartford  Fire  Ins.   Co.  v.   Cannon,   19   Tex.  Civ.  App.   305 92,   815 

Hartford  Fire  Ins.  Co.,  Case  v.,  13   111.   676 245,   247 

Hartford  Fire  Ins.  Co.   Chicago,  etc.   Ry.   Co.,   175  U.  S.   91,   96 609 

Hartford  Fire  Ins.  Co.,  Chrisman  &  Sawyer  Baking  Co.  v 171,  173 

Hartford  Fire  Ins.   Co.,   Davis  Lumber  Co.  v.,   37  L.  R.   A.   131 188 

Hartford   Fire  Ins.   Co.   v.   Donoh,   133    S.   W.    465 132 

Hartford  Fire  Ins.  Co.,   El  Paso  Reduction   Co.   v.,   121   Fed.    939 171 

Hartford  Fire  Ins.  Co.,  Eppens,  Smith  &  Wiemann  Co.  v.,  99  App.  Div.  221.    161 

Hartford  Fire  Ins.   Co.,  Hancock  v.,   81   Misc.  159 179 

Hartford  Fire  Ins.  Co.,  Hermann  v.,  100   N.  Y.   411 185 

Hartford  Fire  Ins.   Co.,  Hyde  v.,  97   N.  W.   629 227 

Hartford   Fire   Ins.   Co.,   Ikellar   v.,    24    Misc.    136 188 

Hartford  Fire  Ins.  Co.,  Kase  v.,   58  N.  J.   34 217 

Hartford  Fire  Ins.  Co.,  McCready  v.,    61   App.   Div.    583 167 

Hartford  Fire  Ins.  Co.,  Marqusee  v.,  198  Fed.   475,  1023 194 

Hartford  Fire  Ins.  Co.,  Peterson  v.,   87   111.  App.   567,   187   111.   395 180 

Hartford  Fire  Ins.  Co.,   Swearinger  v.,    52   S.   C.   309,   56   S.   C.    355.   29   S.   E. 

722,   34  S.  E.  449 200,   227 

Hartford  Fire  Ins.   Co.   v.  Tewes,   132   111.  App.   321 171.  174,    178,    185.   19,5 

Hartford  Fire  Ins.  Co.,  Walsh  v.,  59  N.  Y.  171 642 

Hartford   Fire   Ins.   Co.,   Wildberger   v.,    72    Miss.    338 103 

Hartford  Fire  Ins  Co.  v.  Williams,  63  Fed.   925 235 

Hartford  Fire  Ins.  Co.,  Williams  v..   63   Fed.   925 203 

Hartford  Fire  Ins.  Co.,  Wilson  v.,  187  U.  S.  467 189,  190 

Hartley,  Dehahn  v.,   IT.   R.   343 40.   78 

Hartwig  v.  American  Ins.  Co.  of  Newark,  154  N.  Y.  S.  801,  46  Ins.  L.J. 455.    210 

Hastings  v.  Westchester  Fire  Ins.   Co.,   73   N.  Y.   141 203,   233.   634 

Hasty,   Eaton   v.,    6    Neb.    419 638 

Hathaway  v.  Orient  Ins.  Co.,  134  N.  Y.  409 212,   214 

Hatton.    Ins.    Co.   v.,    55   S.   W.    681 331 

Hawkeye,   Day  v.,   72  Iowa   597 106 

Hayes  v.    Ins.   Co.,    170    Mass.    492 271.   751 

Heaton   v.    Manhattan   Fire   Ins.   Co.,    7   R.   I.    502 216 

Heflin,  Niagara  Fire   Ins.   Co.  v.,    22   Ky.  L.   R.   1212 270 

Heilbrunn    v.    German    Alliance    Ins.    Co.,    202    N.    Y.    610,    95    N.    E.    823 

62,  210,  212,  234,  283,  318,  331.  340,   614 

Heilmann   v.    Ins.    Co.,    75    N.    Y.    7 331 

Heller  V.  Royal  Ins.  Co.,  177  Pa.  State  202,  34  L.  R.  A.  600 629.  752 

Henderson  v.  Western  Ins.    Co..   10   Rob.   164 254 

Herd,    Smith   v.,    60    S.    W.    841 322 

Herkimer  v.  Rice.   27  N.  Y.  163 141.   687.  747 

836 


Index  to  Cases 

Hermann  v.  Ins.  Co.,  100  N.  T.  411 187 

Herrman  v.   Merchants   Ins.   Co.,    81    N.   T.   184 121 

Heuer  v.  Northwestern  National  Ins.  Co.,   144  111.   393 267 

Hewins  v.  London  Assurance  Corporation,  184  Mass.  178 271 

Highlands  v.  Cumberland  Valley  Farmers  Mutual  Ins.  Co.,  203   Pa.  134....    635 

Hill,    Wilson   v.,    3    Met.    66 182 

Hilliker,    Corey   v.,    15    Mich.    314 178 

Hillock   V.    Traders   Ins.    Co.,    54    Mich.    532 179 

Hingham   Mutual  Fire  Ins.   Co.,   Borden  v.,   18   Pick.    523 268 

Hocking  v.  Britisji  America  Assurance  Co.,  40  Ins.  L.  J.  799 154 

Hocking,    Ins.    Co.    v.,    115    Pa.    398 3^0 

Hoffman  v.  Aetna  Fire  Ins.   Co.,  1  Robt.   501 245 

Hoffman  v.  King,   53   N.   E.   401 263 

Hoffman  v.  Western  M.  &  F.  Ins.  Co.,  1  La.  Ann.  216 242,   282,  286 

HoRzman  v.  Franklin  Ins.  Co.,  12  Fed.  Cases   6649 247 

Home   Ins.   Co.,  Alter  v.,   50   La.  Ann.   1316 245 

Home  Ins.  Co.  v.  Baltimore  Warehouse  Co.,  93  U.  S.  527 181,  489 

Home  Ins.  Co.,  Baltimore  Warehouse  Co.  v.,  93   U.   S.   527 '. 718,  724 

Home  Ins.  Co.,  Bank  of  Anderson  v..  Ill  Pac.  507 647 

Home  Ins.   Co.,   Barton  v.,  42   Mo.   156 156,  157 

Home  Ins.  Co.,  Browning  v.,  71  N.  Y.  508 101,  803 

Home  Ins.  Co.,  Cabellero  v.,  15  La.  Ann.   517 266 

Home  Ins.   Co.  v.  Chattahoochee  Lumber  Co.,  126  Ga.   334 179 

Home  Ins.   Co.,   Eldwards  v.,   100   Mo.   App.    695 - 187 

Home  Ins.  Co.,  Esch  v.,  78  Iowa  334,  43  N.  W.   229 216 

Home  Ins.  Co.,  Glazer  v.,  190  N.  Y.  6 647 

Home  Ins.  Co.,  Keim  v.,  42  Mo.  38 286 

Home  Ins.  Co.,  McGraw  v.,   45   Ins.  L.  J.   193 259 

Home  Ins.  Co.  v.  Peoria  &  Pekin  Union  Ry.  Co.,   28  Ins.  L.  J.  289,  178  •111. 

64     798 

Home  Ins.  Co.,  Phillips  v.,  128  App.  Div.  528 92,   745 

Home  Ins.  Co.,  Rann  et  al.  v.,  15  Ins.  L,  J 286 

Home  Ins.  Co.,  Sewell  v.,  113  App.  Div.  728,  189  N.  Y.  526 803 

Home  Ins.   Co.,  Smith  v.,   47  Hun.   30 101 

Home   Ins.    Co.,   Spare   v.,    15    Fed.    707 142 

Home  Ins.  Co.,  Talamon  v.,  16  La.   Ann.   426 248 

Home   Ins.   Co.,  Utica   Canning  Co.   v.,   132   App.    Div.    420,   116   N.   Y.   93  4, 

181,    489,   723 

Home  Ins.   Co.  v.   Wilson,   176   S.   W.   688 647 

Home  Mutual  Ins.  Co.  v.  Nichols,  72  S.  W.  440 182 

Hooper  v.  Hudson  River  Fire  Ins.   Co.,   17   N.  Y.   424 182 

Hooper   V.    Robinson,    98    U.    S.    528 193 

Hoover  Distilling  Co.,  Mechanics  Ins.  Co.  v.,  40  Ins.  L.  J.  347 92 

Hope  Ins.  Co.,  Clinton  v.,   45  N.   Y.  454 635 

Horan  Case.   89   Pa.   State   438 128 

Horticultural   Ins.    Co.,   Willis  v.,   137    Pac.    761 112 

Hough,  Clendenning  &  Co.  v.  Peoples  Ins.  Co.,  36  Md.  398 489,  721 

Houghton  v.  Manufacturers  Mutual  Fire  Ins.   Co.,  80   Mete.  114 122 

Howard   v.   Smith,   1  Barn  &  Aid.   528 179 

Hubbell  v.  Medbury,   53  N.  Y.   98 695 

Huchberger  v.   Ins.  Co.,  12  Fed.  Cases  793 329 

Hudson  River  Fire  Ins.  Co.,  Hooper  v.,  17   N.  Y.   424 182 

Hustace  v.  Phenix  Ins.  Co.,  175  N.  Y.  292 160,   263 

Hyde  v.  Hartford  Fire  Ins.  Co.,  97  N.  W.  629 229 

Hyslop,  Tate  v.,  15  Q.  B.  D.  368 609,   811 

Ikellar  v.  Hartford  Fire  Ins.   Co.,   24  Misc.  136 188 

Illinois  Mutual  Fire  Ins.  Co.  v.  Andes  Co.,  67  111.  362 282,  286 

Imperial  Fire  Ins.  Co.  v.  Coos  County,  151  U.  S.  452 286 

Indemnity  Fire  Ins.  Co..  Waring  v.,  45  N.  Y.  606 181,  718,   723 

Inman   v.   So.   Carolina  Ry.    Co.,   129   U.   S.   128 624 

Insurance  Co.,   Adair  v.,   107   Ga.    297 125 

Insurance  Co.  v.  Asher,   100    S.  W.    233 328 

Insurance   Co.,   Austen   v.,   16   App.    Div.    86 331 

Insurance  Co.,  Badger  v.,   49  Wise.   396 322 

Insurance   Co.    v.    Bank,    62   Fed.    222 323 

Insurance  Co.,  Bell  v.,   19  Hun.  238 ,320 

Insurance  Co.,  Bellinger  v.,   51  Misc.   463,   Aff'd   113   App.   Div.    917 330 

Insurance  Co.  v.  Boon.   95  U.  S.  117 156,   ij? 

837 


The  Fire  Insurance  Contract 

Insurance  Co.,  Boyle  v.,  169  Pa.  State  349 86 

Insurance   Co.,   Brady   v.,   11   Mich.    445 166,  169 

Insurance  Co.,  Brown  v.,  1  El  &  El  853 169 

Insurance   Co.,    Caldwell   v.,    61    Mo.   App.   4 819 

Insurance  Co.,  Carpenter  v.,   135   N.    Y.    298 322 

Insurance   Co.,   Casey  v.,   33  Hun.   315 751 

Insurance  Co.,  Chandler  v.,   70   Vt.   562 545 

Insurance  Co.,  Chatfleld  v.,  71  App.  Div.  164 747 

Insurance  Co.,  Claflln  v.,   110   U.    S.    81 327 

Insurance  Co.,  Clark  v.,   89   Maine  26,   35   Atl.   1008 197 

Insurance    Co.    v.    Coulter,    3    Peters    222 746 

Insurance  Co.,  Cummer  v.,  97  App.  Div.  151,  173  N.  Y.  633 316 

Insurance  Co.,   Cummings  v.,   55   N.   H.    458 286 

Insurance  Co.,  Czerweny  v.,   138   Supp.   345 318 

Insurance  Co.,  Davis  &  Co.  v.,  115  Mich.   382 177 

Insurance   Co.,    Dickert   v.,    52    S.    C.    412 187 

Insurance  Co.,  Dobson  v.,   86  App.   Div.   115,   179  N.  Y.   557 321 

Insurance   Co.,    Dollwer  v.,   131    Mass.    39.; 323 

Insurance  Co.,  Dows  v.,  127  Mass.  346 162,  164 

Insurance  Co.,  Duncan  v.,  6  Wend.   488 153 

Insurance  Co.,  Ellis  v.,   32   Fed.   646 182,  183 

Insurance  Co.  v.  Erie  Brewing  Co.,   30   Ohio  C.   C.   309 330 

Insurance  Co.  v.  Fidelity  Title  &  Trust  Co.,  123  Pa.   523 636 

Insurance  Co.,  Fleisch  v.,   56   Mo.  App.   596 252 

Insurance   Co.,    Fournier    v.,    23    R.    I.    36 ; 322 

Insurance  Co.,  Friedman  v.,  N.  Y.  L.  J.  May  20-13 325 

Insurance    Co.,    Fremansdorf   v.,    1    Fed    68 231 

Insurance   Co.   v.    Garland,    108    111.   220 183 

Insurance  Co.  v.   Garlington,   66  Tex.  103 169 

Insurance  Co.  v.   Gibbs,    56    N.   J.   L.    579 329 

Insurance  Co.,  Gibson  Electric  Co.  v.,  10  App.  Div.  225,  159  N.  Y.  418 321 

Insurance    Co.,    Gottlieb    v.,    89    Hun.    36 323 

Insurance   Co.,   Gove  v.,   48    N.    H.    41 253 

Insurance  Co.,   Greenlee  v.,  104   Iowa  481 318 

Insurance   Co.,    Grim   v.,    13    Johns    451 15^ 

Insurance   Co.,    Gulf   Compress   Co.    v.,   129    Tenn    586 90 

Insurance  Co.,  Halpin  v.,  10  N.  Y.  State  Rep.  345 122 

Insurance  Co.,  Hamilton  v.,  156  N.  Y.  327 331 

Insurance   Co.   v.    Hamilton,    59    Fed.    258 328 

Insurance  Co.,  Hanscom  v.,  90  Maine  333 653 

Insurance  Co.  v.  Hatton,  55  S.  W.  681 331 

Insurance  Co.,  Hayes  v.,   170   Mass.   492 271.   751 

Insurance   Co.,   Heilmann   v.,    75    N.    Y.    7 331 

Insurance  Co.,  Hermann  v.,  100  N.  Y.  411 187 

Insurance  Co.  v.  Hocking,   115   Pa.   398 330 

Insurance  Co.,  Huchberger  v.,  12  Fed.   Cas.   793 329 

Insurance  Co.,  Jones  v.,   90  Tenn.  604 286 

Insurance  Co.,  Kimball  v.,  21  N.  Y.  Sup.  Ct.  495 330 

Insurance  Co.,  Knowlton  v.,   35   Ins.  L.  J.   81 120 

Insurance  Co.,  Lang  v.,  12  App.  Div.  39 324 

Insurance  Co.,  Lite  v.,  119  App.  Div.  410,  193  N.  Y.  639 750 

Insurance  Co.,  McArdle  v.,   183   N.   Y.   368 332 

Insurance   Co.   v.    McLeod,    57    Kan.    95 329 

Insurance  Co.    v.   McLimans,    28    Neb.    653 318 

Insurance  Co.,  McManus  v.,  22  Misc.  269,  43  App.  Div.  550 315,   318,   323 

Insurance   Co.,    McNally  v.,137    N.   Y.    389 313 

Insurance   Co.,   Marino   v.,    227    Pa.    120 330 

Insurance  Co.,  Matthews  v.,   9  App.   Div.  339,   154   N.  Y.   449 318.   693 

Insurance  Co.,   Mergs  v.,  205   Pa.   State   378,   54   Atl.   2053 546 

Insurance  Co.,   Monteleone  v.,   47   La.  Ann.    1563 166,  169 

Insurance  Co.,  Morrell  v.,  33  N.  Y.   429 331 

Insurance  Co.,  Moyer  v.,  176  Pa.  State  579 323 

Insurance  Co.,  Murphy  v.,  61  Mo.  App.  323 325,  330 

Insurance  Co.,  National  Wall  Paper  Co.  v.,  175  N.  Y.  226 r .  .    318 

Insurance  Co.,    Niblo  v.,   1    Sandf.    551 271,  753 

Insurance    Co.,    Nicolet    v.,    3    La.    366 282,   286 

Insurance   Co.    v.    Norton,    96    U.    S.    234 673 

Insurance  Co.,  Oil  Co.  v.,  106  ,N.  Y.  535 747,   751 

838 


Index  to  Cases 


Insurance  Co.,  Faltrovich  v.,  68  Hun.   304.   143   N.    Y.  73 321,   323,   324 

Insurance  Co.,   Pearlstone  v.,  70   S.   C.   75 326 

Insurance   Co.,    Porter  v.,    164    N.    Y.    50  4 327 

Insurance  Co.,   Rademacher  v.,   75  Hun.    83 321 

Insurance  Co.,  Ragley  Lumber  Co.  v.,  94  S.  W,  185 172 

Insurance   Co.   v.   Robertson,   106   Tenn.   557 328 

Insurance   Co.,   Robinson   v.,    38   Atl.    320 654 

Insurance  Co.,   Roumayer  v.,  13   N.   J.   L.   110 314 

Insuran.ce  Co.,  Salonian  v.,  215  N.  Y.  241 239 

Insurance    Co.,    Scripture   v.,    10    Cush.    356 162 

Insurance   Co.,   Seibel  v.,    46   Atl.    851 325 

Insurance  Co.  v.   Simpson,   43  111.  App.   98 825 

Insurance   Co.,   Stevens  v..   32  N.  B.   394 323 

Insurance   Co.   v.   Stinson,   103   U.   S.    25 142 

Insurance  Co.,  Sugar  Refining  Co.  v.,  175  U.  S.  624 746 

Insurance  Co.,  Taylor  v.,  105  Pac.  354,  review  of  authorities,  concurring  with 

Tisdell   case    171 

Insurance   Co.   v.   Tweed,    7   Wall    44 263 

Insurance   Co.   v.   Vining,   67   Ga.    661 318 

Insurance  Co.,  Walker  v.,  156  N.  Y.  628 321 

Insurance  Co.,   Washburn  v.,    2   Fed.    304 264 

Insurance   Co.,    Waters  v.,    11    Peters    213...." 153 

Insurance  Co.,  Weed  v.,  133  N.  Y.   394 315,  316,   3i8,   695 

Insurance    Co.,   Wheeler   v.,    101    U.    S.    439 200 

Insurance    Co.,    White   v.,    93    Fed.    161 196 

Insurance    Co.,    Wicking   v.,    118    Mich.    640 328 

Insurance  Co.,  Williams  v.,   90   App.  Div.   413 331 

Insurance  Co.,  Winston  v„  32  App,   Cases  D.   C.    61 331 

Insurance   Co.,   Wynkoop   v.,    91    N,   Y.    478 331 

Insurance  Co.   v.  Zeitinger,   168   111.    286 319 

Insurance  Co.  of  North  America,  Mergs  v.,  205  Pa.  State  378 546 

Insurance    Co.    of    North    America,    Taylor    v.,     105     Pac.     354,     renewing 

authorities  concurring  with  Tisdell  case 171 

Insurance   Society,   Kenefick   v.,    36    Ins.   L.    J.    817 125 

International  Life  Assurance  Society,  Campbell  v.,   4  Bosw.   298 177 

International  Trust  Co.  v,  Boardman,   149   Mass.   158 605,  629 

Iowa  State  Ins.  Co.,  Kennedy  Bros,  v.,  119  Iowa  29 104 

Irwin,   McCormack  v.,   35   Pa.   State  111,  117 602 

Irwin  V.  Westchester  Fire  Ins.  Co.,  58  Misc.   441,  199  N.  Y.  550 284 

Isaac  Mark,  City  Fire  Ins.  Co.  of  Hartford  v.,  45  111.   482 182 

Jackson  Co.  v.  Boyleston  Mutual  Ins.  Co.,  139   Mass.  508 621,   623,  624 

Jameson,  Fuller  v.,  98  App.  Div.  53 613 

Janvrin  v.   Rockingham   Fire  Mutual  Ins.   Co.,   70   N.   H.   35 128 

Jeffery  v.  Legender   (1691)    3  Lev.  320 40,  79 

Jersey  City  Ins.   Co.,  Carson  v.,   43  N.  J.  L.   300 101 

Jewell    V.    Jewell,    84    Maine    304 654 

Johnson.  Aurora  Fire  Ins.  Co.  v.,  46  Ind.   315,  326 252 

Johnson   v,    Campbell,    120    Mass.    449 ••    724 

Johnson  v.    Moore,    33    Kan.    90 620 

Johnson  v.  North  British  &  Mercantile  Ins.  Co.,  63  N.  E.  610,  66  Ohio  State 

6    197 

Johnston  v.   Abresch,    123   Wis.   130 725 

Jones.   Davidson  v.,    112   App.    Div.    254 694 

Jones  V.  Ins.  Co.  of  North  America,  90  Tenn.  604 286 

Jones.   Wilson  v.,   L.   R.    2   Exch.   139 747 

Joyner  &  Long  v.  Scottish  Fire  Ins.  Co.,  71  S.  E.  434.  155  N.  C.  255 195 

Jurey.  Mobile  &  Montgomery  Railway  Co.  v..  Ill  S.  E.  584 623 

Kaltenbach  v.  Mackenzie,  3  C.  P.  D.  467 240,  242 

Karlesen  v.   Sun  Fire  Office.   122   N    Y.   545 187 

Karow  v.  Continental  Ins.   Co..  57   Wise.   56 , 253 

Kase  V.   Hartford  Fire  Ins.   Co.,   58   N.   J.    34 217 

Kehler  v.   New  Orleans  Ins.   Co.,  23   Fed.    709 185,   188 

Keim  v.  Home  Mutual  Fire  &  Marine  Ins.  Co.,   42   Mo.   38 286 

Kelley  v.  Aetna  Ins.  Co.,    84    S.   E.    502 179 

Kenefick  v.  Ins.  Society.  36  Ins.  L.  J.   817 125 

Kennedy   Bros.   v.    Iowa  State   Ins.    Co.,    119    Iowa    29 104 

Kentucky  &  Ix)uisville  Ins.   Co..   Cromie  v.,   15   B.   Mon.   432 540 

Kernochan  v.  N.  Y.  Bowery  Fire  Ins.  Co.,  12  N.  Y.  1,  17  N.  Y.  428 283,  318 

839 


The  Fire  Insurance  Contract 

Kerr  v.  Milwaukee  Mechanics  Ins,  Co.,  117  Fed.  442 197 

Keter  v.  Ry.   Co.,   86   North  Carolina  346 178 

Kiesel  &  Co.   v.   Sun  Ins.   Office,   88  Fed.   243 163,  164,  165 

Kilgour  V.  Miles,  6   G.  &  J.  268 177 

Kimball  v.  Ins.  Co.,  21  N.  T.  Sup.  Ct.  495 330 

Kimball  v.  Monarch  Ins.   Co.,   70   Iowa   513 182 

King,  Capital  Fire  Ins.  Co.  v.,  82  Ark.  400 40 

King,  Commercial  Union  Fire  Ins.  Co.  v.,  156  S.  W.  445 176 

King  V.  Fowler,  16  Mass.  397 184 

King,  Hoffman  v.,  53  N.  E.  401 263 

^*''ng  V.  State  Mutual  Fire  Ins.  Co.,  61  Mass.    (7  Cush.)   1 215,   231,   605,   631 

King  V.   Tioga   County  Association,    35   App.   Div.    58 105 

xviine  Bros.  v.  Factors  Ins.   Co.,  156   App.   Div.   945 324 

Kline  Bros.   v.    Royal  Ins.   Co.,   192    Fed.    378 194 

Knowlton  V.  Ins.   Co.,    (Maine)    35   Ins.  L.   J.   81 120 

KoUitz  V.  Equitable  Trust  Fire  Ins.  Co.,  99  N.  W.  892 177 

Kooistra  v.   Rockford  Ins.   Co.,   122  Mich.   62 191 

Krippner   v.   Biehl,    28    Minn.    139 156 

Kupfersmith  v.  Delaware  Ins.  Co.,  80  N.  J.  L.  191,  84  N.  J.  L.  271 216,  237 

Kyle,    Amis    v.,    2    Yerg   31 177 

Lake  Geneva  Ice   Co.  v.   Selvage,   36   Misc.   212 319 

Lancashire  Ins.  Co.  v.  Boardman,  58  Kan.  339,  27  Ins.  L.  J.  1898 216 

Lancashire  Ins.  Co.,  Hardy  v.,  166  Mass.  210,  44  N.  E.  209 205 

Lancashire    Ins.    Co.,    Levine   v.,    66    Minn.    138 .  .    316 

Lancashire  Ins.  Co.,  Stebbins  v.,  60  N.  H.   65 194.   197 

Lane    v.    Winthrop,    1    Am.    Dec.    599 184 

Lang  v.  Ins.  Co.,   12  App.  Div.   39 324 

Langdale  v.  Mason,  2  Marsh  Ins.  791 154 

Larkin  v.  Glens  Falls  Ins.  Co.,  80  Minn.  527 166,  168,   271 

Larsen   v.   Thuringia   American   Ins.    Co.,    208    111.    166 195,  197 

Latoix  V.    Germania  Fire   Ins.   Co.,    27    La.    Ann.    113 185 

Latten  v.  Royal  Ins.   Co.,   45   N.  J.  L.  453 180 

Laurent  v.  Chatham  Fire  Ins.  Co.,  1  Hall  41 753 

Lawrence,   Columbia  Ins.   Co.   v.,   10    Peters    507 278 

Lawrence,  Insurance  Co.  of  Alexandria  v.,  10  Peters   507 155 

Laurence  v.  Niagara  Ins.  Co.,  2  App.  Div.  267,  154  N.  Y.  752 329 

Law  Union  &  Rock  Ins.  Co.,  Curnen  v.,  159  App.  Div.   493 109,  317 

Lawyer,    Griswold   v.,    125    N.   Y.    411 694 

Leake.  Ulster  County   Savings  Bank  v.,   73  N.   Y.  161 625 

Lee   V.    Adsit,    37    N.    Y.    78 718,   722 

Lee  V.  New  Hampshire  Fire  Ins.  Co.,  70  S.  E.  819 196 

Le  Favour   v.  Bartlett,   42    N.   H.    555 178 

Legender,    Jeffery   v.,    (1691)    3    Lev.    320 40,   79 

LeGendre  v.  Scottish  Union  &  National  Ins.  Co.,  95  App.   Div.   562 109 

I_^nox  Fire  Ins.  Co.,  Van  Valkenburgh  v.,  51  N.  Y.  465 171 

Leonard   v.   Orient  Ins.   Co.,   30   Ins.   L.   J.    980 162 

Lett  V.  Guardian  Trust  Co.,  52  Hun.  570,  aff'd  125  N.   Y.   582 635   636 

Levine  v.    Lancashire   Ins.    Co.,    66    Minn.    138 316 

Lewis  V.  Guardian  Fire  &  Life  Assurance  Co.,  181  N.  Y.  392,  74  N.  E.  224.  .  .    214 

Lightbody  v.  North  America   Ins.  Co.,  23   Wend.   18 642 

Lipmann  v.  Niagara  Fire  Ins.  Co.,  121  N.  Y.  454 188.  189 

Lisk  V.   Citizens   Ins.   Co.,   16   Ind.  App.    565 245 

Lite  V.   Ins.   Co.,   119   App.    Div.    410.   193   N.   Y.    639 750 

Liverpool  &  I^ondon  &  Globe   Ins.   Co.   v.   Gargill,    145   Pac.   1134 647 

Liverpool  &  London  &  Globe  Ins.  Co.,  Gillett  v.,  73  Wise.  203 239 

Liverpool  &  London  &  Globe  Ins.  Co.,  Glasscock  v.,  188   S.  W.  281 180 

Liverpool  &  London  &  Globe  Ins.  Co.,  Gorge  Hotel  v.,  122  App.  Div.  152.  .  .  .    179 

Liverpool  &  London  &  Globe  Ins.  Co.  v.  Gunther,  116  U.  S.  113 135 

Liverpool  &  London  &  Globe  Ins.  Co.,  Hamilton  v.,  136  U.  S.  242 334,   337 

Liverpool  &  London  &  Globe  Ins.  Co.  v.  Harding,  201  Fed.   515 174 

Liverpool  &  London  &  Globe  Ins.  Co.,  North  British  &  Mercantile  Ins.  Co. 

v.,  L.   R.   S.    Ch.   Div.   569 615 

Liverpool  &  London  &  Globe  Ins.  Co.,  North  Pine  Crating  Co.  v.,   143  Wis. 

433     174,   179 

Loder,  Waring  v.,  53  N.  Y.  581 142 

Loewenstein  v.  Queen  Ins.  Co.  227  Mo.  100,  127  S.  W.  72 225.   602 

London  &  Lancashire  Fire  Ins.  Co.,  Miller  v.,   41  111.  App.   395 267 

London  &  Lancashire  Fire  Ins.  Co.,  Schmaelzle  v.,  75  Conn.  397,  53  Atl.  863,   548 

840 


Index  to  Cases 

London  Assurance  Corporation,  Dunkwater  v.,  2  Wils.  363 154 

London  Assurance  Corporation,  Eddy  v.,  143  N.  T.  311 203,  217,  235,  634 

London  Assurance  Corporation,  Everett  v.,  19  C.  B.   (N.  S.)  126 267,  268 

London  Assurance   Corporation,   Hewins  v.,    184   Mass.   178 271 

London  Assurance   Corporation,    Meigs   v.,   126   Fed.   781 546 

Lord,  Mayor  v.,   17  Wend.   285 154,  159 

Louisiana  Ins.   Co.,   Walden  v.,   12   La.   134,  32  Am.   Dec.   116 102 

Louisville  &  Nashville  Ry.  Co.,  Greenwich  Ins.  Co  v.,  31  Ins.  L.  J.  298.  112 

Ky.    598     811 

Love,  Moore  v.,  57  Miss.   765 494 

Lowell  Mutual  Fire  Ins.  Co.,  Scripture  v.,  10  Cushing  356 261 

Lucena  v.  Crauford,  1802,  3  B  &  P.  75,  1  Taunt.   325 141,  192,  196 

Lumber  Insurance  Co.,  Ensel  v.,   102  N.  E.  955 103 

Lynn  Gas  &  Electric  Co.,  Meriden  Fire  Ins.  Co.  v.,  158  Mass.  570 262 

MacDowell  v.   St.   Paul,  Fire  &  Marine  Ins.   Co.,  207   N.   Y.    472,    482,  207, 

214,    232,   318 

Mack  V.  Rochester  German  Ins.  Co.,  106  N.  T.  560 127 

Mackenzie  v.  Kaltenbach,  3  C.  P.  D.   467 240,  242 

Madison  County  Mutual  Ins.  Co.  v.  Gates,  5  N.  Y.  469 '. .      98 

Magner  v.  Mutual  Life  Ins.  Co.,  17  App.  Div.  13,  162  N.  Y.  657 331 

Mahon,    Cunningham   v.,  -112    Mass.    58 178 

Maine  Central  v.  Dyer,  99   Maine  195 805 

Maitland  v.   Walker,    5   B.   &   A.    171 40,  78 

Malin  v.  Mercantile  Town  Mutual  Ins.  Co.,   105  Mo.  App.  625 254 

Manchester  Assurance  Co.,  Connor  v.,  33  Ins.  L.  J,  844,  130  Fed.  743 —    156,  157 

Manchester  Fire  Assn.  Co.  v.  Boak  Fish  Co.,  84  Minn.  419 245 

Manchester  Fire  Assn.  Co.  v.  Feibelman,  108  Ala.  180 254 

Manchester  Fire  Assn.  Co.  v.  Oshkosh  Matchworks,  92  Wise.  510 246 

M.  &  E.  R.  R.   Co.   V.  Weber,   35  N.  J.  L.   400 627 

Manhattan  Fire  Ins.  Co.  v.  Heaton,  7  R.  I.  502 216 

Manhattan  Fire  Ins.  Co.,  Philadelphia  Linen  Co.  v.,  8  Pa.  Dist.  Ct.   261 171 

Mank  v.  Commercial  Union  Assurance  Co.,  7  Pa.  Super.  Ct.  633 180 

Manufacturers  &  Bldrs.  Ins.  Co.  v.  Foley,  152  N.  Y.  131.. 283,  609,  612,  629,  631 

Manufacturers  Mutual  Fire  Ins  Co.  v.   Houghton,   80   Mete.  114 122 

Marcardier  v.   Chesapeake   Ins.   Co.,   8   Crauch   39 241 

Marino  v.   Ins.   Co..   227   Pac.   120 330 

Markheim  v.  People,  162  App.  Div.  859 306 

Marqusee  v.  Hartford  Fire  Ins.  Co.,  198  Fed.  475,  1023 194 

Marsh  v.  Citizens   Ins.   Co.,   41   Pa.   State   386 252 

Martin  v.  Sunset  Telephone  &  Telegraph   Co.,   18  Wash  260 178 

Martin  v.  Palatine  Ins.  Co..  106  Tenn.  323 195 

Martin  v.  Wakefield,   3   Mass.   558 226 

Marts  v.   Cumberland'  Ins.   Co..   44   N.   J.   Eq.    478 194 

Mascott   v.    First   National   Fire   Ins.    Co.,    69   Vt    116 "98,  101 

Mason,  LaHgdale  v.,    2  Marsh.   Ins.   791 154 

Mason  v.    Samsberry,    3    Dougl.    61 154 

Mason  v.   Thomas,   36   N.   H.   302 178 

Massasoit  Steam  Mills  v.  Western  Assurance  Co.,  125  Mass.  116 197 

Matthews  v.  Ins.  Co.,  9  A.  D.  339,  154  N.  Y.  449 318,   692,   693 

Mattlage  v.  German  American  Ins.  Co 166 

May  V.  Cincinnati  Mutual  Fire  Ins.  Co.,  20   Ohio  211 252.  253 

Mayor  v.   Lord.    17  Wend.   285 154.   159 

McAllister  V.  Niagara  Fire  Ins.  Co.,  156  N.  Y.  80 328,   674,   679 

McArdle   v.    Ins.    Co.,    183    N.    Y.    368 332 

McCluskey  v.   Providence  Washington  Ins.  Co.,  126   Mass.  306 183 

McCormack   v.    Irwin,    35    Pa.    State   111,    117 602 

McCormick  v.   Orient   Ins.   Co.,   86   Cal.    260 672 

McCormick  v.   Springfield  Fire  &  Marine   Ins.   Co.,    66    Cal.    681 672 

McCready  v.   Hartford   Fire   Ins.  Co.,   61  App.   Div.   583 167 

McCrum    v.    Reid,    91    N.    Y.    412 217,   223 

McDonald.   Minor  v.,   140   S.  W.   401 178 

McElroy  v.  British  America  Ins.  Co.,  94  Fed.   990 644 

McFadden  V.   Palmer,   49    Ins.   L.  J.  .570,   100   Atl.    225 225 

McGowan  v.   Peoples  Mut.  Fire  Ins.  Co.,   54  Vt.  211 115 

McGraw   v.    Home   Ins.    Co.,    45    Ins.   L.   J.   193 259 

McGuire,   Aetna   Ins.    Co.   v.,    51   111.   342 171 

McKee   v.    Boyd.    99    Va.    72 725 

McKenzie,  Hartford  Fire  Ins.  Co.  v.,  70   111.  App.   615 197 

841 


The  Fire  Insurance  Contract 

McLeod  V.  Ins.  Co.,  57  Kan.  95 329 

McLimans  v.  Ins.  Co.,  28  Neb.   653 318 

McLoughlen,   Cowley   v.,    141   Mass.    181 178 

McManus  v.  Ins.   Co.,   22   Misc.   269,   43   App.   Div.   550 315,   318,   323 

McNally  v.   Ins.   Co.,   137  N.   Y.    389 313 

McNillis  V.   Aetna  Ins.   Co.,   176   111.  App.   575 173 

McPherson  v.  Guardian  Ins.  Co.,  Newf.  L.  R.    (1884-96)    768 248 

Mechanics  Ins.  Co.,   Buick  v.,  103   Mich.   75 187 

Mechanics  Ins.  Co.  v.  C.  A.  Hoover  Distilling  Co.,  40  Ins.  L.  J.  347.  182  Fed. 

590    92,   815 

Mechanics   Ins.   Co.   v.    Carstairs,    18    Fed.   Rep.    473 104,  621,  624 

Mechanics  Ins.    Co.   v.   Perry,   11   Fed.    485 253 

Medbury  v.   Hubbell,   53   N.  Y.   98 695 

Mercantile  Fire  &  Marine  Ins.  Co.,  Fellmen  v.,  116  La.  7  23 178 

Mercantile  Town  Mutual  Ins.  Co.  v.  Malin,   105   Mo.   App.   625 254 

Merchants  Cotton  Press  v.  Deming,   90  Tenn.  306 286 

Merchants   Ins.    Co.    v.    Herrman,    81    N.    Y.    184 121 

Merchants  Louisville  Ins.    Co.   v.  Waters,   11    Peters   213 252 

Merchants   Mutual   Ins.    Co.   v.   Fernandez,    17   La.   Ann.    131 248 

Merchants  Town  Mutual  Ins.  Co.,  Bayless  v.,  106   Mo.   App.   684 182 

Meigs  V.  Ins.  Co.  of  North  America,  205  Pa.  State  378 .• 546 

Meriden  Fire  Ins.  Co.  v.  Lynn  Gas  &  Electric  Co.,   158  Mass.   570 262 

Merrimack  Mutual  Fire  Ins.   Co.,  Phillips  v.,   Tenn.  Cush.   350 184 

Metropolitan   Life   Ins.   Co.   v.   Sternaman,   170   N.   Y.    13 651 

Michael  v.   Prussian    National   Ins.   Co.,    171    N.   Y.    25 

; 283,   610,    629,    630,   747,   749,   813 

Michel,  State  ex  rel.  State  Pharmaceutical  Ass'n.  v.,   52   La.  Ann.   926 178 

Michigan  Fire  &  Marine  Ins.  Co.,  Michigan  Pipe  Co.  v.,  20  L.  R.  A.  277 197 

Michigan  Pipe  Co.  v.  Michigan  Fire  &  Marii.e  Ins.  Co.,  20  L,  R.  A.  277 197 

Mickey  v.  Burlington  Ins.  Co.,   35  Iowa  174 253 

Middleport  v.  Aetna  Life  Ins.   Co.,   124   U.   S.   534 617 

Middlesex  Ins.  Co.,  Boynton  v.,   4  Mete.   212 177 

Miles,  Kilgour  v.,   6   Gill  &  J.   268 177 

Milfdrd  Savings  Bank  v.  Branch,  51  Kan.  App.  246 227 

Millandon  v.  New  Orleans  Ins.  Co.,  4  La.  Ann.  15 258 

Miller  v.  London  &  Lancaster  Ins.  Co.,  41  111.  App.   395 267 

Mills   v.   Phoenix   Ins.    Co.,    77    111.    App.    546 244 

Miltenberger  v.    Beacon,    9    Pa.    State   198 194 

Milwaukee  Mechanics  Ins.  Co.,  Kerr  v.,  117  Fed.  442 197 

Milwaukee  Mechanics  Ins.  Co.  v.  Pool,  91  Wise.  530 647 

Mingus  V.   Britchet,   14  N.   C.   78 177 

Minneapolis,  etc.  R.  R.  Co.  v.  Southerd,   60  Minn.   382 624 

Minneapolis  Threshing  Machine  Co.  v.  T.  &  K.  Hardware  C6.,  95  Pac.  427.  . .    493 

Minor  v.    McDonald,   140    S.   W.    401 178 

Minsker  Realty  Co.,  American  Fire  Ins.  Co.  v.,  83  Misc.   (N.  Y.)  1 187 

Mitchell  v.   Edie,   1   Term   Rep.    608 241 

Mitchell  V.  Potomac   Ins.   Co.,   183   U.    S.   42 266 

Mitchell   V.    St.    Paul    German   Ins.   Co.,    92    Mich.    594 92.   815 

Mobile  &  Montgomery  Railway  Co.  v.  Jurey,  111   S.  E.    584 623 

Mohlman,  Western  Assurance  Co.  v.,  83  Fed.   811 164.   165 

Monarch  Ins.    Co.,   Kimball  v.,   70   Iowa   513 182 

Monmouth  Mutual  Fire  Ins.  Co.  v.  Campbell,   59  Maine  430 251 

Montauk  Ins.  Co.  v.   Thompson,  43  Hun.   218 604.   633 

Monteleone  v.  Royal  Ins.  Co.,  47  La.  Ann.   1563 166,  169,   271,   604 

Montreal  Ins.  Co.  v.  Thompson,   6   U.  C.  Q.   B.   319 245.   248 

Moore  v.  Hanover  Fire  Ins.  Co.,  141  N.  Y.   219 214,  634 

Moore   v.   Johnson,    33    Kan.   90 620 

Moore  v.  Love,  57  Miss.  765 494 

Moors,  Siter  v.   13   Pa.  State  220 725 

More  V.  N.  Y,  Bowery  Fire  Ins.   Co..  130  N.  Y.   537 320 

Morrell  v.   Ins.   Co.,   33   N.  Y.    429 331 

Morris  McGraw  Woodenware  Co.  v.   German  Fire  Ins.  Co.,  126   La.   32,   38 

L.   R.    A.    (N.    S.)    614 186 

Moving  Picture  Co.  v.  Scottish  Union  &  National  Ins.  Co.,  94  Atl.  642 279 

Mowry   v.    Todd,   12    Mass.    281 184 

Moyer  v.  Ins.   Co.,  176   Pa.   State   579 323 

Mueller  v.  San  Francisco  Ins.  Co.,  187   Pa.   309 180 

Mueller  v.   Southside  Fire  Ins.  Co.   87   Pa.   State   403 181 

842 


Index  to  Cases 

Muir  V.  Berkshire.   52  Ind.  149 618 

Munger  Improved   Cotton  Machine   Co.,   Phoenix  Assurance   Co.   v.,   92   Tex. 

297    171 

Munich  Assurance  Co.  v.   Dodwell  &  Co.,   128  Fed.   410 181 

Murch,   Gould  v.,   79   Maine   288 804 

Murdock  v.  Chenango  County  Mutual  Ins.  Co.,  2  N.   Y.  210....^ 286 

Murphy   v.    Insurance    Co.,    61    Mo.    App.    323 .' 32.t.   330 

Mutual  Assurance  Society  v.  Scottish  Union  &  National  Ins.  Co.,  84  Va.ll6.  .    187 

Mutual  Fire  Ins.   Co.  v.   Sims,   101   Wis.    586 635 

Mutual  Fire  Ins.  Co.,  Wilson  v.,  174  Pa.   State  554 183 

Mutual  Life  Ins.  Co.  v.  Magner,  17  App.  Div.  13,  162   N.  Y.   657 331 

Mullen  V.  Dorchester  Mutual  Fire  Ins.   Co.,  121  Mass.  171 174 

Nabors  v.  Commercial  Union  Assurance  Co.,  125  La.  378 197 

National  Conduit  &  Cable  Co.  v.  Commercial  Union  Assurance  Co.,  135  App. 

Div.   130.   203   N.  Y.   580 196 

National  Filtering  Oil  Co.  v.  Citizens  Ins.  Co.,  106  N.  Y.  535 142 

National  Life  Ins.  Co..  New  Hampshire  Ins.  Co.  v.,  112  Fed.  199 63  4 

National  Union  Fire  Ins.  Co.  v.  Baltimore  Asbestos  Co.,  122  Md.  121...    185.   189 

National   Wall   Paper   Co.   v.   Ins.   Co.,   175    N.    Y.    226 318 

Neilson,  Bainbridge  v.,  10  East  329 241 

Nelson,   Bound   Brook   Ins.   Co.  v.,    41   N,   J.   Eq.    485 605 

Nelson  v.   Traders  Fire  Ins.   Co.,  86   App.   Div.   66 165 

Nestler  v.  Germania  Fire  Ins.  Co.,   44  Misc.   97 647 

Newark  Fire  Ins.  Co.,  Young  v.,   59  Conn.   41 190 

New  Brunswick  Fire  Ins.  Co.,  Finlay  v.,  193  Fed.  195 196 

New   England   Box   Co.    v.   New   Y'^ork   Central   &   Hudson   R.    R.    C,    41    Ins. 

L.  J.   517    805 

New  Hampshire  Fire  Ins.  Co.,  Harum  Realty  Co.  v.,  80   Minn.   139 197 

New  Hampshire  Fire  Ins.  Co.,  Harum  Realty  Co.  v.,  Minn.   139 197 

New  Hampshire  Fire  Ins.  Co.,  Lee  v.,  70  S.  E.  819 196 

New  Hampshire  Fire  Ins.  Co.  v.  National  Life  Ins.  Co.,   112  Fed.  199 634 

New  Hampshire  Fire  Ins.  Co.,   Tisdell  v.,   155  N.  Y.   163 171 

New   Hampshire   Fire   Ins.   Co.,   Wilson  v.,   140   Mass.    210 197 

New  Holland  Turnpike  Co.,  Farmers  Ins.  Co.  v.,  122  Pa.  State  37 270 

New  Orleans  Ins.  Assn.,  East  v.,  76  Miss.  697 206 

New  Orleans  Ins.  Co.,  Kehler  v.,  23  Fed.  709 188 

New  Orleans  Ins.  Co..  Millandon  v.,  4  La.  Ann.  15 258 

New  York  Bowery  Fire  Ins.  Co.,  Kernochan  v.,  17  N.  Y.  428 283,   318 

New  York  Bowery  Fire  Ins.  Co.,   More  v.,  130  N.  Y.  537 320 

New  York   Central  &  Hudson  R.   R.   Co.,  New  England  Box   Co.  v.,   99    N. 

E.   140,   41   Ins.  L.   J.   517 805 

New  York  Central  &  Hudson  R.  R.  Co..  Ryan  v.,  35  N.  Y.  210 263 

New  York  Central  Ins.  Co..  Giffrey  v.,  100  N.  Y.  417 171 

New  York.  etc..  Ins.  Co.,  Schmidt  v.,  1  Gray  529 251 

New  York   Ins.   Co.,   Gracie  v.,   8  Johns  246 614 

New  Zealand  Ins.  Co.,  Atlas  Reduction  Co.  v.,  121  Fed.  929,  34  Ins.  L.  J.  805. .    208 

Niagara  Fire  Ins.  Co.,  Lipmann  v.,  121  N.  Y.  454 188,  189 

Niagara  Fire   Ins.   Co.,   Shearman   v.,    46   N.   Y.   526 182 

Niagara  Fire  Ins.  Co.,  Steen  v.,   89  N.  Y.   314 182 

Niagara  Ins.   Co.,   Cone  v.,  60   N,  Y.   619 634.  747 

Niagara  Ins.  Co.,  Des  Moines  Ice  Co.  v.,  99  Iowa  193,  68  N.  W.  600.. 253 

Niagara  Ins.  Co.  v.  Fidelity  Co.,   123  Pa.  State  516 624 

Niagara  Ins.  Co.  v.   Heflin,   22  Ky.   L.   R.   1212 270 

Niagara  Ins.  Co.,  Laurence  v.,  2  App.  Div.  267,  154  N.  Y.  652 329,  692 

Niagara  Ins.  Co.  McAllister  v.,  156  N.  Y.   80 , 328,   674,   679 

Niagara  Ins.   Co..  Texas  Moline  Plow  Co.  v.,   87   S.  W.   192 91 

Niblo   v.    Ins.    Co.,    1    Sandf.    551 271,  753 

Nichols  v.    Baxter,   5   R.   I.    491 226 

Nichols,  Home  Mutual  Ins.  Co.  v.,   72   S.  W.   440 182 

Nichols   v.    Prudential    Ins.    Co.,    170    Mo.   App.    437 647 

Nickerson   v.    Nickerson,    80    Maine    100 654 

Nicolet  v.  Ins.  Co.,  3  La.  366 282,   286 

Nitsch  v.  American  Central  Ins.  Co.,  152  N.  Y.  635 171 

Nordyke  &  Marmon  Co.   v.   Gery,   112   Ind.   535,    13  N.   E.   683 226 

Norris,  German  American  Ins.   Co  v..  100   Ky.   29 102 

North  American  Ins.  Co..  Lightbody  v.,   23  Wend.   18 642 

North   American   Ins.   Co.   v.    Throop,    22    Mich.   146 107 

North  British  &  Mercantile  Ins.  Co.,  Briggs  v..  53   N.  Y.   446 159,  164 

843 


The  Fire  Insurance  Contract 

North  British  &  Mercantile  Ins.   Co.,  Bullman  v.,   159   Mass.   119 182 

North  British  &  Mercantile  Ins.  Co.,  Johnson  v.,  66  Ohio  St.  6,  63  N.  E.  610,  197 
North  British  &  Mercantile  Ins.  Co.  v.  Liverpool  &  London  &  Globe  Ins.  Co., 

L.   R.   5   Ch.   Div.   569 615 

North   British  &  Mercaneile  Ins.    Co.  v.    Solomon,   N.   Y.   Ct.  of  App,   June 

1915 198 

North  British  &  Mercantile  Ins.  Co.,  Wheaton  v.,  76  Cal.   431 672 

North  British  Canadian  Investment  Co.,  Bull,  v.,  15  Ont.  421,  18  Can.  S,  R. 

697    225 

North  China  Ins.  Co.,  Williams  v.,  1  C.  P.  Div.  757 193 

Northern  Assurance  Co.,  Dibble  v.,  37  N.  W.  704,  70  Mich  1 197 

Northern  Assurance  Co.  v.  Grand  View  Building-  Association,  183  U.  S.  308..  656 
Northern  Assurance  Co.,  Standard   Leather  Co.  v.,  155    Fed.  689,  165  Fed.  602. .    190 

Northern  Assurance  Co.,  Western  Woolen  Mills  v.,  139  Fed.  637 254.   255 

Northern  Pine   Crating  Co.  v.   Liverpool  &  London  &  Globe   Ins.    Co.,   143 

Wise.    443    174,179 

North  River  Ins.   Co.,   Greengrass  v.,   139   N.   Y.   Supp,    937 317 

Northwestern   Ins.   Co.,  Townsend   v.,   18   N.   Y.   168 126 

Northwestern  InS.   Co.,  Wood  v.,   46   N.  Y.   421 635 

Northwestern  National  Ins.  Co.,  Heuer  v.,   144  111.   393 267 

Norton,   Ins.  Co.  v.,    96   U.   S.   234 673 

Norwich  Fire  Ins.  Co.  v.  Boomer,   52  111.   442 605 

Norwich  Union  Fire  Ins.  Co.  v.  Dalton,  175  S.  W.  459 186,   187,  194,  197 

Oakland  Home  Ins.  Co.  v.  Bank  of  Commerce,  47  Neb.  717 205 

Obeer  v.   Steer,  28   C.  C.  Rep.    (Ohio)    620 178 

Ocean  View  Pleasure  Pier  Co.,  Westchester  Fire  Ins.  Co.  v.,  106  Va.  633..    40,   80 

O'Connor  v.   Queen  Ins.   Co.,   140   Wise.    388 260 

Ogden  V.  East  River  Ins.  Co.,  50  N.  Y.  388,  2  Ins.  L.  J.  135 545.   546 

Ohio  Farmers  Ins.  Co.,  Erie  Brewing  Co.  v.,  89  N.  E.  1065,  39  Ins.  L.  J.  200.  212 

Oil  Co.  V.   Ins.   Co.,   106   N.  Y   535,    538 747.   751 

Omaha  Ins  Co.  v.  Duke,   43  Neb.   473 315 

O'Neil  V.  Franklin  Ins.  Co.,  159  App.  Div.  314,  216  N.  Y.  692.  .    225,   231,  198,  803 

Orient  Ins.  Co.  v.  Adams,  123  U.  S.   67 241 

Orient  Ins.  Co.,  Hathaway  v.,  134  N.  Y.  409 212.  214 

Orient  Ins.  Co.,  Leonard  v.,  30  Ins.  L.  J.   980 162 

Orient  Ins.   Co.,  McCormIck  v.,   86   Cal.   260 672 

Orient  Ins.  Co.  v.  Peiser,  91  111.  App.  278 102 

Orient  Ins.  Co.,  Tinscott  v.,   88   Me.  497 112 

Orient  Ins.  Co.,  Williamson  v.,  100  Ga.  791,  98   Ga.   464 804 

Osborne  v.  Phoenix  Ins.  Co.,  S.  C.  Utah 85 

Oshkosh  Matchworks  v.  Manchester  Fire  Assurance  Co.,  92  Wise,  510 246 

Oswego  Fire  Relief  Association,  Draper  v„   190   N.  Y.   12 313 

Otsego  County  Fire  Ins.  Co.,  Parker  v.,  47  App.  Div.  204,  168  N.  Y.  655 100 

Owen  V.  Metropolitan  Life  Ins.   Co.,   74  N.  J.  L.   770 40,   81 

Packham  v.  German  Fire  Ins.  Co.,   91  Md.  515 604.   627 

Packham,  Seva  Ins.  Co.  v.,  92  Md.   464 636 

Page  Brothers  v.  Sun  Insurance  Office,  74  Fed.   203 540 

Paige,  Drake  v.,  52  Hun.   302 620 

Palatine  Insurance  Co.  v.  Dickerson,  116   Ga.   794 804 

Palatine  Insurance  Co.,  Martin  v.,  106   Tenn.  323 195 

Palmer  v.  McFadden,  49  Ins.  L.  J.  570,  100  Atl.  225 225 

Paltrovich  v.  Ins.   Co.,   68  Hun.   304,   148  N.   Y.   73 321,   323,   324 

Parker  v.  Otsego  County  Fire  Ins.  Co.,  47  App.  Div.  204,  168  N.  Y.   655 100 

Parkes,   Continental  Ins.  Co.  v.,  142  Ala.    650 180 

Parks,  Cressey  v.,   75  Maine  387,   46   Am.   Rep.   406 178 

Parsons,    Fowler   v.,    143    Mass.    401 618 

Parsons,  Phoenix  Insurance  Co.  v.,  129  N.  Y.  86 609 

Patron's  Androscoggin  Fire  Ins.  Co.,  Carleton  v.,  109   Maine   79 106 

Patron's  Home  Protection  Co.,  Price  v.,  70   Mo.  App.   236 244 

Paul,  Armenia  Ins.  Co.  v.,  91  Pa.  State  520 101 

Payton  v.   State,   35  Tex.   Crim.   508 178 

Peabody   v.  Association,    89   Maine   96 654 

Peabody   v.    Satterlee,    166   N.   Y.    174 319 

Pearlestone  v.  Ins.  Co.,  70  S.  C.   75 326 

Peiser,  Orient  Ins.  Co.  v.,  91  111.  App.  278 102 

Pekin  Plow  Co.,   Ferguson  v.,   141   Mo.   161 191 

Pelzer  v.  St.  Paul  Fire  &  Marine  Ins.  Co..  19  Ins.  L.  J.  372,  41  Fed.  271.. .  .  811 
Pelzer  v.  Sun  Ins.  Office,  21  Ins.  L.  J.  952,  36  S.  C.  213 103,   609.  811 

844 


Index  to  Cases 

Pennsylvania  Co.  v.  Aachen  &  Munich  Fire  Ins,  Co.,  259  Fed.  189 211 

Pennsylvania  Co.  v.  Philadelphia  Contributionship,  201  Pa.  497 271 

Pennsylvania  Co.,  Phenix  Ins.  Co.  v.,  134  Ind.  215,  33  N.  E.   970 620 

Pennsylvania   Fire   Ins.   Co.,   American   Glove   Co.   v.,    15    Cal.    App.   77,   113 

Pac.    688    174,176 

Pennsylvania  Fire  Ins.  Co.,  Fritz  v.,  88  Atl.  1065,  50  L.  R.  A.  (N.  S.)  35 174 

Pennsylvania  Fire  Ins.  Co.,  Walthear  v.,  2  App.  Div.   328 171 

Pennsylvania  Glass  Co.,  Farmers  L.  &  T.  Co.  v.,  186  U.  S.  434 223 

Pennsylvania  Plate  Glass  Co.  v.  Spring  Garden  Ins.  Co.,  189  Pa.  255 175 

Pennsylvania   R.    R.    Co.,   Hart  v.,    112    U.   S.    331 623 

Pentz  et  al.  v.  Receivers  of  the  Aetna  Ins.  Co.,  3  Edw.  Ch.  341 625 

People  V.   Markheim,   162   App.  Div.   859 306 

Peoples  Ins.  Co.,  Hough,  Clendenning  &  Co.  v.,  36  Md.  398 489,  721 

Peoples   Ins.    Co.,    Williams   v.,    57   N.    Y.    274 126 

Peoples    Mutual.   Hall   v.,    72    Mass.    185 101 

Peoples  Mutual  Fire  Ins.  Co.,  McGowan  v.,  54  Vt.  211 115 

Peoria  &   Pekin   Union   Ry.   Co.,   Home   Ins.    Co.  v.,   2&   Ins.   L.   J.    289,   178 

111.    64    5 798 

Perry  v.  Caledonian  Ins.  Co.,  103  App.  Div.  113 320 

Perry  v.  Mechanics  Ins.   Co.,   11  Fed,   485 253 

Peterson  v.  Hartford  Fire  Ins.  Co.,   87   111.  App.   567,   187   111.  395 180 

Pfister,  Adm'r.  v.  G.erwig,   122   Ind.   567 693 

Phenix  Ins.  Co.  of  JBrooklyn,  Farmers  Mutual  Ins.   Co.  v.,  90   N.  W.   1000, 

65  Neb  14,  95  N.  W.  3 172 

Phenix  Ins.   Co.,   Bacot  v.,   50   So.   Rep.    729 200 

Phenix   Ins.   Co.,  Hustace  v.,   175   N.    Y.    292 160.  268 

Phenix  Ins.  Co.,  Osborne  v.,  S.  C.  Utah 85 

Phenix  Ins.  Co.  v.  Penn.  Co.,  134  Ind.  215,  33  N.  E.  970 620 

Phenix   Ins.   Co.   v.   Stocks,    149    111.    319 109 

Phenix  Ins.  Co..  Wheeler  v.,  92  N.  E.   452,  41  Ins.  L.  J.  247 264 

Philadelphia  Contributionship,   Penn.  Co.   v.,   201   Pa.   497 271 

Philadelphia  Fire  Ins.  Co.,  Stenzel  v 87 

Philadelphia  Ins.  Co.,   Gibb,   v.,   59   Minn.    267 635 

Philadelphia  Linea  Co.  v.  Manhattan  Fire  Ins.  Co.,  8  Pa.  Dist.  Ct.  261 171 

Philadelphia  Underwriters,  Bigelow  v.,  33  Ins.  L..  J.  948 661 

Phillips  V.  Home  Ins.   Co..   128  App.   Div.   528 92.  745 

Phillips  v.  Merrimack  Mutual  Fire  Ins.  Co.,  Tenn.  Cush.  350 184 

Phoenix  Assurance   Co.  v.   Munger  Improved  Cotton  Machine  Co..   92   Tex. 

297    171 

Phoenix  Assurance  Co.  v.  Spooner,  2  K.   B.   753 '. 609.  627 

^Phoenix  Insurance  Co.  v.  A.  B.  Banks  et  al.,  169   S.  W.  233 186 

Phoenix  Insurance  Co.,  Cannon  v.,  110   Ga.   562 258 

Phoenix  Insurance   Co.,   DollofC  v.,   82    Maine   266 114 

.Phoenix  Insurance  Co.  v.  Erie  Transportation  Co.,  117  U.  S.  312 

609,    622,   623.  806 

Phoenix  Ins.  Co.  v.  Farmers  Mutual  Ins.  Co.  v.,  90  N.  W.  1000.  65  Neb.  14,  95 

N.    W.    3 172 

Phoenix  Insurance  Co.,   Farnum  v.,   83   Cal.    246 174,  185 

Phoenix   Insurance   Co.,   Fayerweather   v.,    118    N.   Y.    324 104,   609,  624 

1  hoenix  Insurance  Co.  v.   First  National  Bank,   85  Va.   767 611 

Phoenix  Insurance  Co.  v.   Floyd,  19   Hun.   287,   83   N.  Y.   613 635 

Phoenix  Insurance  Co.  v.  Frissell,   142   N.   Y.    513 186 

Phoenix   Insurance  Co.   v.  Hancock,   123   Cal.   222 194 

Phoenix  Ins.  Co.,  McNally  v.,  137  N.  Y.  389 329 

Phoenix   Ins.   Co.  v.   Mills,   77   111.   App.    546 244 

Phoenix  Ins.  Co.  v.  Parsons.  129  N.  Y.  86 609 

Phoenix  Ins.  Co.  v.  Pratt,   36  Minn.   409.   31  N.  W.   454 186 

Phoenix  Ins.  Co.,  Schwarzschild  &  Sulzberger  v.,  124  Fed.  52,  145  Fed.  653..  38 

Phoenix  Ins.  Co.,  Union  Institution  for  Savings  v.,  37  Ins.  L.  J.  43 215 

Phoenix  Ins.   Co.,   Walker   v.,   62    Mo.   App.    209 258 

Pierce,  Porter  v..  120   N.  Y.  217 177 

Pioneer  Mutual  Ins.   Assn.,  Down's  Farmers'   Warehouse  Assn.  v.,   35  Ins. 

L.  J.   273    812 

Pioneer  Savings  &  Loan  Co.  v.  St  Paul  Fire  &  Marine  Ins.  Co..  26  Ins.  L. 

J.  826,   68  Minn.  170 216 

Pitney  v.  Glens  Falls  Ins.  Co.,  65  N.  Y.  6 214 

Planters  Mutual  Ins.  Assn.  v.  Hamilton.  77  Ark.  27 316 

Piatt  V.    Richmond,  etc.   Ry.    Co.,   108   N.   Y.   358 609,  623 

845 


The  Fire  Insurance  Contract 

Plinsky  v.  Germania  Ins.  Co.,   32  Fed.   47 253 

Pool  V.  Milwaukee  Mechanics  Ins.  Co.,  91  WJsc.  530 647 

Porter  v.  Ins.  Co.,  164  N.  Y.  504 327 

Porter  v.   Pierce  Co.,  120  N.  Y.  217 177 

Portsmouth  Ins.  Co.  v.   Reynolds,  9   Ins.   L.  J.   60  6 155 

Post   V.    Garrow,    18    Neb.    682 177 

Potomac   Ins.   Co.   v.   Atwood,    118    111.    App.    349 175 

Potomac  Ins.  Co.,  Mitchell  v.,  183  U.  S.  42 266 

Potter,  Rankin  v..  L.  R.   6  H.  L.   83,  125 240,   241,  242 

Pratt,   Phoenix   Ins.  Co.  v.,   36   Minn.   409,   31   N.  W.   454 186 

Preston,  Castellain  v.,  L.  R.  11  Q.  B.  D.  380    (1883) 

240,    242,    282,    286,    604,    605,    609,  627 

Price  V.  Patron's  Home  Protection  Co.,   70   Mo.  App.  236 244 

Protection  Ins.   Co.   v.  Harmer,   2    Ohio   State   452 99 

Protection   Ins.   Co.,   Webb  v.,   14   Mo.   3 248,  270 

Providence   County  Bank  v.   Benson,    24   Pick.    204 227 

Providence   Ins.   Co.,   Wagner   v.,    150   U.    S.    99 609 

Providence-Washington  Ins.  Co.,  Carpenter  v.,  16  Peters  495 278,  286,  604 

Providence-Washington   Ins.   Co.,   McCluskey   v.,   126    Mass.   306 183 

Prudential  Ins.   Co.,  Bohles  v.,   86   Atl.   438 178 

Prudential   Ins.    Co.,   Nichols   v.,    170    Mo.    App.    437 647 

Prussian  National  Ins.  Co.,  Michael  v.,  171  N.  Y.   25 

283,   610,    629.    630,    747,    749,  813 

Pullman  Car  Co.,  Chicago  Ry.  Co.  v.,  139    U.S.     79 282,   286,   604,   616,   626,  627 

Queen  City  Fire   Ins.   Co.  v.   First  National  Bank,  120   N.   W.   545 186 

Queen   Ins.    Co.,    Devlin  v.,    46    U.   C.   Q.    B.    611 244,  246 

Queen  Ins,  Co.,  Gifford  v.,   1  Hanney    (N.   B.)    432 19,3 

Queen   Ins.    Co.,   Loewenstein   v.,    39    Ins.    L.   J.    877 225,  602 

Queen   Ins.   Co.,   O'Connor  v.,   140   Wise.    388 260 

Quong  Tue  Sing  v.  Anglo-Nevada  Assuiance  Corporation,  10  L.  R.  A.  144....  174 

Race.   Traders   Ins.    Co.  v.,   142   111.   388,    31   N.   E.    392 225 

Rademacher  v.   Ins.   Co.,   75   Hun.   83 - 321 

Ragley  Lumber  Co.  v.  Ins.  Co.  of  North  America,  94   S.  W.   185 172 

Railroad    Companies,    Hall    v.,    13    Wall    367 603,  604 

Railroad  Corporation,  Hart  v.,  13  Mete.   100,   46   Am.  Dec.   719 619 

Railway   Co.,  Keter  v.,   86    S.  C.    346 178 

Railway  Co.,  Webb  v.,  49  N.  Y.  420 263 

Ralli  v.   Troop,   157   U.   S.   386 270 

Ralston  V.  Royal  Ins.  Co.,   140   Pac.   552 174 

Rankin   v.    Potter,    L.    R.    6    H.   L.    83,    125 240,   241,  242 

Rann   et  al.   v.   Home  Ins.   Co.,   15   Ins.   L.  J 286 

Rausch  v.  Ward,   44   Pa.    389 158 

Rawle  v.  American  Central  Ins.  Co..  94  S.  C.  299,  77   S.   E.   1013 180,  181 

Raymond  v.    Farmers   Ins.   Co.,   114   Mich.    386 244 

Receiver  of  the  Aetna  Fire  Ins.  Co.,  Pentz  et  al.  v.,  3  Edw.  Ch.  341 625 

Reed   v.   Washington   Ins.    Co.,    138    Mass.    572 177 

Reed  v.  Windsor  Co.,  Mutual  Fire  Ins.  Co.,  54  Vt.  413 183 

Reid  V.   McCrum,   91   N.   Y.   412 217,  223 

Reliance  Marine  Ins.  Co.,  Washburn  &  Moen  Mfg.  Co.  v.,  179  U.  S.  1 241 

Renfrew,  Halsell  v.,  112  U.  S.   287 292,  294 

Republic    Fire   Ins.    Co.,    White    v.,    57    Maine    91 245,   247,  248 

Reserve  Fund  Assn.,  Stuart  v.,  78  Hun.  191 331 

Reynolds,   Portsmouth   Ins.   Co.  v.,  9  Ins.  L.  J.   606 155 

Rice,    Herkimer   v.,    27    N.    Y.    163 141 

Richardson,   Grand   Trunk    R.    R.    Co.   v.,   91    U.    S.    454 156,  157 

Richmond,   etc.    Ry.    Co.,    Piatt  v.,    108   N.   Y.    358 609,  623 

Riggs    v.    Commercial   Mutual    Ins.   Co.,    125    N.    Y.    7 142,  747 

Robberos,  Shaw  v.,  6  Ad.  &  El.  75 125 

Robbins  &  Myers,   Globe  &  Rutgers  Fire  Ins.   Co.  v.,  43  Misc.  65,  109  App. 

Div.     530     646 

Robertson,   Ins.    Co.   v.,    106    Tenn.    557 328 

Robinson,  Hooper  v.,  98  U.  S.  528 193 

Robin.son  v.  Ins.  Co.,  38  Atl.  320 654 

Rochester  German  Ins.   Co.,   Mack  v.,  106   N.  Y.   560 127 

Rochester  German  Ins.  Co.,     Will  &  Baumer  Co.  v.,  140  App.  Div.   691 314 

Rockford    Ins.   Co.,   Kooistra   v.,    122    Mich.    62 191 

Rockingham  Fire  Mutual  Ins.  Co.,  Janvrin  v.,   70  N.  H.  35 128 

Rodocanachi,   Burnand  v.,    7   App.   Cas.   333 609 

846 


Index  to  Cases 

Rohrbach    v.    Germanla   Fire    Ins.    Co.,    62    N.    T.    47 142,  747 

Roost,  German  Fire  Ins.  Co.  v.,   26   Ins.  L.  J,  699 267 

Rosen  v.   German  Alliance  Ins.  Co.,  106  Maine  229,  76  Atl.  688 178,  179 

Rosenthal,   Fire  Assn.,  v.,   108   Pa.   State   474 166^  169 

Rothschild  v.  American  Central  Ins.  Co.,   74   Mo.   417 187^  188 

Roumayer  v.  Ins.  Co.,  13  N.  J.  L.  110 314 

Roux  V.    Salvador,   3    Bing.   N.   C.   266 241 

Rowley  V.   Towsley,   53    Mich.    329 620 

Royal  Ins.  Co.,  Bragg  v..   98   Atl.   632 ]]  179 

Royal  Ins.  Co.,   Cuesta  v.,    98    Ga.    72 269 

Royal  Ins.  Co.,  Excelsior  Ins.  Co.  v.,  55  N.  Y.  343 195,  604,   624,  633 

Royal   Ins.    Co.,   Heller   v.,    177    Pa.    State    202 629*,  752 

Royal  Ins.  Co.,  Kline  Bros,  v.,  192  Fed.   378 .'  194 

Royal   Ins.    Co.,   Latten   v.,    45    N.   J.    L.    453 180 

Royal  Ins.  Co.,  Monteleone  v.,  47  La.  Ann.  1563 ;  .    271,  604 

Royal   Ins.   Co.,   Ralston  v.,    140    Pac.    552 .'  174 

Royal  Ins.  Co.,  Sloat  v..  49  Pa.  State  14 ,[[][  547 

Royal  Ins.  Co.,  Standard  Sewing  Machine  Co.  v.,  201  Pa.  State  645 90,  815 

Ruggles  V.  American   Central  Ins.   Co.,   114  N.  Y.  415 .'  642 

Russell  V.  German  Fire  Ins,  Co.,   Ill  N.  W.  400 268 

Ryan  v.  New  York  Central  &  Hudson  R.  R.  R.  Co.,  35  N.  Y.  210 263 

St.  John  V.  American  Mutual  Ins.  Co.,  11  N.  Y.  516 159 

St.  Louis  A.  &  P.  R.  Co.  v.  Fire  Association,  28  L.  R.  A.  83    (Ark) 13,  620 

St.   Louis  &  I.   M.   &   S.    Ry.   Co  v.   Commercial   Union   Ins.    Co.,   139    U.    s! 

223,    235    603.  618 

St.  Paul,  Fire  &  Marine  Ins.  Co.,  Bird  v.,  1918  Ins.  L.  J.  52,  120  N.  E.  86 266 

St.  Paul,  Fire  &  Marine  Ins.  Co.,  MacDowell  v.,  207  N.  Y.  472,  482 

207,     214,  232 

St.  Paul,  Fire  &  Marine  Ins.  Co.,  Pelzer  v.,  19  Ins.  L.  J.  372,  41  Fed.  271..*.  .  811 
St.  Paul,  Fire  &  Marine  Ins,  Co.,  Pioneer  Savings  &  Loan  Co.  v.,  26  Ins.  L. 

J.    826,    68    Minn.    170 216 

St.  Paul,  Fire  &  Marine  Ins.  Co.  v.  Upton,  2  N.  D.  229,  53  Pac.  472 222 

St.  Paul  German  Ins.  Co.,  Mitchell  v.,  92  Mich,  594,  21  Ins.  L,  J,  1003.  .  .    92,  815 

Salomon  v.  Ins.   Co.,   160   N.   Y.   595 315 

Salonian  v.   Ins.   Co.,   215   N.  Y,   241 239 

Salter  v.   Burt,   20  Wend,   205 ", 177 

Salvador,  Roux  v.,   3   Bing.  N.   C.   266 241 

Samsberry,  Mason  v.,  3  Dougl.  61 154 

Samuels  v.  Continental  Ins.  Co.,  2  Pa.  Dist.  Court  397 257 

San  Francisco  Ins.  Co.,   Mueller  v.,  187  Pa.   309 180 

Saratoga  County  Mutual  Fire  Ins.  Co.,  Burritt  v.,   5   Hill  188 96 

Saratoga  Ins.  Co.,  Slocum  v.,  140  App.  Div,  867 319 

Satterlee,  Peabody  v„  166  N.  Y.   174 '. 319 

Sauer,   Cassidy  v.,   114    App.    Div.    673 69.5 

Saugeen  Mutual  Fire  Ins.  Co.,  Anderson  v.,   18  Ont.  Rep.   355 225 

Scheel  v.  German  American  Ins,  Co.,   228   Pa.  44 174,  196 

Schellenger,  Fire  Association  of  Philadelphia  v.,   95  Atl.  Rep.   615 637 

Schmaelzle  v.  London  &  Lancashire  Fire  Ins.  Co.,  75  Conn.  397 548,  563 

Schmidt  v.  N.  Y,  etc.  Ins.  Co.,  1  Gray  529 251 

Schreiner,   Adamson  v.,  N.  Y.  L,   J.   Dec.   15 : 641 

Schwarzschild  &  Sulzberger  v.  Phoenix  Ins.  Co.,  124  Fed.  52,  145  Fed.  653.  . 

38,  171 

Scott  V.   Shepherd,   2  Wm.   Blackstone   893 262 

Scott,   Snell  v.,   2  Mich.  N.   P.  108 178 

Scottish  Fire  Ins.  Co.,  Joyner  &  Long  v.,  71  S.  E.  434,  155  N.  C.  255 195 

Scottish  Union  &  National  Ins.  Co.,  Farmers  Feed  Co.  v.,  173  N.  Y.  241 .... 

■ 209,    540,  556 

Scottish  Union  &  National  Ins.   Co.,  Hagan  &  Martin  v„   32   Ins.  L,   J.    47, 

186  U.  S.  423 181,  797 

Scottish  Union  &  National  Ins.  Co.,  Le  Gendre  v.,  95  App.  Div.  562 lOi) 

Scottish  Union  &  National  Ins.  Co.,  Moving  Picture  Co.  v.,  94  Atl.  642 279 

Scottish  Union  &  National  Ins.  Co.,  Mutual  Assurance  Society  v.,  84  Vq.  116.  .  187 

Scottish  Union  &  National  Ins,  Co,,  Von  Wein  v.,  20  J.  &  S.  (N.  Y.)  490 .  .    188,  189 

Scottish  Union  &  National  Ins.  Co.  v.  Weeks  Drug  Co.,  118  S.  W.  1087 131 

Scribner,    Howard   v.,    5    Hill    298 .,  546 

Scripture  v.  Lowell  Mutual  Fire  Ins.  Co.,  10   Cush.   356 162,  261 

Seaman  v.   Fonereau,   2  Strange  1183 40,  77 

Sears,    Franklin   Ins.    Co.   v.    21    Fed.   290 186 

847 


The  Fire  Insurance  Contract 

Security   Ins.   Co.,   Attleborough   Savings  Bank   v.,    168    Mass.    147 220 

Security  Ins.  Co.,   Benedict  v.,  147   App.   Div.    810 187 

Security  Ins.  Co.,  Hodge  v.,  33  Hun.  583 Igg 

Security   Ins.    Co.,    Thornton   v.,    117    Fed.    773 243,  245,  246,  252 

Seibel  v.  Ins.   Co.,  46  Atl.  851 '.....'  325 

Selvage,  Lake  Geneva  Ice  Co.   v.,  36   Misc.   212 319 

Senor  et  al.  v.  Western  Millers  Mutual  Fire  Ins.  Co.,  33  Ins.  L.  J.   455,   181 

Mo.    104    ,' 206 

Sewell  V.  Home  Ins.  Co.,  113  App.   Div  728,   afC'd  189   N.  T.   526 803 

Sewell  V.  Underbill,  127  App  Div  92,  aff'd  197  N.  T.  168 .',,'.  803 

Shaw  V.  Robberos,  6  A.  &  E.  95 *  '  '  ]  125 

Shearman  v.  Niagara  Fire  Ins.  Co.,  46  N.   Y.   526 '....  182 

Shepherd,    Scott   v.,    2    Wm.    Blackstone    893 262 

Sherbock,  Globe  Ins.  Co.  v.,  25  Ohio  State   50,  68 622 

Simmons,  Aetna  Ins.   Co.   v.,    49   Neb.    811 '  325 

Simon,   Tannenbaum  v.,   40   Misc.   175,    84   App.   Div.    642 747,  749 

Simpson,    Ins.   Co.    v.,    43    111.   App.    98 ....,.'  325 

Sims  V.  Assurance  Co.,  129   Fed.    804 318*  325 

Sims  V.  Mutual  Fire  Ins.  Co.,  101  Wise.  586 '  635 

Siter  V.    Moors,    13    Pa.    State    220 725 

Slater   Mutual  Fire  Ins.  Co.,  Emmott  v.,   7   R.   I.   562 176 

Sloat  V.  Royal  Ins.  Co.,  49  Pa.  State  14 .........!  547 

Slocum    V.    Saratoga    Ins.    Co.,    140    App.    Div.    867 319 

Smith,   Bini   v.,    36    App.    Div.    463 646 

Smith  v.  Glens  Falls  Ins.  Co.,  62  N.  Y.  85 33I 

Smith  V.   Herd,   60    S.   W.   841 '.'.'.'.'.'.'.'  322 

Smith  V.   Home   Ins.  Co.,   47   Hun.   30 '/  jOl 

Smith,  Howard  v.,  1  Barn  &  Aid.  528 '.'.*  [ "  *  179 

Smith  Lumber  Co.  v.  Colonial  Assurance  Co.,  172   App.   Div.  149...  185 

Snell  V.    Scott,   2  Mich.   N.   P.    108 178 

Snow  V.   Carr,    61   Ala.   363 182,  725 

Snyder  v.  Commercial  Union  Assurance  Co.,  67  N.  J.  L.  7 187,  195 

Solomon   v.   North   British   &   Mercantile  Fire   Ins.   Co.,   N.   Y.    Ct.    of  App. 

June,    1915    198 

Sothely,   Dobson  v.,  M.  &  M.   90 .'.'.*'  124 

South  Carolina  Ry.  Co.,  Inman  v.,  129  U.   S.   128 624 

Southerd  v.  Minn.,  etc.  Ry.  Co.,   60   Minn.  382 624 

Southern  Cold  Storage  Co.   v.  Dechman,  73  S.  W.   545 191,   725,  728 

Southern  Pacific  Co.,  D'Utassy  v.,    (N.  Y. ) 473 

Southern  States  Fire  Ins.  Co.  v.  Vann,  68  So.  747 *...'.*.*.  647 

Southside  Fire  Ins.  Co.,  Mueller  v.,  87  Pa.  State  403 181 

Spare  v.  Home  Mutual  Ins.  Co.,  15  Fed.  707 [  [[  142 

Spencer,   Thomas   v.,    (1899)    Atl.    275 ''"  641 

Spooner,  Phoenix  Assn.  Co.  v.,  2  K.  B.  753 609,  627 

Springfield  Fire  &  Marine  Ins.  Co.  v.  Allen,   43  N.  Y.  389 .'  634 

Springfield  Fire  &  Marine  Ins.   Co.,  McCormick  v.,   66   Cal.   681 672 

Spring  Garden  Ins.  Co.,  Penn.  Plate  Glass  Co.  v.,  189  Pa.  255 175 

Spring  Garden  Ins.  Co.,  Wood  v.,  215  Fed.   355 103 

Standard  Ins.  Co.,  Gardner  v.,  58  Mo.  App.  611 I73,  185 

Standard   Leather   Co.  v.   Northern  Assurance  Co.,  155   Fed.    689,   165   Fed. 

602     190 

Standard  Oil  Co.   v.  Triumph  Ins.   Co.,   64   N.   Y.   65 187 

Standard  Sewing  Machine  Co.  v.  Royal  Ins.  Co.,  201  Pa.  State  645 90 

Stanley  v.  Western  Ins.  Co.,  L.  R.   3  Exch.   71,   74 245,  248,  267 

Staples,    Stillwell    v.,    19    N.    Y.    401 718,   722,  724 

State,   Adams  v.,   35   Tex.   Crim.   285 178 

State   v.    Green,    66    Mo.    631 178 

State,  Ins.  Co.,  Ellis  v.,  68  Pa.  578 183 

State  Ins.  Co.  v.  Hale,   95   N.  W.   473 I73 

State  Ins.  Co.  v.  Taylor,  14  Col.  449 128 

State  Mutual  Fire  Ins.  Co.,  King  v.,  61  Mass.    (7  Cush.)    1 605,  631 

State,  Payton  v.,  35   Tex.   Crim.   508 178 

State  Pharmaceutical  Assn.  v.  Michel,  52  La.  Ann.  926 178 

Stearns  Lumber  Co.,  American  Central  Ins.  Co.  v.,  41  Ins.  L.  J.  125 157,  159 

Stebbins  v.    Lancashire    Ins.    Co.,    60   N.   H.    65 194,  197 

Steen  v.  Niagara  Fire  Ins.   Co.,   89   N.   Y.   314 182 

Steer,   Obeer  v.,   28   Cir.   Ct.   Rep.    (Ohio)    620 178 

Steinberg  v.  Boston  Ins.  Co.,  144  App.  Div.   110 331 

848 


Index  to  Cases 

Stenzel   v.   Philadelphia   Fire 87 

Stephenson  v.  Agricultural  Ins.   Co.,  116  Wis.   277,   93  N.  W.   19 540 

Sternaman  v.  Metropolitan  Life  Ins.   Co.,   170   N.  Y.   13 651 

Stevens    v.    Ins.    Co.,    32    New    Brunswick    394 323 

Stevenson   v.    Sun    Ins.    Office,    119    Pac.    529 17'2,  185 

Stewart,  Avery  v.,  2  Conn.   69 177 

Stillwell   V.    Staples,    19    N.    Y.    401 192,   718.   722,  724 

Stinson,   Ins.   Co.  v.,   103   U.   S.    25 142 

Stocks,  Phenix  Ins.  Co.  v.,  149   111.  319 109 

Stone  v.  Franklin  Fire  Ins.  Co.,  105  N.  Y.  543 187 

Storrow,  Atlantic  Ins.   Co.  v.,  5   Paige   285 615 

Stoughton  V.   Gas.    Co.,   165   Pa.    State    428 603 

Striker  v.  Vanderbilt,  27  N.  J.  L.   68 177 

Strong  V.  Sun  Mutual  Ins.  Co.,  31  N.  Y.  103 159 

Stuart  V.   Reserve  Fund  Association,   78  Hun.   191 331 

Stupart,    Bean   v.,    1    Dougl.    11 40,   81 

Suffolk   Fire   Ins.   Co.   v.    Boyden,    91    Mass.    123 605,  634 

Sugar   Refining   Co.    v.    Ins.    Co.,    175    U.    S.    624 746 

Sundry  Ins.  Cos.,  Virginia-  Carolina  Chemical  Co.  v.,  108  Fed.  451 182 

Sun  Fire  Office,  Karelsen  v.,  122  N.  Y.  545 187 

Sun  Fire  Oifice,  Pelzer  v„  36   S.  C.  213,   21  Ins.  L.  J.  952 103,  609,  811 

Sun  Fire  Office,  Wright  v.,  1  Ad.  &  El.  621,  3  N.  &  M.   819 754 

Sun  Ins.  Co.  v.  Texarcana  Co 128 

Sun  Ins.  Co.  v.  Varble,  103  Ky.  758,  27  Ins.  L.  J.  798 205 

Sun  Ins.  Office,  Kiesel  &  Co.  v.,  31  C.  C.  A.  515,  88  Fed.  243 163,   164,  165 

Sun  Ins.   Office,  Page  Bros,  v.,   74  Fed.   203 540 

Sun  Ins.  Office,  Stevenson  v.,  119  Pac.   529 172,  185 

Sun  Ins.  Oflfice,  Western  Woolen  Mills  Co.,  71  Kan.  48,  82  Pac.  Rep.  513.  .  .  .  256 

Sun  Mutual  Ins.   Co.,  Buffalo   Steam  Engine  Works  v.,    17   N.  Y.   401 201 

Sun  Mutual  Ins.  Co.,  Strong  v.,  31  N.  Y.  103 159 

.Sunset  Telephone  &  Telegraph   Co.,   Martin  v.,    18   Wash    260 178 

'  Suppnier    v.    Garrels,    20    111.    App.    625 618 

Svea  Assurance  Co.  v.  Packham,   92   Md.    464 636 

Swearingen  v.  Hartford  Fire  Ins.  Co.,  52  S.  C.  309,   56  S.  C.  355 200,  227 

Symmers  v.  Carroll,  149  App.  Div.  641,  207  N.  Y.   632 181.  728 

Taber  v.  Continental  Ins.  Co.,  213  Mass.  487,  42  Ins.  L.  J.  516 545,  548 

Talamon  v.  Home  Mutual   Ins.   Co.,   16   La.   Ann.    426 248 

T.  &  K.  Hardware  Co.,  Minneapolis  Threshing  Machine  Co.  v.,  95  Pac.  427..  493 

Tannenbaum   v.   Freundlich,    39    Misc.    819 749 

Tannenbaum  v.   Simon,  40   Misc.  175,   84  App.  Div.   642 747,  749 

Tate    V.    Hyslop,    15    Q.    B.    D.    368 609,  811 

Taylor  v.  Corblere,   8   How.   Pr.   385 178 

Taylor  v.  Ins.   Co.   of  North  America,  105   Pac.   354   reviewing  authorities, 

concurring  with  Tisdell  case   171 

Taylor,  State  Ins.  Co.  v.,  14  Col.  449 128 

Tewes,  Hartford  Fire  Ins.  Co.  v..  132  111.  App.  321 171,  174,  178,  185,  195 

Texarcana  Co.,    Sun   Ins.   Co.   v 128 

Texas  Moline  Plow  Co.  v.  Niagara  Fire  Ins.  Co.,  87  S.  W.  192 91 

Thayer  v.   Felt,    4   Pick.   354 178 

Thomas,  Boston  Safe  Deposit  &  Trust  Co.  v.,  59  Kan.  470 222 

Thomas,   Mason  v.,   36   N.   H.    302 178 

Thomas  v.  Montauk  Ins.  Co.,   43   Hun.   218 604 

Thomas  v.   Spencer,    (1899)    Atl.   275 641 

Thomaston    Mutual    Ins.    Co.,    Dennison   v.,    20    Maine    125 106,  125 

Thompson,  Aetna  Ins.  Co.  v.,   68   N.  H.  20,   40  Atl.   396 200 

Thompson  v.  Emery,  27  N.  H.  267 184 

Thompson  v.   Montauk   Ins.   Co.,    43   Hun.   218 633 

Thompson  v.  Montreal  Ins.  Co.,   6   U.  C.  Q.  B.   319 245,  248 

Thornton  v.   Security  Ins.   Co.,   117   Fed.   773 243,  245,  246,  252 

Throop,  North  American  Fire  Ins.  Co.  v.,   22  Mich.  146 107 

Thuringia  American  Ins.   Co.,  Larsen  v.,   208  111.  166 195,  197 

Thuringia  Ins.  Co.,  Boyd  v.,  25  Wash.  447,  65  Pac.  785 206 

Tlbbetts,  Darrell  v.,  L.  R.  5  Q.  B.  D.   560 280,  284,  605,  615,  627 

Tieman  v.  Citizens  Ins.  Co.,  76   App.  Div.  5 803 

Tinscott  V.  Orient  Ins.  Co..   88   Maine  497 112 

Tioga  County  Association,  King  v.,  35  App.  Div.  58 105 

Tisdell  v.  New  Hampshire  Fire  Ins.  Co.,  155  N.  Y.  163 38.  57,  171 

Titus  V.  Glens  Falls  Ins.  Co.,  81  N.  Y.  410 316,  673 

849 


The  Fire  Insurance  Contract 

Todd  V.  German  American  Ins.  Co.,  59   S.  E.  94 19  4 

Todd,  Mowry  v.,  12  Mass.  281 184 

Tourtellot,     Hannum  v.,   10   Allen   494 178 

Townsend  v.   Northwestern  Ins.   Co.,    18    N.   T.    168 126 

Towsley,    Rowley   v.,    53    Mich.    329 620 

Traders  Fire  Ins.  Co.,  Nelson  v.,  86  App.  Div.  66 165 

Traders    Ins,    Co.,    Hillock   v.,    54   Mich.    532 179 

Traders  Ins.  Co.  v.  Race,  142  111.  388,  31  N.  E.  392 225 

Transatlantic  Fire  Ins.  Co.,  Armour  v.,   90   N.   Y.  .450 108 

Triumph   Ins.    Co.,   Standard   Oil  Co.   v.,    64   N.   Y.    65 187 

Troop,  Ralli  v.,   157   U.    S.    386 270 

Tuttle  V.    Boston,    215    Mass.    57 178 

Tuttle  V.  Gates,   24   Maine  395 •. 178 

Tweed,  Ins.  Co.  v.,  7  Wall  44 263 

Tyler,  Aetna  Fire  Ins.  Co.  v.,  16  Wend.  385,  397 605 

Ulster  County  Savings  Bank  v.  Leake,   73   N.   Y.   161 625 

Underhill,    Sewell   v.,   1^7   N.   Y.    168 803 

Union  Compress  Co.,  California  Ins.  Co.  v.,  133  U.   S.  387,  409 181 

Union  Mutual  Insurance  Co.,  Clark  v.,  40  N,  H.  333 97 

United  Firemen's  Insurance  Co.,   Frick  v.,   218   Pa.    State   409 92,  815 

United  States  Accident  &  Health  Co.,  Craig  v.,  61  S.  E.  423 178 

United   States   v.   American   Tobacco   Co.,   166    U.   S.    468 608,  626 

United    States,    German   Bank   v.,    148    U.    S.    573 620 

United   States  Causalty  Co.  v.  Eagley,   55   L.  R.  A.   616 620 

United  States  Fire  Insurance  Co.,  Genesee  Savings  &  Loan  Association  v., 

16    App.    Div.    587 216,234 

Universal  Metal  Co.,  Cameron  Coal  &  M.  Co.,  110  Pac.   720 493 

Upton,  St.  Paul  Fire  &  Marine  Ins.  Co.  v.,  2  N.  D.  229 222 

Urbansky,  Commercial  Union  Assurance  Co.  v.,  68  S.  W.  653,  113  K5\  624...  197 

Utica  Canning  Co.  v.  Home  Ins.  Co.,  132  App.   Div.   420 181,  489,   723,  726 

Vanderbilt   Ins.   Co.,    Boyd   v.,    90   Tenn.    212 672 

Vanderbilt,  Striker  v.,  27  N.  J.  L.  68 177 

Vann,   Southern   States  Fire   Ins.    Co.   v.,    68   So.   747 647 

Van  Valkenburgh  v.  Lenox  Fire  Ins.  Co.,  51  N.  Y.   465... 171 

Varble,   Sun  Ins.  Co.  v.,   103  Ky.   758 205 

Vining,  Ins.  Co.  v.,  67  Ga.   661 318 

Virginia-Carolina  Chemical  Co.  v.  Sundry  Ins.  Cos.,  108  Fed.  451 182 

Von  Wein  v.  Scottish  Union  &  National  Ins.  Co.,  20  J.  &  S.  490 188,  189 

Vulcan  Ins,  Co.,  Cosmopolitan  Bank  v..  City  Court  of  N.  Y 557 

Wagner  v.   Providence  Ins.   Co.,   150   U.   S.  99 609 

Wagoner.    Warne    v.,    15    Atl.    307 177 

Wakefield  v.  Martin,  3  Mass.  558 .  226 

Walden  v.  Louisiana  Ins.  Co.,  12  La.  134,  32  Am.  Dec.  116 102 

Walker  v.  Ins.  Co.,  156  N.  Y.   628 321 

Walker  v.   Maitland,    5   Barnewall  &  Alderson 40,  78,  171 

Walker  v.  Phoenix  Ins.  Co.,   62   Mo.   App,   207 253 

Walroth  v.  Hanover  Fire  Ins.  Co.,  139  App.  Div.   407 188 

Walsh  v.   Hartford   Fire  Ins.   Co.,   59   N.  Y.   171 642 

Walthear  v.  Pennsylvania  Fire  Ins.  Co.,  2  App.  Div.   328 171 

Ward,   Rausch  v.,   44   Pa.    389 158 

Waring  v.  Indemnity  Ins.   Co.,   45  N.  Y.   606 '...    181,  191,  718,  723 

Waring  v.   Loder,    53    N.    Y.    581 142 

Warne  v.  Wagoner,  15  Atl.  307 177 

Warren  v,  Franklin  Fire  Ins.  Co.,  143  N.  W.   554 195,  196 

Washburn   v.    Ins.   Co.,    2    Fed,    304 264 

Washburn  &  Moen  Mfg,  Co.  v.  Reliance  Mutual  Ins.  Co.,  179  U.  S.  1 241 

Washington   Fire  &  Marine   Ins.   Co.   v.    Chesbro,    35    Fed.    477 186 

Washington   Ins.    Co.,   Reed  v.,   138    Mass.    572 177 

Waters  v.  Merchants  Louisville  Ins.   Co.,   11   Peters   213 252 

Watts,  American  Automobile  Ins,  Co.  v„  67   So,  758 175 

Way  V,   Abington  Mutual  Fire  Ins,  Co.,   166   Mass,    67 258 

Webb  V.  Granite  State  Fire  Ins,  Co,,  129  N,  W,  19 172 

Webb  V.  Protection  Ins.  Co.,  14  Mo.  3 248,  270 

Webb  V.  Railway,  49   N.   Y.    420 263 

Weber  v.   Germania   Fire   Ins.   Co.,   16    App.    Div.    596 317 

Weber  v.  M.  &  E.  Ry.  Co.,  35  N.  J.  L.    400 627 

Weed   V.    Ins.    Co.,    133    N.    Y.    394 315.  316,  318 

Weehe  Drug  Co.,  Scottish  Union  &  National  Ins.  Co.  v.,  118  S.  W.  1087 131 

850 


Index  to  Cases 


Weeks  Drug  Co..  Williamsburg  City  Fire  Ins.  Co.  v.,  132  S.  W.  121. 132 

Weisbrod  v.   Dembrowsky,   25   Misc.   485 649 

Wells  V.   Boston  Ins.  Co.,   6   Pick.    182 270 

Wells  V.  Glens  Falls  Ins.  Co.,  117  App.  Div.  346 108 

West,   Cockran  v.,   122   Ind.    372 618 

Westchester  Fire  Ins.  Co.,  England  v.,  81  Wise.   583 663 

Westchester   Fire   Ins.    Co.,    Hastings   v.,    73    N.    Y.    141 203.   233,  634 

Westchester  Fire  Ins.  Co.,  Irwin  v.,   58  Misc.  441,  199   N.  Y.   550 284 

Westchester  Fire  Ins.  Co.  v.  Ocean  View  Pleasure  Pier  Co.,  106  Va.  6:13..    40,  80 

Western  Assurance   Co.,    Clai"kson  v.,   33   App.   Div.    23 99 

Western  Assurance   Co.,   Ferrar  v.,    159'  Pac.    609 194 

Western  Assurance  Co.  v.  Hann,  51  Ins.  L..  J.  648,  78   So.  232 269 

W^estern  Assurance  Co.,  Massasoit  Steam  Mills  v.,   125   Mass.   116 197 

W^estern  Assurance  Co.,  McManus  v.,  22  Misc.  269,  43  App.  Div.  550 315,  323 

Western   Assurance   Co.    v.   Mohlman,   83    Fed.    811 164,  165 

Western  Insurance  Co.,  Fowler  Cycle  Works  v..   Ill  111.  App.   631 188 

Western  Woolen  Mills  Co.  v.  Northern  Assurance  Co..  139  Fed.  637 254,   255 

Western  Woolen  Mills  Co.  v.  Sun  Ins.  Office,   72  Kan.   48 256 

Wheaton  v.   North  British  &  Mercantile  Ins.  Co.,   76   Cal.   431 672 

Wheeler  v.  Ins.  Co..  101  U.  S.  439 200 

Wheeler  v.  Phoenix  Ins.  Co.,  92  N.  E.   452 264 

Whipple  V.    Peoples   Ins.   Co.,    57    N.   Y.    274 126 

Whipple   V.    Williams,    4   How.    Pr.    27 178 

White  V.  Assurance  Co.,   93  Fed.   61 196 

White  V.  Connecticut  Ins.  Co.,  120  Mass.   330 1^5,  188 

White  V.   Ins.    Co.   of  N.    Y.,    93    Fed.    161 196 

Wicking  v.   Ins.   Co.,    118   Mich.    640 328 

Wilcox  V.   Continental   Ins.    Co.,    85   Wise.   183 659 

Williams    v.    Association,    89    Maine    158 654 

Williams  v.  North  China  Ins.   Co.,  1  C.   P.   Div.   757 193 

(Williamsburg  City  Fire  Ins.  Co..  Albion  Lead  Works  v..  2  Fed.  479 128 

Williamsburg  City  Fire  Ins.  Co.  v.  Weeks  Drug  Co..  132  S.  W.  121 132 

Williamson   v.    Orient  Ins.   Co.,   100   Ga.   791 • 804 

Wilson,  British  America  Assur.  v.,  77  Conn.  559,  60  Atl.  293 186 

Wilson,   Cheshire  B.   Co.  .v.,   86   Atl.   26 185 

Wilson  V.   Hartford   Fire  Ins.   Co.,  187  U.   S.    467 189,  1^0 

Wilson  V.  Hill,   3  Met.   66 182 

Wilson  V.  Ins.  Co.,  90  App.  Div.  413 331 

Wilson  v.  Jones,  L.   R.   2   Each.   139 747 

Wilson  v.  Mutual  Fire  Ins.  Co.,  174  Pa.  State  554 183 

Wilson  v.  New  Hampshire  Fire  Assurance  Co.,  140   Mass.   210 197 

Wimberley,  Aetna  Life  Ins.  Co.  v.,  23  L.  R.  A.   (N.  S.)   759,  119  S.  W.  855..  .    176 

Windsor  Co.,  Mutual  Fire  Ins.  Co..  Reed  v.,  54  Vt.  413 183 

Winston  v.  Ins.  Co.,  32  App.  Cas.  D.  C.   61 331 

Winthrop,  Lane  v.,   1    Bay   116,   1   Am.   Dec.   599 184 

Wood  V.  American   Fire  Ins.  Co.,  149   N.  Y.   372 803 

Wood,  Continental  Ins.   Co.  v.,   50   Kan.   346,   31  Pac.  1079 216 

Wood  V.   Northwestern  Ins.  Co.,   46  N.  Y.    421 635, 

Worcester  Mutual  Fire  Ins.  Co.,  Chandler  v.,  3  Cush.  328 252 

Wygal  V.   Georgia  Home   Ins.   Co.,  148  Ky.   67 195 

Wyman  v.  Wyman,  26  N.  Y .' 684 

\\ynkoop   v.   Ins.    Co.,   91   N.   Y.    478 331 

York   V.    Central  R.   R.    Co.,    3    Wall   107 623 

Yoshimi    v.    Fidelity   Fire   Ins.   Co.,    99    App.    Div.    69 195 

Young,   Haley  v.,    134   Mass.    364 178 

Young  V,   Newark  Fire  Ins,  Co.,  59  Conn.   41 190 

Zertinger.'Ins,   Co.  v.,   168  111.   286 ." 319 


851 


TOPICAL  INDEX 


ABANDONMENT, 

discussed,    240,  416. 

history  of  in  marine  insurance, 240. 

ABANDONMENT,  PROTECTION  AND  REMOVAL, 

essay  entitled,  by  Frederick  B.  Campbell,  Esq 240. 

ABATEMENT 

of  duties  on  goods  destroyed  while  in  bonded  warehouse 801. 

ABROGATION 

of  pattern  clause, 806. 

ABUSE 

of  machinery  as  factor  in  depreciation,  385. 

ACCIDENT 

/       as  essential  element  in  fire  loss, 250. 

ACCOUNTANT, 

expert,  as  assistant  to  adjuster, 419. 

ACCOUNT  BOOKS  (See  Books  of  Account) 

of  assured,  as  establishing  amount  of  stock 417. 

as  evidence,  417. 

destroyed  beyond  identification 417. 

ACT 

of  assured   defeating  subrogation  shall  void  insurance,   if  clause 

inserted  in  policy,  624. 

of  August  20.  1919 59. 

of  March  19,  1918, 59. 

ACT  OF  AGENT. 

adoption  and  ratification  of,  191. 

ACT  OF  PARLIAMENT, 

earliest,  relating  to  insurance, 72. 

ACTS. 

of  mortgagor,  which   will  void  policy  as  to  mortgagee,    215. 

ACTUAL  CASH  VALUE, 

as  limitation  on  liability  of  company, 422. 

as  true  measure  of  value ,  417. 

at  time  of  occurrence  of  loss, 421. 

of  sewing  machines  ascertained  by  cost  to  reproduce 815. 

ACTUAL  LOSS  SUSTAINED, 

as  used  in  use  and  occupancy  insurance 756. 

853 
28 


The  Fire  Insurance  Contract 
actual  receipt 

of  notice  of  cancellation  essential,  , •. 175. 

ACTUAL  RECONSTRUCTION, 

cost  of,  as  determinant  of  liability .' 353. 

ACTUAL  REPAYMENT 

of  unearned  premium,  essential  to  cancellation 171. 

ACTUAL  TENDER 

of  unearned  premium,  a  condition  precedent  to  valid  cancellation,  171. 

ADDED  CLAUSES, 

provision  relating  to,  in  old  and  new  policies  compared,  55. 

ADJUSTER, 

as  possessor  of  command  of  language,  302. 

as  possessor  of  self-control  and  courtesy 303. 

considered  in  the  abstract,   - 291. 

entitled  to  be  consulted  by  appraisers,  424. 

estimate  to  be  made  by,  when,  360. 

experience   of, 291. 

general  culture ,  of 291. 

genius  of,  shown  how 351. 

knowledge  of  manufacturing  processes  of,   296. 

knowledge  of,  should  include  what  detailed  facts,  295. 

knowledge  of  trade  conmiodities  of,  296. 

mistakes  of  'lump'  adjuster, 360. 

necessity  of  working  knowledge  of  building  estimates  by 359. 

need  not  be  a  lawyer,   295. 

qualifications  of,  ; 291,  367,  600. 

qualities  of,  in  dealing  with  assurcc,   3S1. 

quality  of, 291 

snould  apply  general  principles  to  new  conditions,  303 

should  be  resourceful 303. 

should  know  commercial  book  keeping 295. 

should  know  insurance  contract  and  printed  conditions  thereof,  . .  .295. 

should  know  judicial  interpretation  of  insurance  contract,  295. 

should  rely  on  own  opinion  as  to  extent  of  damage, 423. 

should  verify  stock  inventory  made  by  assured,  417. 

small  losses  handled  by,  without  builder's  assistance 373. 

special  training  of 291. 

treatment  of  claimant  by : 351. 

ADJUSTMENT, 

element  of  surprise  in 303. 

of  Automobile  Losses, 

essay  entitled,  by  E.  B.  Hopwood,  Esq.,  439. 

of  Building  Losses, 

essay  entitled,  by  William  R.  Freeman,  Esq.,   349. 

of  Cotton  Losses  and  Cotton  Salvage  Handling, 

essay  entitled,  by  Joseph  J.  Windle,  Esq 444. 

854 


Topical  Index 

ADJUSTMENT— Co7if  in  wed 

of  losses  as  demanding  general  culture  rather  than  great  natural 

ability 299. 

of  losses  as  furnishing  an  opportunity  of  learning  something  new,  292. 
of  Stock  Losses, 

essay  entitled,  by  D,  C.  Brown,  Esq 415, 

of  typical  cotton  loss,   512-520. 

ADJUSTMENTS, 

diverse  character  of,   416. 

fifty-seven   varieties   of,    415. 

versus  settlements 567. 

ADMINISTRATION, 

hefirs  have  right  of,  in  absence  of  express  power  conferred  upon 
executor  or  administrator,   683. 

ADMINISTRATOR, 

appointed  by  the  Probate  or  Surrogate's  Court,  683. 

/  as  legal  representative  of  deceased,  691. 

has  no  right  to  sell  realty  without  an  order  of  the  Court, 691. 

interest  of,  in  real  estate  of  deceased  as  conferred  by  statute 683. 

may  sell  real  property  to  pay  debts  of  deceased, 683. 

of  insolvent  estate  has  insurable  interest 141. 

"Rights  of  Administrators  and  Executors  over  Real  Property," 

essay  entitled,  by  F.  0.  Affeld,  Jr.,  Esq 683. 

word  does  not  appear  in  standard  fire  policy, 684. 

AFFELD,  F.  O.,  JR.,  ESQ., 

essay  by,  entitled  "Administrator:     Rights  of  Administrators  and 
Executors  over  Real  Property,"   683- 

AFFIRMATIVE  DISCLOSURE, 

necessity  of,  in  contract  of  insurance,  75. 

of  material  facts  known  to  one  party  only 75. 

AGENT, 

authority  of  agent  lighting  fire  as  bearing  upon   Its  friendly  or 
hostile  nature,  i , .  259. 

estoppel  raised  through  act  of,   642. 

for  company  cannot  relieve  himself  by  promptly  communicating 
notice  of  cancellation  to  Intervening  broker,  .  .• 186. 

for  insurance  company  may  be  agent  for  assured,  196. 

may  not  act  for  both  parties  in  regard  to  same  matter,  but  may 
act  for  one  party  In  regard  to  one  matter,  etc.,  185. 

may  not  serve  adverse  Interests, 

of  company  liable  to  principal  for  failure  promptly  to  communi- 
cate notice  of  cancellation  to  assured, 186. 

private  instructions  to,  642. 

ratification  of  act  of, 191,  642. 

"The  Agent — Authority  of  Agents  and  Officers  of  Company," 

essay  entitled,  by  Frederick  T.  Case,  Esq.,  , . .  .639. 

what  is  an,  640. 

855 


The  Fire  Insurance  Contract 

AGENTS, 

brokers  as 646. 

clauses  of  standard  policy  with  regard  to,  639. 

provision  relating  to,  inserted  in  standard  policy 33. 

AGREEMENT, 

as  method  of  determining  value,   416. 

by  bailee  to  provide  insurance  upon  property  In  tils  custody 728. 

special,  as  to  contribution  by  insured,    361. 

ALIENATION  CLAUSE, 

no  violation  of,  by  sale  in  foreclosure, 147. 

ALLOY, 

damage  to  castings,  398. 

degree   of 390. 

prevention  of  further  loss  to  after  fire, 400. 

restoration  of 404. 

ALLOWANCE, 

none,  for  excessive  value,   361. 

AMBIGUITY 

of  policy  resolved  in  favor  of  insured,  80,  557. 

AMERICAN  FIRE  INSURANCE  COMPANY  OF  PHILADELPHIA,  (The) 
policy  of  1810  of, 13,  14. 

AMOUNT 

of  insurance  named  in  policy  as  limitation  of  indemnity  under  new 

standard  policy,   43. 

of  loss, 

appraisal  governs  in  event  of  disagreement  as  to, 362. 

AMPERSAND  CASE 

holding  change  of  physical  status  essential  to  increase  of  hazard,  134. 

ANTI-DISCRIMINATION    STATUTES 704. 

APPLICATION    CLERK .  .588. 

APPOINTMENT 

of  a  receiver  In  bankruptcy  does  not  effect  a  change  in  title,  145. 
of  a  trustee  in  bankruptcy  does  effect  a  change  in  title, 145. 

APPORTIONMENT  EXPERT 

would  be  dispensed  with  if  admonition  of  standard  fire  policy  were 
followed 817. 

APPORTIONMENT  OF  LOSSES  UNDER  NON-CONCURRENT  POL- 
ICIES, 

essay  entitled,  by  W.  N.  Bament,  Esq 539. 

essay  entitled,  by  A.  E.  Clough,  Esq 554. 

APPRAISAL 

as  a  requirement  of  standard  fire  policy 314. 

856 


Topical  Index 

APPRAISAL — Continued 

as  condition  precedent  to  recovery  unless  waived, 424. 

as  metliod  of  determining  value,  * 416. 

clause  of  standard  fire  policy,  relating  to,  enforceable 334. 

clause  relating  to,  in  old  and  new  policies  compared, 65. 

detailed  or  in  bulk,  344. 

effect  of  refusal  to  submit  to, 335. 

essay  by  Willis  0.  Robb,  Esq.,  entitled  "The  Appraisal,"  333. 

form    of, 345. 

holding  of,  not  an  admission  of  liability, 362. 

joint,    337. 

may  be  demanded  by  either  party  in  event  of  disagreement 423. 

method  of,  not  prescribed,   343. 

mortgagee  under  standard  mortgagee  clause,  not  bound  to 

submit  to, 212,  215. 

'       necessity  of  demand  for,  385. 

not  a  waiver  of  proofs  of  loss,  if  company  requests 321. 

of  total  loss, 338. 

prevented  by  destruction  of  evidence,   362. 

provided  for  in  event  of  disagreement 42S. 

questions  covered  in  demand  for,   336,  345. 

requested  by  company, 362. 

right  of,  arising  when, 362. 

under  what  circumstances  desirable,   '. 361. 

when  necessary, 346. 

APPRAISAL  AGREEMENT 

need  not  be  reduced  to  writing,  .* 424. 

usually  so  reduced 424 

APPRAISEMENT 

of  undamaged  property,   362,  709. 

waiver  of,  in  5%  provision  of  coinsurance  clause 362. 

APPRAISER, 

absence  of  bias  on  part  of 362. 

alternative  awards  of 353. 

award  of,  as  determining  sound  value 362. 

award  of,  set  aside  for  fraud  or  error, 362. 

choice  of,    347. 

must  be   competent,    362. 

must  be  disinterested, 362. 

must  deduct  for  depreciation,  362. 

must  determine  sound  value  and  loss  independently 424. 

nomination   of 362. 

professional, 341. 

qualifications  of, 362. 

withdrawal  of, 343. 

APPRECIATION 

sometimes  more  than  depreciation, , 87. 

857 


The  Fire  Insurance  Contract 
appurtenances, 

term  should  be  applied  only  where  intended 807. 

ARBITRATION 

provision  of  Massachusetts  Standard  Policy, 

construed  as  a  statute  rather  than  a  contract, 177. 

architect, 

fees  of,  as  proper  charge  when,   352. 

fees  of,  uncalled  for  in  minor  losses 352. 

fees  of,  unjustified  unless  specially  provided  for  in  policy  form,  352. 

ARTICLE 

in  19  Green  Bag  93,  by  Frederick  T.  Case,  Esq., 

criticising  doctrine  of  ratification  after  loss,   194. 

ARTICLES  OF  COMMERCE, 

adjuster's  knowledge  of, 295. 

ASCERTAINMENT 

of  amount  due  under  new  policy  methods,  67. 

of  loss,   390,  422. 

of  Machinery  Values  and  Losses, 

essay  entitled,  by  John  Hankin,  Esq 380. 

"AS  INTEREST  MAY  APPEAR," 

effect  of  words  in  loss  payable  clause,  .• 232. 

phrase  construed,   220. 

ASSIGNEE, 

acquiescence  of,  in  continuance  of  violation  by  assignor  as  forfeit- 
ing new  contract,  183. 

Invested  by  assignor  with  right  to  collect,  183. 

ASSIGNMENT 

by  insured  for  benefit  of  creditors,  as  affecting  a  change  in  owner- 
ship,     145. 

by  mortgagee, 216,  217,  237. 

of  policy 

after  loss,  in  which  the  assignee  is  made  appointee  of  proceeds,  183. 

as  collateral  security,  legal  effect  of, 145,  201. 

effect  of,  as  a  novation, ■. 182. 

giving  rise  to  new  contract  between  insurer  and  assignee,  182. 
not  to  be  considered  as  an  admission  by  the  company  that 

premium  has  been  paid,  184. 

but  merely  as  an  admission  of  an  obligation  to  pay  upon 

the  occurrence  of  a  loss 184. 

when  recognized  as  a  new  contract,  assignee  not  liable  for 

premiums  due  from  original  assured,   184. 

of  rights  of  mortgagee  to  insurer  upon  payment  being  made, 625. 

pro  tanto  of  rights  and  remedies  of  insured  may  be  insisted  upon 
by  the  company  as  condition  of  payment 626. 

858 


Topical  Index 
assignor, 

magistrate  making  certificate  may  not  be  assignor  of  assured 323. 

of  a  negotiable  note 798. 

ASSURED,   (See  Insured) 

account  books  of,  as  evidence, 417. 

as  cnstodian  of  goods  rarely  holds  title,   718. 

books  of  account  of,   417. 

cannot  compromise  or  settle  claim  against  others  after  loss  pay- 
ment to  prejudice  of  insurer,   635. 

damages  received  by,  from  third  party  must  be  applied  pro  tanto 

in  discharge  of  policy,   636. 

liable  to  account  to  insurer  for  damages  received  from  third  party 

after  loss  payment, 636. 

I  not  entitled  to  be  gainer  by  reason  of  the  loss,  628. 

records  of,   417. 

settlement  of,  with  party  primarily  responsible  coupled  with  abso- 
lute release  relieves  insurer,   635. 

AUTHORITY 

of  agents  and  brokers 185. 

in  relation  to  occurrence  of  cancellation,  170. 

AUTOMOBILE, 

"Adjustment  of  Automobile  Losses," 

essay  entitled,  by  E.  B.  Hopwood,  Esq 439. 

AVERAGE  CLAUSE, 

whether  binding  mortgagee  under  mortgagee  clause, 209. 

BABBIT    METAL, 

condition  of,  as  indicating  degree  of  heat, 391. 

temper  of,  " 390. 

BAILEE,  (See  Bailment,  Bailor) 

defined,    719. 

degree  of  care  required  of, 719. 

lien  of,  for  advances  or  charges^  797. 

may  collect  entire  loss 728 

may  protect  his  own  individual  interest,  798 

must  account  to  owner  for  enti-re  amount  collected,  less  charges 

or   liens 728. 

must  prorate  amount  actually  collected,  797. 

not  obliged  to  provide  insurance,  . . : 719. 

under  commission  clause, 

holds  excess  over  own  interest  for  benefit  of  bailors, 724. 

may  first  deduct  charges  or  claims  against  property  in  nature 
of  legal  liens,   724. 

must   intend   to  protect  his  bailor 723. 

where  requirement  as  to  relation  and  intent  satisfied, 724. 

BAILMENT,  (See  Bailee,  Bailor) 

existing  for  benefit  of  bailee, 719. 

859 


The  Fire  Insurance  Contract 

BAILMENT— Con^imied 

existing  for  benefit  of  both  parties, 719. 

trust  distinguished  from,    719. 

BAILOR  (See  Bailee,  Bailment) 

may  claim  directly  from  companies,  if  insurance  not  exhausted,  ..725. 

may  demand  proportionate  share  of  bailee's  recovery, «. . .  .725. 

may  sue  in  his  own  name  under  commission  clause, 725. 

BALLOON  CONSTRUCTION, 

as  applicable  to  country  buildings,  360. 

explained,    369. 

BALTIMORE  WAREHOUSE  COMPANY, 

as  warehousemen,    720. 

BAMENT,  W.  N.,  ESQ., 
essays  by,  entitled 

"Apportionment  of  Losses  under  Non-Concurrent  Policies,"  ...539, 

"Forms  from   the  Company's   Standpoint,"    794. 

*  "Interest  of  a  Mortgagee  under  a  Policy  of  Fire  Insurance, 

The,"    199. 

"What  Is  a  Fire  Loss?"  '. .  .248. 

BANK  DEPOSITS, 

as  furnishing  an  indication  of  sales, 420. 

BANK  OF  ENGLAND, 

as  depository,  5. 

BASED  UPON, 

interpretation  of  these  words  in  use  and  occupancy  policy, .756. 

BASIS  OF  INDEMNITY, 

market  vilue  of  lumber  as, 815. 

BELTS, 

restoration  of  fabric,  leather  and  rubber  belts,  408,  410. 

BENEFICIARY 

may  sue  on  contract  made  for  his  benefit,  427. 

BENEFITS, 

when  unearned  must  be  returned, 171. 

BIBLIOGRAPHY 

on  use  and  occupancy,  rents  and  leasehold  insurance, .754. 

BILLS, 

furnishing  of,  a  requirement  of  standard  fire  policy 314,  324. 

of  assured,  as  assisting  pricing  of  inventory, 417. 

BILL  OF  LADING 

giving  carrier  benefit  of  insurance,  623. 

negativing  insurer's  right  of  subrogation,  622. 

BLISTERS 

as  indicating  degree  of  heat,  394. 

860 


Topical  Index 

BOILER. 

corrosion  in, , 886. 

explosion  of,  as  fire,  258. 

BOILING  POINT 

of  oils,   393. 

BOND, 

goods  in,  rule  of  value  as  to 93. 

of  administrator 683. 

BON-FIRE, 

whether  friendly  or  hostile  fire, 260. 

Bo'oKKEEPING, 

commercial,  as  part  of  adjuster's  equipment, 295. 

BOOKS  OF  ACCOUNT, 

furnishing  of,  a  requirement  of  standard  fire  policy 314,  324. 

of  assured 

as  establishing  value  of  stock,  94,  417 

as  evidence, .417. 

BOOK  STATEMENT, 

when  inflated 419. 

BOSTON, 

clause  adopted  in  policies  in,  relative  to  rebuilding, 271. 

BRACE    CONSTRUCTION, 

explained, .869. 

BRANSON,  GEORGE  R.,  ESQ., 

essay  by,  entitled,  "The  Psychology  of  Loss  Adjustments," 579. 

BRASS, 

cleaning  of,   405. 

damage  to, 398. 

dipping  acid  for, 406. 

temper  of,  390. 

BREACH 

by  assignor, 

as  forfeiting  all  right  to  unearned  premium 183. 

effect  of,  when  continuance  after  assignment  Is  acquiesced  in 

by  assignee 183. 

where  effect  of,  has  ceased  before  assignment, 

new    contract    with    assignee    viewed    as    compromise   of 
assignor's  claim,   183. 

BRITISH    MERCURY g. 

BROKER, 

as  agent 646. 

for  insured  to  procure  insurance,  but  not  to  receive  notice  of 
cancellation 185. 

861 


The  Fire  Insurance  Contract 

BROKER— Continued 

authority  of,  limited  to  procuring  insurance  if  no  general  agency- 
powers 189. 

fulfills  his  duty  by  passing  on  notice  of  cancellation  to  person  from 
whom  application  for  insurance  was  received, 186. 

liability  of,  analogous  to  that  of  a  gratuitous  bailee,  186. 

may  be  agent  for  company  to  receive  premium  moneys,  185. 

may  be  specially  authorized  to  accept  notice  of  cancellation, 186. 

but  in  absence  of  such  special  authorization  may  not  so  accept,  187. 

may  not  cancel  on  his  own  initiative 187. 

omission  from  standard  fire  policy  of  clause  making  broker  agent 
for  insured,   32. 

ratification  after  loss  of  substitution  by  broker  who  is  agent  for 
both  companies,    197. 

BROKERS, 

as  experts 77. 

as  witnesses,  77. 

usurping  functions  of  judges 77. 

BROWN,  D.  C,  ESQ., 

essay  by,  entitled  "Adjustment  of  Stock  Losses,"  415. 

BRUSH, 

condition  of,  as  indicative  of  degree  of  heat,  3. 

BUCKLES, 

protection  of,  against  corrosion 402. 

BUILDER, 

difficulty  of  obtaining  estimate  by,  360. 

estimate  of  small  losses  by 375. 

exercise  of  care  by,  in  estimating  correct  premises 376. 

requirement  of  fairness  by 373. 

BUILDING    DEPARTMENTS, 

duty  of,  to  pay  for  emergency  repairs 354. 

none  in  small  communities,   370. 

plans  of  buildings  examined  by,  369. 

plans  of,  open  to  inspection  by  companies,   370. 

BUILDING    LAWS, 

as  cause  of  loss,  354. 

of  Massachusetts 

of  New  York  City,    

construction  of  sections  153,  155,  157,  158,   356. 

definition  of  'foundations'  in,  377. 

provisions  of,  regarding  emergency  repairs:    , . . 356. 

foundation  walls 352. 

what  included  in 352. 

BUILDING    POLICY, 

fences,  outhouses  and  yard  fixtures,  not  included  in, o5*6. 

in  possession  of  mortgagee,  357. 

862 


Topical  Index 

BUILDINGS,  ^ 

classification  of 368. 

cost  of,  liow  determined 86. 

falling  of,  before  fire,  366. 

fireproof,    368. 

frame,    368. 

losses  on, 368. 

non-fireproof 368. 

values  of 368. 

BURDEN  OF  LOSS 

should  ultimately  rest  on  party  causing  it,  €17. 

BURDEN  OF  PROOF 

of  negligence  in  protecting  property,   245. 

BUTLER,  WILLIAM  ALLEN,  ESQ., 

advises  that  drafting  of  standard  fire  policy  be  left  to  New  York 

Board  of  Fire  Underwriters 24. 

cautions  against  topical  headings,   30. 

counsel  for  committee  on  laws  and  legislation,  27. 

mentioned,   34,  36,  38. 

CABELL,  HARTWELL,  ESQ., 

essay  by,  entitled  "Increase  in  Hazard,"   117. 

CAMPBELL,   FREDERICK  B.,   ESQ., 

essay  by,  entitled  "Abandonment,  Protection  and  Removal,"  240. 

CAMPBELL,  LORD, 

Lives  of  the  Chief  Justices  by,  77. 

CANCELLATION 
and  Substitution, 

essay  entitled,  by  Martin  Conboy,  Esq.,   170. 

as  affecting  mortgagee, 222,  230. 

clause  relating  to,  in  old  and  new  policies  compared, 56. 

clause  relating  to,  inserted  in  standard  fire  policy, 29. 

construed  contrary  to  intention  of  author 36. 

effective  if  minds  of  parties  meet 179. 

effective  Monday,  when  five  day  period  expires  on  Sunday,  177. 

for  assured's  benefit  and  may  be  waived  by  him, 179. 

Invalid  after  loss 182. 

of  mortgagee  clause, 222. 

of  policy  at  the  request  of  the  assured,  mandatory  upon  company,  184. 

ratification  of, 195. 

return  of  premium  upon,  37. 

Sunday  included  or  excluded  in  notice  of,  discussed 176. 

CANCELLATION  CLAUSE 

construed  by  the  courts, 170. 

directions  of,  should  be  strictly  complied  with 174. 

interpretation  of,   170. 

863 


The  Fire  Insurance  Contract 

CANCELLATION  CL,A\J SB— Continued 

meaning  of,    170. 

of  New  York  standard  fire  policy,  lines  51-55, 170. 

what  held  necessary  to  a  valid  cancellation  under 170. 

CANCELLATION  NOTICE 

must  not  be  indefinite 174. 

requisites  of,   174. 

CARE, 

amount  of,  exacted  from  gratuitous  bailee, .719. 

standard  of,  required  in  protection  of  property 244. 

CARELESSNESS 

resulting  from  fire  insurance, 279. 

CARPENTER  WORK, 

computation  of  value  of,  in  fireproof  buildings,  370. 

CARRIER 

cannot  avail   itself  of   (J>Mi.«se  in  bill   of  lading  where   insured's 

acceptance  of  bill  of  laoing  has  invalidated  policy 624. 

liable  for  value  at  destination,  in  absence  of  stipulation, 623. 

may  by  express  contract  have  benefit  of  owner's  insurance, 623. 

subrogation  to  claims  against,  604. 

CASE,  FREDERICK  T.,  ESQ., 

essay  by,  entitled  "The  Agent — Authority  of  Agents  and  Officers 

of  the  Company,"  639. 

ratification  after  loss, 

criticism  of  doctrine  by,  194. 

CASH  DISCOUNTS 

deducted  from  cost  in  pricing  inventory 417. 

CASH  VALUE 

as  basis  in  determining  loss  under  use  and  occupancy  policies 777. 

essay  entitled,  by  L.  C.  Williams,  Esq., 84. 

of   buildings 86. 

provisions  relative  to,  in  old  and  new  policies,  compared 44. 

CAST 
brass, 

damage  to, S98. 

temper  of,   390. 

iron, 

cleaning  of,    407. 

damage  to,  by  expansion  and  contraction 390,  391. 

pickling  bath  for,  407. 

prevention  of  further  loss  to,  after  fire 400. 

restoration  of, 404: 

CAVEAT  EMPTOR, 

rule  of, 75. 

964 


Topical  Index 
cellar  bins 

as  place  of  storage  for  discarded  furniture 366. 

inspection  of,  367. 

CEMENT, 

increase  in  price  of,   371. 

CENTENNIAL  EXHIBITION  OF  1876, 

musical  instrument  exhibited  at 291. 

CERTIFICATE, 

issuance  of,  by  insured,  507. 

of  magistrate,  as  requirement  of  standard  fire  policy 314,  323. 

CHAMBERLAIN,  FRANKLIN,   26,  37,     38 

CHANCE 

as  element  in  contract  of  insurance, 75. 

CHANGE 

in  interest,  title  or  possession, 

clause  relating  to,  in  old  and  new  policies, 50. 

of  ownership, 

none,  as  a  result  of  fire,  416. 

CHARACTER  OF  HAZARD,  129. 

CHATTEL  MORTGAGE, 

clause  relating  to,  in  old  and  new  policies,    54. 

on  part  of  property  does  not  void  entire  policy, 136. 

permission  for,  does  not  contemplate  more  than  one 287. 

presumption  of  guilt  arising  from  placing  of,  130. 

CHIEF  FACTOR  IN  FIRE  LOSS  ADJUSTMENTS.  THE 

essay  entitled,  by  Willis  0.  Robb,  Esq.,  28. 

CHIPS, 

iron  and  ste^, 

liability  to  burn 413. 

CHRONICLE  FIRE  TABLES, 

statistical  value  of,   290. 

CHURCHES, 

cubic  foot  estimates  of  value  of, 

impracticability  of, 371. 

CIGARETTES, 

butts  of,  thrown  by  tenants,  366. 

CIRCULAR  LETTER 

of  committee  on  adjustments  of  N.  Y.  Board  of  Fire  Underwriters,  355. 

CIVIL  AUTHORITY, 

loss  caused  by  order  of,  353. 

CLAIM 

against  an  insurance  company, 

what  constitutes, 306. 

> 

865 


The  Fire  Insurance  Contract 

CLAIM — Continued 
for  indemnity, 

none  where  no  loss 140. 

for  loss, 

occurring  after  company's  insolvency,  not  a  provable  claim,  ..184. 

made,  frequently  dishonest, 350. 

The  Claim— The  Proof  of  Loss— When  is  Loss  Payable? 

essay  entitled,  by  Robert  J.  Fox,  Esq 306. 

CLAIMANTS, 

insurable  interest  to  be  shown  by,  76. 

CLASSIFICATION 

of  dies,  drawings,  patterns,  etc.,  412. 

CLAUSES, 

provision  in  old  and  new  policies  relating  to  adding  of,  , 55.* 

CLEANSING 

of  brass,  copper,  zinc  and  noble  metals,  405. 

of  cast  iron,  lead,  pewter  and  tin. 407. 

CLOUGH,   ALLEN  E.,   ESQ., 
essays  by,  entitled 

"Apportionment  of  Compound  Non-Concurrent  Insurance,"  ...554. 
"The  True  Purpose  of  the  Loss  Settlement,"  275. 

COAI^OIL, 

iise  of 123. 

COAL  POCKET, 

structure  used  as  a 368. 

CODE  OF  CIVIL  PROCEDURE    (N.  Y.), 

Sections  330,  331,  339,  405,  449,  referred  to 692,  694. 

COFFEE    HOUSE 

of  Edward  Lloyd,  74, 

COINSURANCE 

analogous  to  taxation,   698. 

/as  affecting  mortgagee  under  mortgagee  clause, 2.09. 

as  affecting  non-concurrent  apportionments,   540,  550. 

conditions, 

as  affecting  property  owner  when  form   reads  John   Doe  and 
Richard  Roe,    810. 

limitation  on  operation  of 799. 

waived  by  making  repairs 361. 

inapplicable  to  household  furniture  risks,    799. 

in  use  and  occupancy  insurance, 737,  759. 

practical  manifestation  of,  in  various  types  of  clauses,  807. 

property  of  guests  and  servants  taken  into  consideration  in, 799. 

resistance  to  inclusion  of,  in  standard  fire  policy,   35. 

soundness  of  principle  of,  as  an  equalizer  of  rates, 807. 

COINSURANCE  CLAUSE, 

circumvention  of, 706.^ 

866 


Topical  Index 

COINSURANCE  CLAUSE— Continued 

general  and  specific  meanings  of, 697. 

opposition  to,  697. 

The  Coinsurance  Clause, 

essay  entitled,  by  W.  J.  Nichols,  Esq 697. 

whether  binding  on  mortgagee  under  mortgagee  clause,  209. 

COMBUSTION, 

spontaneous,  caused  by  oily  rags,  367. 

without  ignition,  as  fire 254. 

COMMERCIAL  BOOKKEEPING, 

knowledge  of,  as  equipment  of  insurance  adjuster 295. 

COMMERCIAL   LAW, 

Lord  Mansfield's  contribution  to, 26. 

COMMISSION    CLAUSE 

discussed,   796. 

extension  of,  in  recent  years,  422. 

introduction  of  use  of,  720. 

liberal  construction  of,  by  the  courts,  79a 

merchandise  itself  up  to  its  full  value  covered  by 720.  722. 

original  purpose  of,   422. 

owners  protected  by,   723. 

relating  to  cotton, 488. 

The  Commission  Clause, 

essay  entitled,  by  W.  J.  Greer,  Esq. 717. 

use  of,  in  recent  years, 717. 

COMMISSIONERS 

appointed  to  settle  disputes, 73. 

COMMISSIONS, 

limitation  of  Insurer's  liability  with  regard  to,  814. 

when  covered  by  insurance  on  goods  in  the  hands  of  commission 
merchants,   21. 

COMMITTEE    OF    INSURANCE    COMMISSIONERS,   42. 

COMMITTEE    ON    LOSSES    AND    ADJUSTMENTS, 
of  the  New  York  Board  of  Fire  Underwriters, 

circular  letter  of,  355. 

formation  of,    569,  588. 

COMMON  CARRIER, 

subrogation  to  claims  against 602. 

COMMON    FORM 

of  policy,  early  tendency  to, 19. 

COMMON    INSURANCES 11. 

COMMON    LAW    SUBROGATION,    , 617. 

COMPANY, 

agreement  of,  to  repairs,  361. 

867 


The  Fire  Insurance  Contract 

COMPANY— Continued 

must  accept  proofs  of  loss  from  devisee 693. 

options  of, 

clause  relating  to,  in  old  and  new  policies,  67. 

COMPOSITION  METAL, 

damage  to,  398. 

dipping  acid  for 406. 

prevention  of  further  los§^  to,  after  fire 400. 

restoration  of,   404. 

temper  of,  390. 

COMPOUND  NON-CONCURRENT  APPORTIONMENTS, 

limited  liability  rule  as  to,  554. 

COMPROMISE 

as  waiving  twelve  months  limitation 331. 

COMPUTATION 
of  time, 

distinction  between  contract  and  statute 176. 

general  rule  for,  176. 

CONBOY,    MARTIN   J.,   ESQ., 

essay  by,  entitled  "Cancellation  and  Substitution," 171. 

CONCEALMENT 

by  owner  when  procuring  insurance  as  to  terms  of  bill  of  lading,  .  .623. 

defined, 96. 

distinguished  from  misrepresentation,   104. 

doctrine  of, 

an  exception  to  parol  evidence  rule  resulting  from  the, 75. 

effect  of,  on  underwriter's  attitude,  77. 

Misrepresentation,  Fraud  or  False  Swearing, 

essay  entitled,  by  Frank  Sowers,  Esq. 96. 

of  material  fact, 

so  regarded,  when  insured  has  deprived  insurer  of  subrogation 

right,    811. 

of  unusual  and  extraordinary  circumstances,  99. 

proof  of,  as  changing  ruling  of  the  court 623. 

provision  regarding,  in  standard  fire  policy, 96. 

relation  of,  to  cause  of  loss,  77. 

silence  of  early  policies  on, 75. 

CONCLUSIVE  PRESUMPTION 

of  guilt,   130. 

CONCURRENT, 

all  policies  should   be,   if  coinsurance  conditions   are   present   in 
conjunction  with  average  distribution  clause 807. 

CONCUSSION, 

damage  from,  as  fire  loSs,  263. 

CONDITIONAL   DELIVERY 

of  policy  of  insurance 190. 

868 


Topical  Index 
conditional  indivisibility. 

effect  of,  in  relation  to  the  violation  of  a  condition 808. 

CONDITIONAL    RELEASE 

as  not  affecting  insurer's  subrogation  rights, 636. 

CONDITION   PRECEDENT, 

return  of  unearned  premium  as,  171. 

CONDITIONS, 

administrators, 

conditions  relative  to,  in  standard  fire  policy, .684. 

affecting   mortgagee's   interest,    234. 

as  essential  part  of  insurance  agreement, 79. 

breach  of,  as  affirmative  defense,    118. 

burden  of  proof  in  proving  Violation  of, 118. 

clause  relating  to,  construed,  39. 

executors, 

conditions  relating  to,  in  standard  fire  policy 684. 

inserted  in'  standard  fire  policy,   31. 

necessity  for  strict  compliance  with,   79. 

of  standard  fire  policy  relating  to  administrators  and  executors,  . .  .684. 

precedent  and  subsequent  distinguished,   118. 

violations  of  which  merely  suspend  insurance, 

provisions  concerning,  in  old  and  new  policies  compared, 50. 

violations  of  which  terminate  insurance, 

provisions  concerning,  in  old  and  new  policies  compared,  . .    . .  49. 

CONDUCT 

of  insurance  business  prior  to  1667,  1. 

CONFLAGRATION  OF  LONDON 137. 

CONNECTICUT, 

first  legislative  enactment  for  a  standard  form  adopted  by, 139. 

rule  for  non-concurrent  apportionments,  544,  547. 

CONSCIOUS 

withholding  of  information,  99. 

CONSEQUENTIAL 
damage, 

insurer  not  liable  for,  270. 

losses, 

not  covered  by  the  policy,  350. 

CONSTANCY  OF  HAZARD 118. 

CONSTRUCTION, 

balloon  variety  of 360. 

of  new  standard  policy, 70. 

of  old  standard  policy 32. 

of  policy  in  favor  of  insured, 748. 

869 


The  Fire  Insurance  Contract 

constructive  total  loss,  241. 

contract, 

subrogation  to  contract  of  lease;  of  sale 605. 

New  York  rule  as  to, 609. 

CONTRACT  OF  CARRIAGE, 

effect  of, ,. 623. 

exemption  in,  of  carrier  from  liability  for  loss  by  fire, 623. 

CONTRACT    OF    INSURANCE 

does  not  attach  to  realty  nor  run  with  the  land,  685. 

exotic  in  the  common  law,   72 

good  faith  in,   75. 

implied  conditions  and  warranties  in,  (see  Conditions,  Warranties)  75. 

Inures  to  benefit  of  heirs  when  taken  out  for  their  benefit, 690. 

object  of,  not  profit  but  reinstatement , 351. 

one  of  indemnity, - , 421,  627. 

parol  evidence  rule  as  applied  to,    75. 

personal  in  its  nature, 349. 

personal  rather  than  real, , 731. 

policy,  as  evidence  of  the 357. 

subject  of 75. 

subrogation  rights,  how  protected  by 624. 

CONTRACT   OF   SALE 

distinguished  from  contract  to  sell .494. 

governed  by  maxim  caveat  emptor,   75. 

rule  of  value  in  case  of  manufacturer  having  goods  under, 93. 

when  unaccompanied  by  express  warranty,  75. 

CONTRIBUTION 

among  Insurers 76. 

between  subrogation  claimant  and  insurer,  615. 

in  cases  involving  the  commission  clause,   728. 

under  standard  mortgagee  clause 202,  235. 

CONTRIBUTION   CLAUSE 

as  giving  specific  authority  for  use  of  coinsurance  clause, 556. 

construction  of,  in  old  and  new  policies  compared, 58. 

mortgagee  not  bound  by,  212. 

unfair  to  mortgagee,  205. 

CONTRIBUTORY    NEGLIGENCE 

as  defense  to  action  in  tort,  76. 

CONVENTIONAL  SUBROGATION 

arises  from  acts  of  parties,  619. 

arises  out  of  contract,  618. 

defined, 617,  618. 

occurs  in  some  instances  where  there  would  otherwise  be  no  legal 
subrogatory  right,    620. 

870 


Topical  Index 

CONVOY, 

warranty   of 79. 

COOPERATION, 

lack  of,  In  handling  losses,  D68. 

COPPER, 

cleansing  of,    405. 

damage  to,   397. 

increase  in  price  of, 371. 

prevention  of  furtlier  loss  to,  after  fire 400. 

restoration  of,   404. 

temper  of,   390. 

CORN  EXCHANGE  INS.   CO.   OF  PHILADELPHIA, 

policy  of  1860  of,   16. 

CORNICES, 

computation  of  value  of,  in  fireproof  buildings,   '. 370. 

CORROSION, 

metal  depreciation  on  account  of,  386,  388. 

COST 

considered  when  obtaining  sound  value,  ......352 

of  building, 

ability  of  adjuster  to  estimate 295. 

based  on  measurements,   360. 

difficulty  of  estimating 370. 

of  excavations  and  foundations 352. 

COST  AND  PROFIT  INSURANCE 

should  be  written  subject  to  coinsurance  conditions 815. 

COST    RECORDS 

of  insured  as  assisting  pricing  of  inventory 417. 

COST  TO  REPLACE, 

construction  of  words,   815. 

COTTON   (See  Adjustment,  Forms,  Liability) 

Adjustment  of  Cotton  Losses  and  Cotton  Salvage  Handling, 

essay  entitled,  by  Joseph  J.  Windle,  Esq.,  444. 

adjustment  of  typical  cotton  loss,  512. 

commercial   differences,    4o8. 

commission  clause  as  involved  in  insurance  of,   488. 

compressed  bale  company 451. 

compresses,  cotton  in,   469. 

cultivation  and  handling  of  the  cotton  crop  in  the  United  States,  448. 

exchanges 490,  494,  507. 

freight  expense  bills, 487. 

fixtures, ' 466. 

ginning  of, 449. 

history  of  the  cotton  crop, 446. 

871 


The  Fire  Insurance  Contract 

COTTON — Continued 

insurance  forms  relating  to,  488. 

liability  for,  in  compresses  or  warehouses 469. 

local  market  for,    465. 

marKetmg  of,  : 452. 

"per  bale"  insurance  of,   488. 

price  quotations  on 464. 

public  warehouses  for, 478. 

railroad  and  commercial  terminals  for,  484. 

salvage  of , 524. 

seed  cotton,  not  generally  insured, 449. 

specific  insurance  on,   488. 

United  States  Government  Standards  of 454. 

Western  Weighing  and  Inspection  Bureau 474. 

COVENANT 

to  keep  ingured  does  not  run  with  the  land,  223. 

'o  make  repairs,    627, 

CREJITOR, 

magistrate  making  certificate  may  be  creditor  of  insured 323. 

of  estate  of  decedent  has  an  insurable  interest 141. 

cromie  rule 

as  applicable  to  simple  non-concurrence,  566. 

CROWN, 

power  of,  to  ratify  acts  of  subjects 192. 

CUBIC    FOOT    ESTIMATES 

of  buildings,  371. 

CUSTODIAN 

usually  bailee, 719. 

CUSTOM 

as  affecting  right  of  rejection, 495. 

as  affecting  time  of  delivery,  491. 

evidence  of,  to  establish  agency,  187. 

of  merchants, 

insurance  law  an  outgrowth  of,  72,  138. 

DAMAGE, 

ascertainment  of,  as  regards  non-perishable  goods,  416. 

question  as  to,  415. 

to   awnings,    366. 

DAYS  OF  GRACE, 

exclusion  of  Sunday  in  computing,    176. 

DEALERS, 

goods  in  hands  of,  how  value  of  determined, 93. 

DEATH 

of  assured  does  not  void  policy, 684. 

872 


Topical  Index 

DEBRIS, 

estimate  for  removal  of,  378. 

DEED 

absolute  in  form,  but  given  as  security  for  a  debt,  considered  as  a 
mortgage,   145. 

DELIVERY 

as  affected  by  custom,  491. 

charges  for,  added  to  cost  in  pricing  inventory, 417. 

time  of,   490. 

DELIVERY  BOYS 

causing  damage  to  awnings  by  cigarettes,  366. 

DEMAND 

for  appraisal,  322. 

as  waiving  proof  of  loss,  322,  673. 

joint  demand, 

must  conform  to  policy, 336. 

must  not  require  particular  form  of  agreement,  336. 

■  necessity  of,  335. 

not  an  admission  of  liability 336. 

for  magistrate's  certificate,  323. 

for  proofs  of  loss  as  constituting  waiver, 672. 

DE   MINIMIS   NON   CURAT   LEX, 136. 

DENIAL   OF   LIABILITY 

as  waiving  proofs  of  loss,  321. 

as  giving  rise  to  estoppel, 321. 

DEPOSITS 

in  bank,  as  indicative  of  sales, 420. 

DEPRECIATION, 

burden  of  proving,  on  assured,  87. 

causes  of,  enumerated,   421. 

deduction  of,  by  appraiser  in  award,  362. 

due  to  corrosion 386-388. 

due  to  metal  fatigue 385. 

due  to  obsolescence, 385-387. 

for  wear  and  tear, 372. 

however  caused,   87. 

of  awnings,    366. 

of  machinery 382. 

while  at  rest,  386. 

DESCENDANTS, 

lineal,  as  first  beneficiaries,   683. 

DESIGN 

of  parts  of  machine  as  determining  value,   380. 

withholding  of  information  by, 99. 

873 


The  Fire  Insurance  Contract 

DESTRUCTIBILITY 

of  gasoline 701. 

of  hay  in  stack,   701. 

of  kerosene,   701. 

DESTRUCTION 

by  fire,  no  bar  to  an  action  for  specific  performance 802. 

of  closet, 375. 

of  door 375. 

of  entire  stock,  as  creating  diflicult  situation  for  adjuster 420, 

of  evidence  for  appraisal,   362. 

of  partition, 375. 

of  skylight 375. 

of  special  decorations,    375. 

••DETACrlED    AT    LEAST    A    HUNDRED    FEET," 

phrase  construed 81. 

DETAILS, 

estimates  should  be  inclusive  of,  373. 

full,  as  to  contemplated  repairs,   361. 

submission  of,  by  adjuster  to  assured,  374. 

DETERMINATION    OF    VALUE 

by  agreement,    416. 

by  appraisal, 416. 

DEVIATION, 

avoidance  of  policy  by 78. 

even  though  essential  to  success  of  trip,  78. 

exemplified  in  the  trip  of  "Christy  Johnstone,"  78. 

immaterial  whether  loss  a  result  of, 78. 

implied  warranty  against 76. 

DEVISEE 

entitled  to  proceeds  of  insurance  policy,  693. 

has  right  to  possession  of  real  estate,  683. 

of  land  has  right  to  furnish  proofs  of  loss,  693. 

takes  directly  under  the  will, 683. 

DIAGRAM 

to  supplement  mental  picture,  416. 

DIES, 

copper, 

damage  to,   397. 

DISAGREEMENT, 

occurrence  of,  as  affording  right  to  appraise, 362. 

DISCLOSURE, 

necessity  of,  in  contracts  of  insurance,   * 75. 

of  material  facts  as  an  implied  obligation 75. 

of  material  facts  known  to  one  party  only, 75. 

validity  of  insurance  dependent  upon, 75. 

874 


Topical  Index 
discrimination, 

effect  of,  in  rate  charged, 812. 

unfairness  of,  in  cost  of  insurance 704. 

DISINTERESTED, 

appraiser  must  be 340. 

signifying  not  merely  lack  of  pecuniary  interest,  362. 

DISPARITY 

between  premium  and  insurance,  79. 

DIPPING   ACID 

for  brass,  bronze  or  composition, 406. 

DIVISIBILITY 

of  policy  as  affecting  the  result  of  violation  of  a  condition  thereof,  808. 

DOCTRINE 

of  Indemnity 83. 

as  source  of  common  law  right  of  subrogation, 76,  617. 

of  subrogation, 

a  pure  unmixed  equity,   617. 

founded  in  principles  of  natural  justice 617. 

in  its  Practical  Application  to  Insurance,  The, 

essay  entitled,  by  George  Richards,  Esq 602. 

of  ratification 727. 

of  warranty, 

as  contrasted  with  other  branches  of  the  law,  78. 

severity  of,  in  insurance  law 78. 

strictness  of,  mitigated  when, 81. 

DOUBLE 
agency, 

to  be  discouraged,  197. 

Insurance, 

in  event  of,  assured  may  recover  upon  both  policies, 196. 

DOUBLY   HAZARDOUS    INSURANCES, 196. 

DRAFT 

as  a  general  rule  should  confrom  to  the  policy  as  written, 808. 

drawn   to   John   Doe  and/or  Richard  Roe,  as  presenting  several 

possibilities,    809. 

endorsement  of,  when  payable  to  John  Doe  and/or  Richard  Roe,  .  .808. 
must  be  issued  to  John  Doe  and  Richard  Roe  to  afford  insured 

full  protection,    809. 

to  order  of  John  Doe  and/or  Richard  Roe 808. 

DRAKE,  SIR  FRANCIS 73. 

DUPLICATE    BILLS 

of  purchase, 420. 

DUTIES 

on  imported  goods, 801. 

875 


The  Fire  Insurance  Contract 

DUTIES— Continued 

covered  by  policy,  unless  expressly  excluded 801. 

contrary  view 802. 

DUTY 

of  insured  to  protect  property, 244. 

subordinate  to  duty  to  care  for  life 244. 

DWELLINGS, 

causes  of  fire  in,  , 367. 

DYNAMITE, 

storage  of,   124,  125. 

DYNAMO    CLAUSE, *. 357. 

EARLIEST 

groupings  of  hazards,   11. 

policies  illustrated,    . . . : 2. 

EARLY  PROPOSALS, 

conditions  of  insurance  in, 8,     9. 

EARLY  UNDERWRITERS, 

at  mercy  of  applicant, -. 74. 

EAST  INDIA  COMPANY, 

chartered  in  reign  of  Elizabeth,  73. 

BCKERT,  JOHN  A.,  ESQ., 

essay  by,  entitled  "Use  and  Occupancy  Insurance,"   733. 

ELECTION 

to  take  any  part  of  the  stock  as  an  admission  of 
-     liability,  424. 

ELECTRIC  LIGHT  WIRING, 

computation  of  value  of,  in  fireproof  buildings 370. 

ELECTRIC  MOTORS  AND  GENERATORS, 

damage  to 394. 

prevention  of  further  damage  to,  after  fire, 403. 

reconditioning  of,  395. 

restoration  of 410. 

ELLISON,  WILLIAM  B.,  ESQ., 

essay  by,  entitled  "Non-Liability  Matter,"  152. 

EMERGENCY    REPAIRS, 

duty  of  building  department  to  pay  for 354. 

made  by  outside  contractors  acting  under  orders 

of  building  department,   355. 

EMERIGON, 

on  Insurance,  cited, 240,  241. 

EMPLOYMENT  OF  MECHANICS, 

prohibition  of, 119. 

876 


Topical  Index 
endorsement 

of  draft  when  drawn  payable  to  order  of  John  Doe  and/or 

Richard  Roe,   808. 

ENDORSEMENTS, 

as  affecting  misrepresentations 105. 

ENEMIES, 

burning  of  property  by 129. 

ENGINES, 
steam, 

depreciation  of, 383. 

ENGLISH  CONSTITUTION. 

criticized  by  Bentham,   794. 

referred  to  eulogistically,   794. 

ENGLISH  WORKMEN'S  COMPENSATION  LAW, 

case  arising  under,   80. 

ENTIRE, 

construction  of  word,  as  relating  to  policy's  voidance,   808. 

ENTIRE  POLICY  VOID, 

construction  of  words 808. 

EQUITY 

as   between   policy   holders   demands   application  of  principle   of 
coinsurance 701. 

ERROR, 

award  of  appraisers  set  aside  by, 362. 

ESTIMATE 

by  builder  and  contractor, 359. 

by  builder  without  submission  of  details, 373. 

inaccuracy  of,  when  made  in  lump,   360. 

in  detail  as  convincing  of  excess  in  previous  estimate 374. 

in  detail  increases  cost, 374. 

in  detail  insures  greater  accuracy,   374. 

of  company's  builder,   359. 

should  be  made  by  builders  on  correct  premises 376. 

should  be  made  in  detail 359. 

should  be  prepared  by  competent  and  responsible  persons, 359. 

submission  of  lump  figure  as,   373. 

variance  of,  between  that  of  company  and  outside  contractor,  ....359. 

ESTIMATES 

by  cubic  feet,   371. 

of  Building  Values  and  Building  Losse.^., 

essay  entitled,  by  W.  J.  Moore,  Esq 368. 

of  subcontractors. 375. 

ESTOPPEL  (See  Waiver  &  Estoppel) 

as  affecting  agency.  642 

877 


The  Fire  Insurance  Contract 

ESTOPPELr-Continued 
as  applied 

to  notice  of  loss,   315 

to  proof  of  loss,   313,  316. 

to  signature  and  oath  on  proof  of  loss,  318. 

to  time  within  which  proofs  of  loss  may  be  filed, 3-0. 

as  applying  to  twelve  months'  limitation,   331. 

as  to  proofs  of  loss, 

by  inducing  insured  not  to  file 321. 

by  recognition  or  denial  of  liability 321. 

distinguished  from  waiver, 

raised  against  insurer  by  reason  of  agent's  knowledge  at  time 
of  policy's  issuance 812. 

EVAPORATION 

of  oils,   893. 

EVIDENCE, 

destruction  of, 

as  affecting  standing  of  insured  in  court,  362. 

as  precluding  appraisal, 362. 

of  agency 

afforded  by  noting  instances  of  previous  ratifications,  187. 

on  appraisal, 344. 

examination, 

mortgagee  under  standard  mortagagee  clause  need  not  submit  to,  212. 
of  insured, 

by  more  than  one  company S27. 

not  a  waiver  of  proofs  of  loss,   321. 

place  of,    324. 

under  oath  required  by  standard  fire  policy,  ;  .314,  324. 

who  may  be  examined 32.5. 

of  permits 41C 

of  policies  and  forms 416 

of  warranties,    416. 

EXCAVATIONS, 

cost  of,  352. 

EXCELSIOR, 

accumulations  of.  as  cause  of  fire, 367. 

EXCHANGES, 

cotton 490,  494. 

EXCLUSION 

of  day  from  which  computation  of  time  of  cancellation  is  made,  176. 

of  first  day  in  computing  time  of  cancellation,  175. 

EXECUTION, 

issuance  of,  and  levy  thereunder  on  personal  property  does  not 

operate  as  a  change  of  possession,  140. 

EXECUTIVE  ABILITY 

of  insurance  adjuster 367. 

878 


Topical  Index 
executor 

derives  title  from  the  will  and  not  from  letters  testamentary,  . . .   692. 

empowered  to  protect  estate  before  issuance  of  letters  testamen- 
tary,     692. 

interest  of,  in  real  estate  of  deceased  as  conferred  by  statute  or 
will 683. 

may  not  maintain  action  before  letters  testamentary  are  issued,  692. 

may  sell  real  property  to  pay  debts  of  deceased,   683. 

under  section  449  of  the  Code  may  sue  without  joining  benefici- 
aries,   695. 

word  does  not  appear  in  the  policy, 684. 

EXECUTORS  AND  ADMINISTRATORS, 

rights  of,  under  standard  policy  conditions, 684. 

EXECUTORY  CONTRACT 

falls  at  option  of  vendee,  according  to  American  rule,  if  vendor 

cannot  fully  perform,   803. 

for  sale  of  property,  without  change  of  possession,  no  breach  of 
policy   condition,    147. 

EXPANSION, 

damage  to  cast  iron  by 390. 

EXPENSE 

in  protecting  property  covered  by  insurance,  245. 

of   removing   imperiled   property, '. 247. 

EXPERT  ACCOUNTANT, 

as  assistant  to  adjuster, 419. 

EXPERT  BROKERS, 

as  usurpers  of  judicial  functions,   77. 

as  witnesses, 77. 

reliance  upon,   77. 

EXPERT  OPINION, 

as  assistance  to  adjuster  in  estimating  amount  of  loss 423. 

EXPLOSION 

by  authorities  as  causing  fire  loss 260. 

clause  relating  to,  in  old  and  new  policies  compared,  53. 

exemption  clause  discussed 265. 

resulting  from  fire  as  causing  loss  by  fire 260. 

EXPLOSIVES, 

clause  relating  to,  in  old  and  new  policies  compared 52. 

EXPOSURE 

during  fire,  as  causing  fire  loss, i 260. 

EXPRESS  CONTRACT 

between  owner  and  carrier  as  defeating  right  of  subrogation 623. 

FABRIC  BELTS, 

restoration  of,   410. 

879 


The  Fire  Insurance  Contract 

factories, 

as  defined  in  Labor  Law 368. 

clause  relating  to,  in  old  and  new  policies  compared 53. 

cleaning  up  of,   41L 

FACTORS  OF  COST, 

identical  nature  of,  in  profit  statement  and  that  for  period  ending 
with  fire,  418. 

FALL  OF  BUILDING, 

clause  relating  to,  in  old  aiid  new  policies  compared 55. 

preceding  fire,  866. 

FALSE  CLAIM. 

what  constitutes,   310. 

FALSE  SWEARING 

Concealment,   Misrepresentation,   Fraud  or  False   Swearing, 

essay  entitled,  by  Frank  Sowers,  Esq.,  96. 

provision  regarding,  in  standard  fire  policy, 96. 

FATIGUE 
of  metal, 

depreciation  on  account  of,  S85. 

FAVORITISM, 

shown  in  connection  with  selection  of  committees,  587. 

FEE  SIMPLE  OWNERSHIP, 

clause  requiring,  in  old  and  new  policies,  '. 50. 

FENCES. 

not  covered  under  building  policy, 353. 

FIDUCIARY 

has  authority  by  custom  to  insure  goods  of  his  bailor,  •. 192. 

relation  of  insured  to  owner  of  property .192. 

FILING 

of  proof  of  loss, 

place  of 318. 

time  of,    318. 

FINN-GRISWOLD-KINNE 

rule  for  non-concurrent  apportionments 544,  550. 

modification  of,  .' 551. 

FIRE. 

^     defined, 250. 

FIREBUG  GANGS, 

operations   of,    590. 

FIRE  ENGINE, 

damage  by,  when  not  a  fire  loss, 261. 

FIRE  INSURANCE, 

as  insuring  not  property,  but  an  interest  in  property, 140. 

defined 275. 

FIRE  LIMITS, 

prohibition  of  frame  buildings  within 369. 

880 


Topical  Index 

fire  loss, 

chief  factor  in  adjustment  of, 290. 

What  is  a  Fire  Loss? 

essay  entitled,  by  W.  N.  Bament,  Esq.,  250. 

FIREMEN, 

operations  of,  as  causing  lire  loss 260. 

FIREMEN'S  INSURANCE  COMPANY  OF  NEW  YORK, 

policy  of  1832  of 11. 

classification  of  hazard  of, 12. 

FIRE  PATROL, 

functions   of 589. 

resolution  of  New  York  Board  curtailing  duties  of,    589. 

FIRE  POINT 

of  oils 392. 

FIRE  PRODUCING  MATERIALS, 

clause  relating  to,  in  old  and  new  policies  compared 52. 

FIREPROOF  BUILDINGS, 

definition  of 368. 

law  relating  to,  3<58. 

prerequisites  to  determination  of  value  of 370. 

E^RST  POLICIES. 

issued  for  what  periods 2. 

FIVE  DAY  RISK, 

in  old  and  new  standard  policies,   46. 

FIVE  DAYS  CANCELLATION  CLAUSE, 

discussed,   248. 

FIVE  PER  CENT  WAIVER  CLAUSE, 

as  dispensing  with  special  inventory  of  undamaged  property  and 

appraisement  thereof,    362. 

referred  to,    362,   709. 

FIXED  CHARGES, 

automatically    included    In    formula   for    loss    adjustment    under 

U.  &  0.  policies 791. 

determination  of,   787. 

insurance  covering  as  U.  &  O.  policies,   748,  763,  764. 

what  are 786. 

FIXTURES, 
trade, 

no  liability  for : . .  .351. 

value  of, 

easily  ascertainable 806. 

how  determined, 89. 

what  considered   removal   of,    351. 

FLAG-POLES, 

policy  of  placing,  in  front  of  buildings  commended,   357. 

881 


The  Fire  Insurance  Contract 
flattening  oven, 

functions  of 293. 

FLEXIBILITY  OF  CHARACTER, 

as  a  result  of  cultivation ; 300. 

FLOOD, 

cleaning  up  of  factory  after, 411. 

FLOOR  FILLING, 

composed  of  terra  cotta 368. 

FLORENTINE  ORDINANCE  OF  1523, 

litigation  to  follow  payment  according  to,    73. 

B'LUCTUATION 

of  product  as  affecting  U.  &  0.  insurance, 736,  758. 

FORECLOSURE, 

clause  against,  in  old  and  new  policies,    50. 

right  of,  under  mortgagee  clause 215. 

sale  under,  as  avoiding  policy,    215. 

FORECLOSURE  PROCEEDINGS, 

if  pending  at  time  of  fire,  insurer  should  pay  mortgage  debt  and 
take   assignment 634. 

FORFEITURE 

clauses  inserted  in  policy,    131. 

not  predicated  on  temporary  conditions,   124. 

of  policy 

by  temporary  storage  of  dynamite,   126. 

FORM, 

early  simplicity  of,   17. 

of   appraisal,    345. 

of  cancellation  notice, 

none  in  particular  required,    173,   174. 

sample  form  excluding  customs  duties  from  coverage 802. 

FORMAL  PROOFS, 

advisability  of  requesting  before  entering  on  appraisal,    362. 

difficulty  of  obtaining,  after  making  of  repairs 361. 

filed  by  assured  before  repairs  made,   361. 

FORMER  AND  PRESENT  DAY  METHODS  OF  ADJUSTMENT, 

essay  entitled,  by  Samuel  R.  Weed,  Esq., 567. 

FORMS, 

cotton  insurance  forms 488,  537. 

examination  of,   416. 

Forms  from  the  Company's  Standpoint, 

essay  entitled,  by  W.  N,  Bament,  Esq.,  794. 

"FOR  WHICH  THE  ASSURED  xMAY  BE  LEGALLY  LIABLE." 730. 

882 


Topical  Index 

"FOR   WHOM   IT  MAY   CONCERN," 

legal  effect  of  words,  similar  to  that  of  words  "held  In  trust," 728. 

FOUNDATION  EXCLUSION  CLAUSE 

of  New  York  Fire  Exchange, 352 

of  Philadelphia  Fire  Exchange,    352. 

purpose  of,    352. 

FOUNDATIONS, 

cost  of 352. 

definition  of,  in  New  York  Building  Code,   377. 

FOUNDATION  WALLS, 

construed  to  include  what, 377. 

FOX,   ROBERT,   J.  ESQ., 

essay  by,  entitled  "The  Claim— Tlie  Proof  of  Loss — When  is  Loss 
Payable?"   306. 

FRAME  BUILDINGS, 

balloon  construction  of,    369. 

definition   of,    : 369. 

estimation  of  cost  of 37!^. 

FRAUD, 

advisability   of   cautious   procedure   when    investigation    discloses 

possibility  of 358. 

award  of  appraisers  set  aside,  if  made  in 362. 

cannot  be  waived,    660. 

Concealment,  Misrepresentation,  Fraud  or  False  Swearing 

essay  entitled,  by  Frank  Sowers,  Esq.,  96. 

defined,  110. 

if  proved,  should  bar  recovery,   130,  131. 

provision  regarding,  in  standard  fire  policy, 96. 

FRAUDS, 

statute  of 492. 

FRAUDULENT  CLAIM, 

what  constitutes 310 

FREEMAN,  WILLIAM  R.,   ESQ., 

essay  by,  entitled  "Adjustment  of  Building  Losses,"   349. 

FREIGHT, 

added  to  cost  in  pricing  inventory, 417. 

FREIGHT  ELEVATOR, 

not  to  be  included  in  policy  covering  contents 365. 

FRIENDLY  AWARDS, 

inadequacy  of 76. 

FRIENDLY  FIRE, 

defined 250. 

883 


The  Fire  Insurance  Contract 
full  daily  average  product, 

as  used  in  use  and  occupancy  insurance,  756. 

FUNDAMENTALS  IN  THE  LAW  OF  INSURANCE  AND  WHY 
ADOPTED, 
essay  entitled,  by  George  Richards,  Esq.,  72. 

FUNERAL  EXPENSES 

may  be  defrayed  out  of  proceeds  from  sale  of  real  estate C84, 

FURNITURE, 

stored  In  cellar  bins .' 366. 

GAMBLER 

courts  fortune;  insured  seeks  to  avoid  misfortune,  140. 

GASOLINE, 

extreme  destructibility  of, 701. 

GENERAL  AVERAGE, 

contribution  towards  such  losses  covered  by  policy 75. 

GENERAL  CONSTRUCTION  LAW  OF  NEW  YORK, 

section  20,   176,  320. 

section  28,  59. 

GENERAL  TERMS 

in  other  items  of  policy  should  not  cover  patterns,  807. 

GENERATOR, 
electric, 

damage  to, 394. 

prevention  of  further  damage  to,  after  fire,  403. 

reconditioning  of,  395. 

restoration  of,  410. 

GENIUS 

of  real  adjuster,  shown  how,  351. 

GEORGIA  COURT, 

erroneous  ruling  of, 125. 

GEORGIA  LOAN  DEED  STATUTE, 

holding  that  neither  vendor  nor  vendee  is  sole  owner  when  prop- 
erty sold  under  contract,  804. 

GERMAN  SILVER, 

corrosion  of, 390. 

GIESSE  RULE 

of  non-concurrent  apportionments,    544,   552. 

GIFTS, 

no  subrogation  to,   608. 

GLASS  MAKING, 

knowledge  of,  derived  from  adjustment,   293. 

884 


Topical  Index 

GOLD, 

cleansing  of 405. 

prevention  of  further  loss  to,  after  fire,  400. 

GOLDEN  RULE, 

as  adjuster's  actuating  motive,  349. 

GOOD  FAITH 

in  making  representations 81. 

requiring  disclosure  of  increase  of  hazard,  118. 

GOOD  WILL 

of  brokers  retained  by  insurance  agents 185. 

GOODS  IN  BOND, 

should  customs  duties  or  internal  revenue  tax  be  included  in  cov- 
erage of,   800. 

GRADUAL  REDUCTION  RULE 

of  non-concurrent   apportionments,    544,    547. 

GRAIN  ELEVATOR, 

building  used  as 368. 

GRATUITOUS  BAILEE 

need  exercise  only  slight  degree  of  care,   719. 

GREASE, 

as  affecting  depreciation  of  boilers,  386. 

removal  of,  from  machinery  parts, 407. 

GREAT  FIRE  OF  LONDON, 

referred   to,    1. 

GREER,  WILLIAM  J.,  ESQ., 

essay  by,  on  "The  Commission  Clause,"   717. 

GRISWOLD,  HON.  STEPHEN  M., 

member  of  senate  committee  on  insurance 23. 

GROUND  OF  FORFEITURE, 

chattel  mortage  as, 119. 

commencement  of  foreclosure  proceedings  as 119. 

other  insurance  as,   ,119. 

GUEST, 

personal  property  of,  covered  by  household  furniture  form 799. 

GUILT, 

conclusively  presumed 130. 

GULF  OF  ST.  LAWRENCE, 

mentioned  in  warranty,  73. 

GUN  POWDER, 

burning  of,  as  fire,   261. 

HALL,  HENRY  H.,  ESQ., 

member  of  committee  on  laws  and  legislation  of  New  York  Board 
of  Fire  Underwriters,  26. 

885 
29 


The  Fire  Insurance  Contract 
hankin,  john,  esq., 

essay    by,    entitled    "Ascertainment    of    Machinery    Values    and 
Losses," 380. 

"HARD   CASES   MAKE   BAD    LAW,"    124. 

HARDY,  EDWARD  R.,   ESQ., 

essay  by,  entitled   "The   Policy  of  Fire   Insurance  Prior  to  the 
Standard  Policy,"  1. 

HARE,  J.  MONTGOMERY,  ESQ., 

member  of  committee  on  laws  and  legislation  of  New  York  Board 
of  Fire  Underwriters, 25. 

HARNESS  FASTENINGS, 

protection  of,   from    corrosion,    402. 

HARTFORD  FIRE  INSURANCE  COMPANY, 

early  policy  form  of,  9,  10. 

policy  of  1810  of 9,  10. 

proposals  of  1810  of, 6,  7. 

reference  to  proposals  in  policy  of, 11. 

HAY 

^      in  stack, 

destructibility  of,  by  fire 701. 

HAZARD, 

a  variable  quantity,    123. 

character  of 129. 

constancy  of, 118. 

increase   of,    117,  118. 

as  ground  of  forfeiture,  129. 

clauses  relating  to,  in  old  and  new  policies 51. 

moral,  129. 

quantity  of .129. 

HAZARDOUS  INSURANCES 11. 

HAZARDS, 

avoiding  policy, 

legislative  wisdom  as  to  clauses  relating  thereto,  120. 

error  of  this  theory,   120. 

true  explanation  thereof,  120. 

clauses  dealing  with,  in  early  policy  forms,  129. 

earliest  classification  of,   11. 

in  early  Hartford  proposal,  7. 

not  covered, 

clauses  in  old  and  new  standard  fire  policy  relating  thereto,  . .  48. 

HEALD,   DANIEL  A.,  ESQ., 

member  of  committee  on  laws  and  legislation.  New  York  Board  of 
Fire  Underwriters, 
quoted  on  line  5  of  standard  policy,  30. 

886 


Topical  Index 

HEAT. 

as  fire 256. 

HEATING, 

computation  of  value  of,  in  fireproof  buildings,  370. 

HEIR 

as  real  party  in  interest  has  right  to  furnish  proofs  cf  loss, 696. 

entitled  to  proceeds  of  insurance  policy 693. 

title  vests  directly  in,  upon  death  of  owner 683. 

HELD    IN    TRUST, 

inclusion    of    words   in    form    permits    ratification    by    owmer    of 

bailee's   insurance,    796. 

liberally  construed  by  courts 796. 

use  of  words  as  implying  a  bailment, 723. 

words  taken  in  a  mercantile  rather  than  a  technical  sense,  .  .  .719,  722. 

HELD    IN    TRUST    OR    ON    COMMISSION, 

as  chief  words  of  interest  in  the  commission  clause,  717. 

HELD    IN    TRUST    OR    ON    COMMISSION    OR    SOLD    BUT    NOT 
DELIVERED  OR  REMOVED, 
as  words  of  the  commission  clause 717. 

HOPWOOD,  E.  B.,  ESQ., 

essay  by,  entitled  "Adjustment  of  Automobile  Losses,"  439. 

HOSTILE  FIRE, 

defined 250. 

HOUSEHOLD    FURNITURE    FORMS, 

broad  coverage  of *. 799. 

HULL,    CHARLES    A.    ESQ., 

Vice  Chairman  of   Committee  on   Laws  and   Legislation   of   New 
York  Board  of  F^re  Underwriters 24,  25,  36. 

HUSBAND, 

burning  of  wife's  property  by,  no  defense 253- 

IDENTIFICATION 

of  stock  sometimes  Impossible, .417. 

IGNITION 

necessary  to  fire 250. 

IGNITION   POINT 

of  various  substances,  394. 

IMMINENCE 

of  peril  to  justify  removal,  247. 

IMPLIED    WARRANTY 

against   deviation, 76. 

of  marine  policy,  respected, 83. 

of  seaworthiness ; 76. 

887 


The  Fire  Insurance  Contract 
impregnating, 

as  prevention  of  water  damage  to  electric  motors  and  generators,  394. 

IMPUTED    KNOWLEDGE,    124. 

INCREASE    OF    HAZARD, 

as  a  question  of  fact,  122. 

as  creating  presumption  of  fact 132. 

as  creating  presumption  of  law 131. 

burning  off  of  old  paint  an, 121. 

by  act  of  assured  works  a  forfeiture,  127-128. 

by  act  of  tenant  and  preventable  by  landlord 135. 

by  act  of  tenant  and  unknown  to  insured 135. 

by  acts  of  others  than  insured,  128. 

by  change  of  mode  of  conducting  business,  123. 

chattel  mortgage  as 111^. 

clause  relating  to,  a  general  catch-all 119. 

commencement  of  foreclosure  proceedings  as 119. 

deliberate,    124. 

essay  relating  to,  by  Hartwell  Cabell,  Esq.,  117. 

forfeiture  resulting  from,  if  originating  in  same  premises, 127. 

in  loft  buildings,   124. 

intended  to  include  physical  and  moral  hazards,   134. 

none  from  failure  to  keep  books  of  account,  136. 

not  a  question  of  law 122. 

other  Insurance  as 119. 

permanent,    124. 

question  for  the  jury, 126. 

receipt  of  anonymous  letter  does  not  involve, 132. 

shavings  left  by  mechanics  an 121. 

should  be  real  and  substantial,  135. 

should  not  be  imaginary  and  insignificant 135. 

.  temporary,  123,  125. 

what  is  excluded  in  phrase,   123. 

what  is  included  in  phrase.  123. 

"INDEMNIFY" 

proposed  as  a  substitute  for  "insure"  in  standard  policy, 26. 

INDEMNITY, 

as  primary  purpose  of  fire  insurance, 138. 

defined 275. 

doctrine  of .   76. 

as  basis  of  subrogation,  603. 

extent  of,  defined  by  new  standard  policy, 43. 

insurance  a  contract  of, 84,  276,  350,  351. 

right  of  mortgagee  to,  237. 

to  assured,  essential  object, 351. 

INDIVIDUAL    INTERESTS 

of  John  Doe  and  Richard  Roe 807. 

INDIVISIBILITY 

of  policy  as  affecting  the  result  of  violation  of  a  condition  thereof,  808. 

888 


Topical  Index 
inducement 

of  insured  not  to  file  proof  of  loss  as  waiver  or  ground  of  estoppel,  321. 

/ 

INFLATION 

of  book  statement, 419. 

of  inventory  as  affecting  profit  ratio, 419. 

INNOCENCE, 

presumption  of 129-130. 

INQUIRY 

by  insurer  as  affecting  law  of  concealment 101. 

necessity  of,  concerning  cost  of  labor  and  materials,  360. 

INSANITY, 

burning  of  property  by  assured  while  In  state  of, 

no  defense  to  insurer,   253. 

INSOLVENCY 

of  insurance  company, 

outstanding  policies  are  ipso  facto  cancelled  upon,  184. 

INSOLVENT  ESTATE, 

administrator  of,  has  insurable  interest  in  realty, 690. 

creditors  of,  have  an  insurable  interest  in  realty 690. 

INSULATION, 

disintegration  of,  as  indication  of  fire  damage  to  electrical  motors 
and  generators,    394. 

INSURABLE    INTEREST, 

administrator  of  insolvent  estate  has, 141,  690. 

as  affecting  insurance  of  profits,  746. 

based  on  public  policy 76. 

creditor  of  insolvent  estate  has 141,  690. 

defined  in  Civil  Code  of  California,   141. 

definition  of,  not  simple 141. 

discussion  of,  in  Lucena  v.  Crauford, 193. 

does  not  necessarily  depend  upon  ownership, 141. 

essential  to  validity  of  contract 76. 

may  arise  out  of  a  qualified  or  limited  ownership 141. 

necessity  of,  based  upon  principle  of  Indemnity,  140. 

need  not  be  a  property  interest,  , 141. 

not  required  at  common  law, 140. 

of  stockholder  in  corporate  property,   747. 

possibility  of  loss  sufficient  to  create,   141. 

requirement   of,   does  not  involre  necessity  that  insured  should 

suffer  pecuniary  loss,   141. 

requirement  of,  satisfied  if  insured  will  incur  loss  from  destruction 

of  property,   .'. .141. 

requirement  satisfied  if  insured  has  a  direct  pecuniary  interest  in 

preservation  of  property,  141. 

tendency  toward  relaxation  of  requirement  of 141. 

test  for  determining  existence  of 141. 


The  Fire  Insurance  Contract 
insurance. 

as  business  of  discrimination,  but  not  of  unfair  discrimination,  . .  .579. 

as  contract  of  indemnity,  76. 

covers  duties  on  imported  goods  unless  expressly  excluded  from 

the   coverage,   801. 

contrary  view,   801 . 

defined,    275. 

if  insufficient  to  cover  mortgage  debt,  insurer  takes  nothing  by 
subrogation  and  assignment  until  mortgage  paid  in  full 634. 

if  void  as  to  owner,  subrogation  arises  in  favor  of  company  when 
payment  made  to  mortgagee  under  loss  payable  clause, 

Is  voided  by  act  of  assured  defeating  insurer's  subrogatory  right, 
if  clause  to  that  effect  inserted  in  policy 624. 

other,  clause  relating  to,  in  old  and  new  standard  policies  compared,  51. 

should  be  purchased  to  a  proper  percentage  of  the  value  of  prop- 
erty,   699. 

INSURANCE    ADJUSTMENT    COMPANY    OF    CINCINNATI, 

organized  in  April,  1875;  expired  in  1886, 567,  568. 

INSURANCE    CONTRACT, 

as  one  of  indemnity,  350,  421. 

object  of,  not  profit  but  reinstatement,  351. 

INSURANCE  DECISIONS, 

scarcity  of,  up  to  1756 76. 

INSURANCE    FORM 

should  be  clear,  concise  and  complete, 816. 

INSURANCE    LAW 

of  New  York,  Section  121,   55. 

INSURANCE    LOSS, 

defined,    276. 

INSURANCE  OFFICES, 

first  established,    1. 

INSURED,  (See  Assured) 

as  coinsurer,  if  insurance  below  value,  75. 

as  coinsurer  to  amount  of  deficit,  f»99. 

as  including  legal  representative  of  insured,  684. 

becomes  trustee  for  insurer  upon  payment  of  loss, 635. 

cannot  settle  or  compromise  his  claim  with  third  parties  to  detri- 
ment of  insurer  who  has  paid  the  loss 635. 

frequently  compelled  to  preserve  insurer's  subrogatory  right  by 
insertion  of  clause  to  effect  that  any  act  of  assured  defeating 
subrogation  shall  void  the  insurance,  624. 

knowledge  of,  that  company  charges  higher  rate  when  provision 
ins^ted  giving  carrier  benefit  of  insurance 623. 

INSURER 

cannot  claim  impairment  of  subrogation  right  to  escape  payment,  634. 
cannot  terminate  the  contract  without  notice  to  the  mortgagee,  . .  .180. 

890 


Topical  Index 

INSURER— Continued 

entitled  to  an  assignment  of  rights  of  insared  against  third  parties 
upon  payment  of  loss,  625. 

entitled  to  subrogation  against  the  United  States  Government  for 
value  of  unused  revenue  stamps  destroyed  by  fire  where 
redeemable  by  statute,  626. 

entitled  to  subrogation  upon  payment  of  loss  to  mortgagee 633. 

may  not  take  advantage  of  fact  known  to  an  agent  at  time  of 

policy's  issuance  as  a  defense,  812, 

exception  to  the  rule  in  courts  of  Massachusetts,  New  Jersey, 
England  and  United  States  Supreme  Court, 812. 

may  take  advantage  of  fact  coming  to  knowledge  of  an  agent  after 
policy's  issuance  as  a  defense,  if  no  endorsement  in  writing,  812. 

m  '8t  assert  its  subrogation  right  at  or  before  making  payment,  .  .638 

Tiiiist  make  payment  if  desirous  of  availing  itself  of  subrogation 
rights  under  mortgagee  clause,   634. 

should  preserve  its  subrogation  rights  when  foreclosure  proceed- 
ings pending  at  time  of  fire, 634. 

stands  in  shoes  of  insured,  621. 

until  payment  by,  mortgagee  free  to  settle  with  other  insurers,  . . .  634. 

upon  payment  to  mortgagee,  is  entitled  to  be  subrogated  to  mort- 
gagee's rights,   625. 

voluntary  payment  of  loss  by,  with  full  knowledge  that  assured 
has  recovered  from  third  party,  operates  as  waiver 636. 

will  be  relieved  of  liability  when  mortgagee  acts  in  any  way  detri- 
mental to  insurer's  subrogation  rights,  636. 

INTENT, 

as  element  in  concealment, 96. 

of  the  bailee  controls  scope  of  the  commission  clause, 731. 

INTENTION 

of  underwriters  ignored 124. 

to  create  a  trust  inferred  by  the  court,  718. 

INTENTIONAL 

withholding  of  information,  , 99. 

INTEREST, 

change  in,  may  occur  without  change  of  title, 147. 

"or  if  the  interest  of  the  insured  be  not  truly  stated   therein," 

clause  omitted  in  new  standard  policy 47. 

word    broader   than    title,    embracing    both    legal    and    equitable 

rights,     147. 

INTERESTS, 

individual  and  joint,  807. 

INTERRUPTION 

of  business  not  included  in  value  under  new  standard  policy, 47. 

IN  TRUST, 

as  words  applicable  to  any  case  of  bailment,  etc., 7I8, 

891 


The  Fire  Insurance  Contract 

INTUITION, 

as  result  of  application  of  horse  sense,  420. 

INVENTORY, 

as  affecting  appraisal,  344. 

as  opening  entry  of  book  account,  418. 

as  starting  point  for  determining  value 418. 

as  truly  representing  stock  on  hand, 418. 

basis  of  pricing  of 417. 

excessive  as  to  quantity;  or  pricing,  419. 

inflation  of,  as  affecting  profit  ratio 419. 

none  if  claim  for  loss  does  not  exceed  5%,  362. 

of  undamaged  property,  362. 

padding  of,   419. 

required  by  standard  fire  policy, 315. 

suppression  of  entry  in,  419. 

inversion 

of  principle  of  common  law,  130. 

INVOICES 

of  insured,  as  assisting  pricing  of  inventory, 417. 

INVOICE    VALUE, 

insured  can  collect  only,   801. 

IRON, 
cast, 

damage  to,  by  expansion  and  contraction 390. 

fractures  of,  from  heat,    390. 

temper   of 390. 

corrosion  of, 390. 

prevention  of  further  loss  to,  after  fire, 400. 

restoration  of,   404. 

wrought,  • 

temper  of,  390. 

iron  safe  CLAUSE, 

legislation  impending  in  Southern  States  to  abolish, 582. 

ISSUANCE    OF    POLICY, 

time  of,  as   important  element  in  determining  whether  estoppel 
raised 812. 

JOHN    DOE    AND /OR    RICHARD   ROE, 

policies  issued  to,  discussed,  807,  808,  809. 

JOHN  DOE  AND  RICHARD  ROE, 

as  interest  may  appear 808. 

JOHNSON,  MR.,  OF  PENNSYLVANIA, 

member  of  committee  of  insurance  commissioners, 42. 

JOINT   ACTION 

by  assured  and  insurer  against  party  primarily  responsible,  where 
loss  exceeds  amount  of  Insurance 626. 

892 


Topical  Index 
joint  interests 

of  John  Doe  and  Richard  Roe 807. 

JUDICIAL  MIND 

of  insurance  adjuster,   367. 

JURY 

must  determine  whether  non-disclosure  of  a  release  by  assured  was 

concealment  of  a  material  fact, 811. 

passing  on  increase  of  hazard 120. 

JURYMEN. 

special  jurymen  used  by  Lord  Mansfield,  77. 

KENNEDY,  ELIJAH  R.,  ESQ., 

essay  by,  entitled  "Origin  of  the  Standard  Fire  Policy,"  20. 

KEROSENE, 

extreme  destructibility  of,   701. 

KINNE   RULE, 

as  applicable  to  compound  non-concurrences  when  policies  are  not 

subject  to  coinsurance  conditions 566. 

KNOWLEDGE 
of  agents, 

imputed, 
of  agents  and  brokers 

in  relation  to  effectiveness  of  cancellation,  170. 

of  agent  that  release  had  been  given  by  property  owner  to  railroad 

company  at  time  of  policy's  issuance,  as  raising  an  estoppel,  . .  812. 

of  fire  by  insurer  as  dispensing  with  notice, 314. 

of  insured  as  affecting  company's  right  to  subrogation, 623. 

of  insured  as  to  higher  premium  being  exacted 811. 

effect  of,  811. 

of  tort  feasor  in  paying  insured,  who  has  received  full  payment 

from  insurer,  will  bar  defense  against  insurance  company, 636. 

on   part  of  mortgagee  of   grounds   of   forfeiture,   as  voiding  his 

interest,   216,  234. 

LABOR, 

inquiry  concerning  local  cost  of,  360. 

value  of,  on  tailor's  stock,  whether  covered,  287. 

LABOR    LAW, 

cited 368. 

LAMP, 

smoky,  damage  from,   257. 

LANDLORD. 

double  indemnity  to,  where  tenant  must  rebuild, 280. 

LAW, 

as  an  outgrowth  of  customs  of  merchants, 138. 

of  insurance, 

893 


The  Fire  Insurance  Contract 

LAW — Continued 

fundamentals  in  the,  72. 

leading  doctrines  of  the,   72. 

origin  and  early  development  of  the,  72. 

operation  of,  in  legal  subrogation,  617. 

satisfactory,  only  if  responding  to  commercial  needs,  138. 

LAWS 

of  New  Jersey, 

1911,  ch.  340 322. 

of  New  York, 

1913,  ch.  181,   66. 

1918,  ch.  112,   59. 

LEAD, 

cleansing  of,    405. 

LEGAL  REPRESENTATIVES 

included  in  the  word  'insured,'   684. 

term  sufficiently  broad  to  include  heirs-at-law,  next  of  kin,  legatees 
or  devisees, 694,  696. 

LEGAL   SUBROGATION, 

defined,    617. 

permitted  only  where  debtor  under  legal  obligation  to  pay, 017. 

LEVY,   LEO,    ESQ., 

essays  by,  entitled  "The  Interest  of  a  Mortgagee  under  a  Policy 

of   Fire   Insurance" ;     ....  228. 

"Use  and  Occupancy,  Profits  &  Commissions,  Rents  &  Lease- 
hold   Insurance,"    744. 

LEVY 

under  an  execution  issued  on  personal  property  of  insured  does 
not  operate  as  a  change  of  possession 146. 

LIABILITY  (See  Limit  of  Liability) 

for  loss  of  cotton  of  warehouseman 469. 

under  coinsurance  clause,   701. 

LIABLE, 

significance  of  the  word,   789. 

LIBERALITY, 

nothing  should  be  left  to  liberality  of  companies  in  writing 

policies, 287. 

LIEN, 

bailee  having,  may  deduct  amount  from  insurance  money,  .  .  .  724,  728. 
of  mortgagee  on  moneys  due  mortgagor  under  agreement  to 

insure 199,  200. 

LIFE  INSURANCE  POLICY, 

courts  disregard  immaterialities  in  application  for 136. 

LIGHTNING, 

as  alternative  cause  of  loss,  356,  357. 

894 


Topical  Index 

LIGHTNING— ConfinMetZ 

as  fire,   254. 

clause  relating  to,  in  old  and  new  policies  compared, 53. 

damage  by,   356. 

Insurance  covering,  356. 

windstorm  damage  not  included  in  loss  by, 356. 

LIKE  KIND  AND  QUALITY, 

as  qualifying  replacement  in  new  standard  policy,  43. 

LIMITATION, 

as  applying  to  building  contract 331. 

as  applying  to  mortgagee, 212,  234,  331. 

provision  relating  to,  in  old  and  new  policies,  68. 

under  loss  payable  clause, 332. 

under  standard  fire  policy,    330. 

LIMIT  OP  LIABILITY, 

how  expressed  in  use  and  occupancy  policies 760. 

rule  of  non-concurrent  apportionment 554. 

application  of 558. 

basis  of,  557. 

LINEAL    DESCENDANTS, 

as  primary  beneficiaries  in  intestacy,  683. 

LIVES   OF  THE   CHIEF   JUSTICES. 

written  by  Lord  Campbell, r  -  ^ 

LLOYDS, 

home  of,   73. 

list 74. 

register,    74. 

LOCATION, 
new, 

as  aflfecting  use  and  occupancy  insurance, 764. 

damages  in,  after  removal,  248. 

increase  of  hazard  in  same  or  different,  127. 

LOFT  BUILDINGS,  124. 

LOGICAL 

conclusions,  evaded  by  courts,  124. 

LOMBARD  MERCHANTS, 

marine  underwriting  introduced  by,  73. 

LOMBARD  STREET 

still  mentioned  in  the  English  policy,  73. 

LOOSE    ADJUSTMENTS, 

as  leading  to  crime  and  loss  of  surplus, 581. 

LORD  MAYOR  OF  LONDON, 

merchants  appointed  by,    72. 

«95 


The  Fire  Insurance  Contract 

LOSS, 

"actual  loss   sustained"   as  phrase   found   in   use   and   occupancy- 
insurance,    756. 

adjustments 

chief  factor  in, 290. 

element  of  surprise  in, 303. 

made  by  committees, 587. 

ascertainment  of,  as  regards  non-perishable  goods, 416. 

"Ascertainment  of  Machinery  Values  and  Losses,"  essay  entitled, 

by  John  Hankin,  Esq.,  380. 

ascertainment  of,  three  methods  of,   416. 

ascertainment  of,  under  use  and  occupancy  policies,  759,  769,  788,  790. 
committee, 

insistence  on  details  of  estimate  by,  373. 

departments,  organization  of 568. 

greatest  possible  collectible  loss  due  insured,  555. 

insurable  loss,  defined 276. 

on  buildings 368. 

prevention  of  further  loss  after  fire,  400. 

right  to  recover  under  void  policy,  214. 

three  classes  of,    422. 

What  is  a  Fire  Loss? 

essay  entitled,  by  W.  N.  Bament,  Esq 250. 

when  payable, 

clause  relating  to,  in  old  and  new  policies,  67. 

LOSSES, 

Adjustment  of  Stock  Losses, 

essay  entitled,  by  D.  C.  Brown,  Esq.,  415. 

LOSS  PAYABLE  CLAUSE,  61,  232,  720. 

as  affected  by  twelve  months'  limitation,  332. 

forms  of,  in  various  states, 199. 

hold  an  unconditional  agreement 200,  205. 

mortgagee  under,  207,  212,  214,  223. 

placed  on  policy  at  request  of  insured, 810. 

suggested  amendments  to,   206. 

LOST  OR  NOT  LOST, 

analogous  situation  In  fire  insurance 193. 

LUBRICANT, 

presence  of,  as  indicating  degree  of  heat 391. 

LUMP  ADJUSTER, 

ignorance  of,  as  to  what  his  lumps  contain,  360. 

LUMP  ESTIMATE, 

inaccuracy  of, , 360. 

MACHINERY, 

prevention  of  further  injury  to,  after  fire,  403. 

removal  of  rust  from  parts  of, 407. 

value 

896 


Topical  Index 

MACHINERY— Continued 

Ascertainment  of  Machinery  Values  and  Losses, 

essay  entitled,  by  John  Hankin,  Esq.,   380. 

determination  of, 806. 

in  hands   of  manufacturers 90. 

on  lease,   *. 91. 

MACHINES, 
sewing, 

damage  to,    397. 

MCMILLAN,    SENATOR, 

introduces  bill  for  standard  fire  policy,   22. 

mentioned 33,    34. 

MAGISTRATE, 

certificate  of,  a  requirement  under  standard  fire  policy, 314,  323. 

must  be  disinterested, 323. 

what  is  "nearest"  magistrate, 323. 

MAILING 

of  proofs  of  loss, 319. 

MAINE  LAW, 

relative  to  vendor  and  vendee 804. 

MANSFIELD,   LORD, 

use  of  special  jurymen  by,   76,  77. 

MANUFACTURERS 
of  machinery, 

rules  of  value  relating  to  property  in  hands  of, 90,  92. 

MANUFACTURING  RISKS, 

causes  of  fire  in,   367. 

In  use  and  occupancy  insurance,  788. 

MARINE  INSURANCE, 

concealment  in  fire  and  marine  insurance,  96. 

contract  of, 

contributions  to  general  average  under,  75. 

conventional  form  of, 78. 

duty  to  pay  premium  under, 73. 

implied  provisions  of 75. 

Implied  warranties  of,   83. 

only  express  obligation  of 73. 

simple  character  of, 73. 

MARKETING, 

cost  of,  as  factor  in  value  of  machinery 382. 

MARKET  VALUE   CLAUSE 815. 

MARYLAND, 

law  of,  relating  to  cancellation 175. 

897 


The  Fire  Insurance  Contract 

MASONRY, 

In  fireproof  buildings,  368. 

in  non-fireproof  buildings,  369. 

value  of,  how  computed, 370. 

MASSACHUSETTS, 

first  state  to  adopt  standard  fire  policy, *. 21. 

law  of  subrogation  in, 139,  G33. 

standard  fire  policy  of, 

subrogation  against  mortgagee  under, 634. 

MATCHES, 

thrown  by  tenants,   366. 

MATCHLESS  CONSTITUTION,  THE,    794. 

MATERIAL, 

local  cost  of,  inquiry  concerning,  360. 

of  like  kind  and  quality 417. 

of  machinery,  as  factor  in  determining  its  value,  380. 

value  of,  fluctuating  character  of,  371. 

MATERIALITY, 

province  of  jury  to  determine,  103. 

test  of,  in  examination  of  insured  under  oath, 327. 

test  of,  in  law  of  concealment,   101. 

McKENNA,  JAMES  A.,  ESQ., 

essay  by,  entitled  "Value  and  Profits  from  Books  of  Account,"  426,  438. 

MEASUREMENT 

of  chimneys,  how  obtained,   360. 

MEASURE  OP  VALUE, 

under  New  York  standard  policy, 417. 

MECHANICS    PRIVILEGE, 

provision  for,  in  standard  fire  policy,   29. 

MELTING    POINT 

of  various  substances 393. 

MEMORANDUM  CLAUSE, 

in  old  and  new  standard  policies,  48. 

MERCANTILE    RISKS, 

in  use  and  occupancy  insurance,  788. 

MERCHANDISE, 

held  in  trust 722. 

losses  on,  adjustment  of,  420. 

MERCANTILE   RISKS, 

in  use  and  occupancy  insurance 788. 

MERRITT   COMMITTEE,   THE 698,  699. 

898 


Topical  Index 
metal  lath, 

price  of 871. 

METROPOLITAN    INSURANCE    CO., 

policy  of,  16,    17. 

MICHIGAN 

adopts  a  standard  fire  policy, 39. 

MISREPRESENTATION, 

by  agent 108. 

by  owner  as  to  terms  of  bill  of  lading, 623. 

Concealment,  Misrepresentation,  Fraud  or  False  Swearing, 

essay  entitled,  by  Frank  Sowers,  Esq ! .  96. 

defined .• 104. 

distinguished  from  concealment,  ; 104. 

'in  writing  or  otherwise,' 

omission  of  phrase  in  policy,  47. 

of  material  fact,  when  insurer  deprived  of  subrogation, 811. 

proof  of,  as  changing  ruling  of  court 623. 

provision  regarding,  in  standard  fire  policy 96. 

MISSTATEMENT 

of  sound  value  by  assured,  362. 

MOORE,  L.  A.,  ESQ.,  ' 

essay  by,  entitled  "Use  and  Occupancy," 756. 

MOORE,  WM.  J.,  ESQ., 

essay  by,   entitled   "Estimates   of   Building  Values  and   Building 
Losses," 368. 

MORAL  HAZARD. 

as  a  constant  factor  in  Texas 133. 

danger  of  incendiarism  as, 133. 

increase  of,  by  occurrence  of  previous  fires,  133. 

judicial  exposition  of,   133. 

law  of  New  York  regarding 131. 

of  use  and  occupancy  insurance,   737. 

voiding  the  policy 131. 

MORALS 

of  appraisers 346. 

of  the  insurance  business 289 

MORRISTOWN  RULE 

of  non-concurrent  apportionment, 544,  553. 

MORTGAGE. 

subrogation  to 604. 

MORTGAGEE, 

assignment  by 237. 

cancellation  of  interest  of 180,  223,  230. 

change  of  policy  without  knowledge  of,  217. 

899 


The  Fire  Insurance  Contract 

UORTGAGEB— Continued 

clause,  (see  Standard  Mortgagee  Clause)   61.  202,  209,  233. 

in  entrys, 18. 

in  old  and  new  policies  compared 60. 

in  policy  of  shoe  and  leather  Insurance  company,   18. 

in  standard  fire  policy  relating  to  mortgagee's  interest, 202. 

requiring  consent  of  company,  omitted  in  standard  fire  policy,  29. 
consent  of,  to  cancellation  of  policy, 

effect  thereof ^m. 

default  of  insured  as  affecting,  232. 

elimination  of,  from   loss   draft,   when   amount   involved   is  less 

than  $100, 810. 

entitled  to  same  notice  as  insured,  180. 

favored  position  of,  in  fire  insurance,  199,  200,  205. 

given   an   unconditional    contract    under   loss   payable   clause   in 

some  states, 200. 

increase  of  interest  of,  under  mortgagee  clause,  221. 

insurable  interest  of,  after  assignment  of  the  policy, 217. 

Interest  of  a  Mortgagee  under  a  Policy  of  Fire  Insurance,  The, 

essay  entitled,  by  Leo  Levy,  Esq.,  228. 

essay  entitled,  by  W.  N.  Bament,  Esq., 199. 

interest  of,  under  loss  payable  clause, 214. 

interest  of,  what  acts  of  mortgagor  affect,  215. 

liability  of,  for  premiums,   221,  230. 

lien  of,  against  insurance  money  due  mortgagor, 199,  200. 

necessary  party  to  action  by  mortgagor,  214. 

need  not  exhaust  his  remedy  against  mortgagor, 625. 

need  not  submit  to  appraisal  under  standard  mortgagee 

clause,  nor  to  examination  under  oath, 212,  215. 

not  bound  by  appraisal  to  which  he  is  not  a  party, 212,  339,  361. 

proper  clause  when  policy  issued  to  second  mortgagee, 217,  220. 

should  not  be  permitted  to  obtain  double  indemnity, 633. 

subrogation  to  interest  of, 231,  604,  633,  634,  636. 

under  "as  interest  may  appear"  clause,  226. 

under  loss  payable  clause, 200,  205,  207,  214,  223,  633. 

under  mortgagee  clause, 

bound  by  average  or  coinsurance  clause, 209. 

free  of  provisions  for  conduct  after  loss,  212. 

MVldespread  interest  in  legal  rights  of,  199. 

MORTGAGOR, 

acts  of,  which  will  void  policy  as  to  mortgagee  under  loss  payable 

clause,    215. 

may  not  cancel  insurance  without  notifying  mortgagee,   180. 

MOTORS  (and  Generators), 

damage  to, 394. 

prevention  of  further  damage  to,  after  fire,  403. 

reconditioning  of,   396. 

restoration  of, 410. 

MUNICIPAL    REGULATIONS 355. 

900     /^± 


Topical  Index 

MYSTERY, 

insurance  not  a 288. 

NATHAN,  EDGAR  J.,  ESQ., 

essay  by,  entitled  "Ownership,"    137. 

NATIONAL  BOARD  OF  FIRE  UNDERWRITERS, 40. 

NEGLIGENCE, 

burden  of  proof  as  to 245. 

consequences  of,   245. 

,in  removal  of  imperiled  goods,   247. 

of  carrier, 

subrogatory  rights  based  upon 625,  806. 

of  insured, 

as  defense,   251. 

in  protecting  property,    248. 

of  owner,  as  not  constituting  increase  of  hazard,  123. 

of  servant,  as  not  constituting  increase  of  hazard 123. 

subrogation  to  claims  for,   602. 

NEIGHBORHOOD, 

change  of,  as  causing  depreciation  of  buildings 372. 

NEW  STANDARD  FIRE   POLICY, 

conditions  of,  the  violation  of  which  suspend  the  policy  of  insur- 
ance, compared  with  corresponding  provisions  of  old  policy,  . .  50. 

conditions  of,  the  violation  of  which  terminate  the  policy  of  insur- 
ance, similarly  compared,   49. 

construction  of 

should  not  be  most  strongly  against  insurer,  70. 

essay  entitled,  by  David  Rumsey,  Esq.,   41. 

restrictive  clauses  of,    74. 

revision  of  standard  policy  decided  upon 42. 

rules  as  to  cash  value  in,  discussed, 45. 

rules  as  to  extent  of  indemnity  in,  analyzed 43. 

various  clauses  of,  compared  with     corresponding  clauses  of  old 
standard  policy,    41,  47,  56,  58,  60,  63,  65,  67,  68,  69. 

NEW    YORK 

Legislature  adopts  standard  fire  policy 39. 

standard  fire  policy  of  1886,  (See  Standard  Fire  Policy  [old]  and 
New  Standard  Fire  Policy)    139. 

NET  ANNUAL   PROFITS, 

phrase  employed  in  use  and  occupancy  insurance,  756. 

NEW  YORK  BOARD  OF  FIRE  UNDERWRITERS, 

authorized  to  make  additional  riders,  40. 

prepares  form  of  policy,  21. 

proposed  as  author  of  standard  policy 24. 

remonstrates  against  passage  of  measure  for  standard  policy, 23. 

NEW  YORK  STANDARD  POLICY    (See  Standard  Fire  Policy,  New 
Standard  Fire  Policy) 

901 
30 


The  Fire  Insurance  Contract 
nichols,  w.  j.,  esq., 

essays  by,  entitled 

"The  Coinsurance  Clause,"   697. 

"Waiver  and  Estoppel,"  652. 

NOBLE    METALS, 

cleansing  of 405. 

nomination  of  appraisers,  362. 

non-concurrence, 

Albany  rule, 544,  546. 

compound 542. 

Connecticut  rule 544,  547. 

Finn-Griswold-Kinne  rule 544,  550. 

gradual  reduction  rule, 544,  547. 

Giesse   rule,    544,  552. 

modified  Finn  rule 551. 

modified  Reading  rule 546. 

Morristown  rale,  544,  553. 

Reading  rule,  544,  545. 

Rice  rule 544,  552. 

simple 540. 

non-delivery 

of  policy  to  insured 188. 

NON-DISCLOSURE, 

materiality  of,  a  question  for  the  jury, 811. 

NON-FIREPROOF  BUILDINGS 

definition  of,    369. 

estimation  of  cost  of,   371. 

NON-LIABILITY  MATTER, 

essay  entitled,  by  William  B.  Ellison,  Esq 152 

NON-PERISHABLE    STOCKS,    416. 

NON-WAIVER    AGREEMENT 358. 

NOON, 

defined  in  new  standard  policy, 58. 

NOTICE    OF    CANCELLATION, 

broker  as  agent  of  insured  to  receive 185. 

must  be  accompanied  by  tender  of  unearned  premium,  171. 

must  state  a  specific  time, 173,  174. 

of  mortgagee  clause 180. 

requisites  of 174. 

to  whom  must  such  notice  be  given, 180. 

waiver  of 196. 

when  effective,  174,  181. 

NOTICE   OF   LOSS,  314.  360. 

knowledge  by  insurer  of  fire  as  dispensing  with 314. 

902 


Topical  Index 

NOTICE  OF  UDSS— Continued 

when  reasonable,  314. 

whether  mortgagee  under  standard  mortgagee  clause  bound  to  give,  212. 

NOVATION, 

analyzed  into  two  constituent  contracts, 183. 

OATH, 

examination  under,  required  by  standard  fire  policy,  314,  324. 

proof  of  loss  must  be  sworn  to  by  insured  under, 318. 

«. 

OBJECT 

of  five  days'  cancellation  notice 178. 

OBLIGATION 

of  bailee  to  bailor  varies  with  the  circumstances, 719. 

OBSOLESCENCE, 

depreciation  on  account  of,  385,  387. 

OFFER 

to  refund  unearned  premium 171. 

"OF    LIKE    KIND    AND    QUALITY,"    417. 

OIL, 

as  affecting  depreciation  of  boilers,  386. 

OIL  RAGS, 

left  on  premises  as  no  increase  of  risk, 123. 

spontaneous  combustion  caused  by,  367. 

OPENING  ENTRY 

of  book  account,  418. 

OPERATION 

of  factories  at  night, 

of  law,  in  legal  subrogation, 

permission  to  cease,  in  use  and  occupancy  policies 765. 

OPTION, 

clause  relating  to,  in  old  and  new  policies, 67. 

to  replace,  waiver  of,  by  appraisal,  346. 

to  take  damaged  goods,  242,  424. 

ORDINANCE, 

as  to  reconstruction, 

of  City  of  New  York, 

not  to  influence  replacement  under  new  standard  policy, 43. 

^  under  old  standard  policy,  88. 

Florentine,  relating  to  litigation,   73. 

i        for  removal  of  part  of  building  as  affecting  loss,  285. 

j  provisions  of,  relating  to  partition  fences,   353. 

requiring  changes  in  reconstruction,  271. 

ORDONNANCE 

de  la  Marine  de  1681 241. 

903 


The  Fire  Insurance  Contract 
original  policies, 

examination  of,  before  loss  adjustment,  35S 

ORIGIN   OF  FIllE, 

procedure  when  suspicious,  358 

origin  of  the  standard  fire  insurance  policy, 

essay  entitled,  by  Elijali  R.  Kennedy,  Esq 20. 

other  insurance, 

clause  relating  to,  in  old  and  new  policies 51. 

prohibition  of,  whether  valid  or  not,  inserted  in  standard  lire  policy,  32. 
without  written  permit,  81. 

DUST, 

clauses  ousting  courts  of  jurisdiction,  334. 

outhouses, 

not  covered  under  building  policy,  353. 

OVERESTIMATE 

of  loss  by  insured,  349. 

OVERVALUATION, 

rule  concerning,  in  Missouri  and  Wisconsin,   88. 

OWNER 

cannot  defeat  insurer's  right  to  subrogation,   624. 

erroneous  belief  that  vendor  is  owner  so  long  as  he  retains  legal 

title,    802. 

may  ratify  bailee's  insurance  when,  422,  71 6. 

may  sue  in  his  own  name,  7I/G. 

of  goods  in  bonded  warehouse, 

loss  on  account  of  duties  to,  801. 

of  goods  in  possession  of  another,   422. 

OWNERSHIP,  (See  Title) 

assignment  for  benefit  of  creditors  docs  v/ork  a  change  of, 145. 

change  in  interest,  title  or  poss^  ssion, 

clause  relating  to,  in  old  and  new  policies,  50. 

condition  regarding,  in  old  and  new  policies 49. 

essay  entitled  "Ownership,"  by  Edgar  J.  Nathan,  Esq 137. 

fee  simple, 

clause  requiring,  in  old  and  new  policies 50. 

not  changed  by  occurrence  of  fire,   416. 

not  changed  by  sale  in  foreclosure  nor  upon  execution, 145,  147. 

receiver  in  bankruptcy,  appointment  of,  does  not  effect  a  change  of,  145. 
trustee  in  bankruptcy,  appointment  of,  does  effect  a  change  of, 145. 

PACKING  BOXES, 

as  cause  of  fires,  307. 

PADDING 

of  inventory,  419. 

904 


Topical  Index 

PAINT, 

blistering  of,  as  indicative  of  heat,  394 

PARKER,  C.  J., 

dissenting  opinion  of,  in  Tisdell  case, 171* 

PARLIAMENT, 

act  of,  relating  to  insurance,  72, 

PAROL  EVIDENCE  RULE,   652. 

PAROL   WAIVER, 

doctrine  of,  81. 

PARTIAL  RATIFICATION, 196. 

PARTIES 

to  the  adjustment  conference  should  include  whom, 375. 

PARTITION    FENCES, 

provisions  of  New  York  City  ordinances  relating  to 353^ 

PARTITIONS, 

computation  of  value  of,  in  fireproof  buildings, 370, 

PARTNER, 

appointment  of,  as  receiver,  works  no  change  of  title, 145 

PART   OWNER 

possesses  no  authority  to  insure  for  other,  193, 

PARTS 

of  machine, 

proportion  of  machined  or  finished  parts  as  determining  value,  380. 
removing  grease  from 407. 

PATENT, 

patented  attachments  as  affecting  value  of  machine, 381* 

PATTERN    CLAUSE, 

abrogation  of,  by  New  York  Insurance  Exchange,  806 

suggested  contents  of,   412 

PATTERNS 

should  not  be  covered  in  general  terms 807 

value  of,  how  determined,   89. 

PAYMENT   OF    LOSS, 

before  litigation  in  Florentine  ordinance 73 

even  though  security  given 74 

not  in  early  English  policies 74 

clause  relating  to,  in  old  and  new  standard  policies  compared, 67. 

PENAL    LAW    OF    NEW    YORK, 

Section  1202  of,  -eferred  to 306 

PER  BALE  INSURANCE  OF  COTTON,    488,   505. 

PERCENTAGE   COINSURANCE   CLAUSE,    705. 

905 


The  Fire  Insurance  Contract 
performance  of  contract, 

on  Sunday,   177. 

PERIL    insured    against, 

as  controlling  cause 78. 

as  proximate  cause  of  loss 79. 

PERISHABLE    STOCKS,   416. 

PERMANENT  INCREASE  OF  HAZARD, 

as  ground  of  forfeiture 127. 

PERMIT, 

examination  of,  416. 

of  building  department 369. 

PERSONAL 

character  of  insurance  contract, 119,  349. 

equation  in  adjustments 579. 

force  of  adjuster,  as  chief  factor  in  adjustments, 290,  505. 

PERSONALITY 

of  owner  as  important  factor  in  insurance  contract 138. 

PERSONAL  PROPERTY, 

value  of,  how  determined,   89. 

PERSONALTY, 

payment  of  debts  out  of,  by  administrator, 684. 

PETROLEUM, 

presence  of,  as  increasing  risk,  126. 

PHILOSOPHER'S    STONE, 

limit  of  liability  rule  characterized  as,  when  coinsurance  condi- 
tions are  present  in  all  policies,  557. 

PHRASES, 

used  in  use  and  occupancy  insurance,   756,  759,  760. 

PIANO, 

purchased  on  instalment  plan,  136. 

PICKLING   BATH, 

for  cast  iron 407. 

PIERS, 

included  in  foundation  walls  under  what  circumstances,   377. 

PIONEER    INSURER, 

how  protected  from  fraud  and  mistake, 74. 

PITCHER,  WILLIAM  R.,  ESQ., 

essay  by,  entitled  "Unusual  and  Interesting  Fire  Loss  Claims,"  . . .  587. 

PLACE 

of  examination  of  insured 324. 

906 


Topical  Index 

PLANS, 

furnishing  of,  a  requirement  of  standard  fire  policy, 314,  323. 

<^LANS    AND    SPECIFICATIONS, 

submission  of,  to  superintendent  of  buildings 369. 

PLANTS, 

steam  power  plants,  depreciation  of, 386. 

PLASTERING, 

circumstances  requiring  plastering  to  be  taken  down, 378. 

computation  of  value  of,  in  fire-proof  buildings 370. 

in  public  buildings  and  school  houses, 378. 

PLATE    GLASS, 

provision  for,  in  standard  policy,  21. 

PLUMBING, 

computation  of  value  of,  370. 

"POLICIE" 

derivation  and  history  of  the  word 73. 

POLICY,  (See  Standard  Fire  f^olicy.  New  Standard  Fire  Policy) 

cancelled  by  insolvency  of  company 184. 

construction  of, 851. 

covering  goods  under  bill  of  lading', 623. 

delivery  of,  may  be  conditional,  190. 

divisibility  of 808. 

early  forms  of,  prior  to  standard  policy, 13. 

examination  of 416. 

immaterialities  in  application  for,  disregarded 136. 

indemnity,  policy  an  agreement  for 685. 

Invalidated  by  certain  clauses  in  bills  of  lading 624. 

new  forms  of,  in  use  and  occupancy  insurance, 790. 

not  a  guaranty  of  immunity  of  property,  685. 

of  life  insurance, 136. 

of  use  and  occupancy  insurance,   784. 

personal   contract 685. 

public  (See  Public  Policy) 630.  633. 

should  state  by  whom  duty  and  warehouse  charges  to  be  paid  and 

whether  part  of  value,   802. 

The  Policy  of  Fire  Insurance  Prior  to  the  Standard  Policy, 

essay  entitled,  by  Edward  R.  Hardy,  Esq 1. 

POSSESSION, 

issuing  of  execution  and  levy  thereunder  on  personal  property  does 

not  operate  as  a  change  of,  146. 

taking  of,  by  sheriff  levying  on  goods,  held  not  to  be  such  a  change 

of  possession  as  to  invalidate  policy,  .146. 

vendee    in,    under    a    contract    of    sale,    regarded    as    equitable 

owner 147,  803. 

907 


The  Fire  Insurance  Contract 

PREMIUM, 

as  affected  by  clauses  giving  carrier  benefit  of  insurance .623. 

higher  charge  exacted  if  concealed  matter  revealed 77. 

liability  of  mortgagee  for, 230. 

notice  must  be  given  to  party  responsible  for 180. 

pro  rata,  retained  by  company  when 170. 

set-off  of,  as  against  assignee,  when  due  from  assignor,  184. 

unearned 

tender  of,  as  regards  mortgagee,   230. 

tender  of,  under  old  and  new  standard  policies 57. 

PRESS, 

printing,  damage  to,  395. 

PRESUMPTION 

of  innocence,  129. 

of  intent  deduced  from  commission  clause,  729. 

PREVENTION, 

as  used  in  use  and  occupancy  policies,  7G0. 

of  further  loss  after  fire,  400. 

PRICE, 

involved  in  determination  of  value,   i 417. 

PRIMA  FACIE 

case  must  be  made  before  defense  necessary, 130. 

PRIORITY 

of  insurance  money  due  a  mortgagee,  226. 

PRODUCTION, 

full  daily  average,  as  determined  under  use  and  occupancy  policies,  756. 

measurement  of  loss  by,  under  use  and  occupancy  policies, 767. 

word  construed  in  use  and  occupancy  policies,  756. 

PROFIT    AND    LOSS    ACCOUNT, 

used  in  use  and  occupancy  adjustment, 787. 

PROFIT    INSURANCE, 

discussed 813. 

PROFIT  RATIO, 

as  affected  by  inflation  of  inventory 419. 

as  key  to  ascertainment  of  stock  on  hand,  418. 

PROFITS, 

as  included  in  cash  value 745. 

defined,   716,  748. 

how  determined  in  adjusting  use  and  occupancy  losses 785. 

measurement  of  loss  by,  under  use  and  occupancy  policies 767,  790. 

net  annual  profits  in  use  and  occupancy  insurance 756. 

Use  and  Occupancy,  Profits  and  Commissions,  Rents  and  Leasehold 
Insurance, 

essay  entitled,  by  Leo  Levy,  Esq 744,  750. 

908 


Topical  Index 
proof  of  loss. 

as  evidence, 676. 

demand  for,  as  waiver, 672. 

mortgagee,  whetiier  bound  to  furnish,   212,  215. 

waiver  of,   674. 

PROPERTY, 

as  subject  of  loss,  701. 

owner  of,  as  affected  by  coinsurance 810. 

PRO  RATA  PREMIUM, 

retention  of,  wlien  cancellation  effected  by  company, 170. 

PROTECTION  AND  SEPARATION 

of  damaged  and  undamaged  property 667. 

PROVISIONS  OF  POLICY, 

relative  to  forfeiture,  how  construed 178. 

PSYCHOLOGY  OF  LOSS  ADJUSTMENTS,  THE, 

essay  entitled,  by  George  R.  Branson,  Esq 579. 

PUBLIC   ADJUSTERS,    573. 

PUBLIC  POLICY, 

as  8,ffecting  the  right  of  the  insured  to  double  Indemnity 630. 

as  affecting  the  right  of  the  mortgagee  to  double  indemnity 633. 

QUALITIES, 

essential  to  adjuster,   600. 

QUANTITY, 

involved  in  determination  of  value  of  hazard,  129,  417. 

QUARTERIDGE,    6. 

QUEEN  ELIZABETH 73. 

RALEIGH,  SIR  WALTER 73. 

RATE, 

upon  what  should  it  equitably  depend, 700. 

RATIFICATION 

after  loss,  191,  728. 

absence  of  mutuality  in,   191. 

held  invalid  in  some  jurisdictions,  197. 

not  confined  to  marine  insurance 193. 

suggested  limitation  on  doctrine,   194. 

as  affecting  agency 642. 

custom  of  trade  as  dispensing  with,  727. 

doctrine  of,  727. 

implied,    195. 

must  be   complete, 196. 

must  occur  a  reasonable  time  after  knowledge  of  the  insurance,  728. 
no  question  of,  arises 

when  bailee  is  legally  liable  to  bailor  for  fire  damage, 727. 

^909 


The  Fire  Insurance  Contract 

RATIFICATION— Conimwed 

when    bailee    has    agreed    to    procure    insurance    for    owner's 

benefit,    727. 

of  cancellation, , 195. 

of  substitution,    195. 

of  unauthorized  act  of  agent,  191. 

READING  RULE 

of  non-concurrent  apportionment 544,  545. 

modification  of 546. 

REAL  ESTATE  TAXATION, 

valuations   for,    698. 

REAL  PARTY  IN  INTEREST 

may  sue  or  be  joined  as  party  plaintiff, 695. 

REAL  PROPERTY, 

under  what  circumstances  may  it  be  sold,  mortgaged,  or  leased 
by  fiduciaries  or  personal  representatives,  683,  684. 

REASONABLE  TIME  ' 

to  make  replacement  under  new  standard  policy, 43,     45. 

within  which  to  give  notice  of  loss 314. 

REBUILD, 

election  to,  as  giving  rise  to  building  contract,  331. 

RECEIVER, 

examination  under  oath  by,  in  bankruptcy  proceedings,  32G. 

mere  appointment  of,  does  not  effect  a  change  in  title,  etc 145. 

RECOGNITION 

of  liability  as  waiving  proofs  of  loss  or  creating  an  estoppel, 321. 

RECONSTRUCTION 

without  abatement,  unless  special  agreement  entered  into, 361. 

RECORDS 

of  assured  as  establishing  amount  of  stock  destroyed  beyond  iden- 
tification,   417. 

RECOVERY, 

barred  by  fraud, ; 131. 

REDEMPTION, 

until  period  for,  expires,  no  change  of  title  effected  by  sale  upon 
execution,    145. 

REDUCED  RATE  AVERAGE  CLAUSE, 705. 

REFEREE, 

appointment  of,    361. 

REFORMATION 

of  policy,  .^ 238. 

910 


TopiCAT,  Index 

REFUND 

of  duties  on  goods  destroyed  while  in  bonded  warehouse, 801. 

REFRIGERATION  PLANT, 

injuries  to  goods  in,  as  fire  damage 272. 

REGISTERING 

of  insurance  contracts, 73. 

REINFORCED  CONCRETE, 

as  basic  material  of  walls  in  buildings, 368,  369. 

REINSURANCE, 

non-application  of  one  year  limitation  to  policy  of,  80. 

RELATION 

back,  doctrine  of 191. 

of  adjuster  to  the  insured,  the  public  and  his  principal, 579. 

REIJITIVE, 

magistrate  making  certificate  may  not  be,  of  insured, S23 

RELEASE, 

giving  of  conditional  release  does  not  impair  subrogation  right,  . .  636. 
giving  release  to  party  primarily  responsible  as  relieving  Insurer,  635. 

of  claim  by  bailee  will  not  prejudice  bailor 727. 

of  insured,  as  to  satisfactory  nature  of  repairs, 361. 

of  insurer,  whether  secured  by  single  endorsement  or  joint  draft,  809. 

of  railroad  company  or  tort-feasor, 811. 

safeguard  to  company  in  making  payment, 809. 

securing  of,  from  mortgagee,  inconvenient,  810. 

REMOVABLE  TRADE  FIXTURES, 

what  are, 351. 

REMOVAL, 

'■Abandonment,  Protection  and  Removal, 

essay  entitled,  by  Frederick  B.  Campbell,  Esq.,  , 240. 

as  causing  fire  loss, 260,  269. 

of  goods, 

for  better  protection,   424. 

from  premises  endangered  by  fire, 

clause  in  new  standard  policy  relating  to 46 

to  be  conditioned 424. 

of  perishable  goods 416. 

of  salvage,   589. 

RENTS, 

defined, 748 

Use  and  Occupancy,  Profits  and  Commissions,   Rents  and  Lease- 
hold Insurance, 

essay  entitled,  by  Leo  Levy,  Esq 744,  751 

with  relation  to  use  and  occupancy  insurance 737. 

REPAIRS, 

by  insurer  instead  of  lessee, ,  .850. 

911 


The  Fire  Insurance  Contract 

REPAIRS— Continued 

clause  relating  to,  in  old  and  new  policies  compared,  51. 

made  by  mutual  agreement,  361. 

making  of,  a  waiver  of  coinsurance, 361. 

provision  for,  inserted  in  standard  fire  policy,  29. 

required  by  municipal  laws,   353. 

REPAYMENT 

of  unearned  premium  essential  to  cancellation, -. 171. 

replacement 

cost, 

as  not  coinciding  with  original  cost  of  merchandise 417 

use  of.  In  determining  value,   86. 

variation  in,  according  to  status  of  insured, 421. 

limitation  of  indemnity  to,  under  new  standard  policy,   43. 

of  property  with  material  of  like  kind  and  quality 41'J. 

values  of  machinery,   380. 

REPORTS. 

daily,  of  cotton  under  policies,  507. 

representation, 

defined. 104. 

REQUIREMENTS 
in  case  of  loss. 

clause  relating  to,  in  old  and  new  policies  compared.  63. 

RESOURCEFULNESS, 

as  quality  of  an  adjuster,   303. 

RESTORATION 

of  vuiious  kinds  of  gooda  after  a  fire,  404,  407,  410. 

RESUMiu, 

due  diligence  required  by  use  and  occupancy  policies  in  resum- 
lug  operations.    7G7. 

RETENllON 

of  informal  proof  of  loss  as  waiver 316. 

of  proofs  of  loss  as  waiver.  320. 

of  pro  rata  premium  under  cancellation  clause,  170. 

RETURN 

of  unearned  premium, 184. 

REVENUE  STAMPS. 

redemption  of,  by  U.  S.  Government,  when  unused,  626. 

REVERSION 

of  fixtures  to  owner,   351. 

REVISION 

of  New  York  standard  fire  policy,  42. 

RICE  RULE 

of  non-concurrent  apportionment,   544,  552. 

912 


Topical  Index 
richards,  e.  g.,  esq., 

paper  by,  referred  to,  698 

RICHARDS,  GEORGE,  ESQ., 
essays  by,  entitled 

"Fundamentals  in  the  ,Law  of  Insurance  and  Why  Adopted,"  72 
"The  Doctrine  of  Subrogation  in  its  Practical  Application  to 

Insurance,"   602 

on  Insurance 

quoted  on  early  fire  policies,   20 

quoted  on  vendee  under  executory  contract,   803 

RIDERS, 

New  York  Board  of  Fire  Underwriters  authorized  to  make  addi- 
tional riders,    40 

to  standard  policy,  written 35 

RIGHT 

of  action  vesting  in  personal  representative,  685,  686 

of  subrogation, 

liberal  construction  of,    627. 

RIGHTS 

of  insurer  and  insured  coextensive  under  subrogation,  621 

ROBB,  WILLIS  0.,  ESQ., 

essays  by,  entitled  "The  Appraisal," 333. 

"The  Chief  Factor  in  Fire  Loss  Adjustments,"  290. 

ROCCUS, 

quoted,    276i 

ROLLS, 

printing,  damage  to,   397. 

ROOFING, 

computation  of  value  of, 370. 

ROYAL  EXCHANGE 73 

RUBBER 

belts,    restoration    of,    410. 

condition  of,  as  indicative  of  degree  of  heat,  396. 

RUBBISH, 

left  on  premises  as  no  increase  of  risk,  123 

under  stairs  or  in  hallway,   367. 

RULING  CASE  LAW, 

authorities  on  unprovable  claims  against  insolvent  companies,   ..184 

RULINGS  OF  COURTS, 

not  to  be  ignored,   7d 

RUMSEY,    DAVID,   ESQ., 

as  compiler  of  new  standard  fire  policy 74 

cooperates  with  committee  of  his  commissioners 42 

913 


The  Fire  Insurance  Contract 

DAVID  RUMSEY,  lESQ.— Continued 

essay  by,  entitled  "The  New  Standard  Fire  Insurance  Policy  of 
the  State  of  New  York," 41. 

RUSSELL,  HON.  CHARLES  H. 

introduces  in  senate  the  bill  for  standard  fire  policy 21. 

RUST, 

removal  of, 

from  cast  iron,   407. 

from  steel  and  iron  bars,  402. 

SALARIES, 

how  covered  by  U  &  O  policies, 767. 

SALE. 

bargain  and  sale  distinguished  from  contract  to  sell,  494. 

in  foreclosure  does  not  violate  alienation  clause 147. 

upon  execution  does  not  work  a  change  of  title  until  period  for 
redemption  expires,  145. 

SALVAGE, 

as  a  result  of  settlement 351. 

not  an  object  thereof 351. 

cotton, 

handling  of,   523. 

removal  of,  as  function  of  Fire  Patrol 589. 

sale  of,  not  consented  to  until  sound  value  determined 424. 

secured  by  immediate  action  in  case  of  perishable  stocks,  416. 

SALVAGE  BUSINESS, 

originally  in  hands  of  person  close  to  the  Patrol  Committee,   ....  589. 

SALVAGE  COMPANIES, 

privately  organized  for  handling  damaged  merchandise,   568. 

SALVAGE  OPERATIONS, 

as  affording  opportunities  for  graft,   568. 

making  for  economy  under  regime  of  Loss  Committee 569. 

SALVAGE  OPERATOR, 

services  of,  as  assistance  to  adjuster,  424. 

SAMPLE   FORMS,    818-826. 

SATISFACTION    PIECE, 

obtained  by  adjuster  from  assured 361. 

SCHEDULE, 

valued  articles  insured  under  a 88. 

SCHOOL  HOUSES, 

plastering   in,    378. 

SCRAP, 

salvage  of,  by  U.  S.  Navy,  . '. 384. 

914 


Topical  Index 
seating  fixtures, 

whether  included  in  'permanent  fixtures,'  287. 

SEAWORTHINESS, 

warranty  of,  what  demanded  by,  78. 

SECOND  MORTGAGEE,  (see  Mortgagee)    217. 

SECRETARY  OF  LOSS   COMMITTEE, 

supervision  of  contracts  by, 569. 

SELECTION 

of  risks  in  use  and  occupancy  insurance, 740. 

SEPARATION 

of  damaged  from  undamaged  property  a  condition  precedent  to 
recovery,    246. 

SERVANT, 

personal  property  of,  covered  by  household  furniture  form, 799. 

SET-OFF 

of  one  risk  against  another  not  permitted,  128. 

SETTLEMENT 

between   assured    and   company   will   not   cut   off   bailor's   rights 

under  commission  clause,   727. 

"The  True  Purpose  of  the  Loss  Settlement," 

essay  entitled,  by  Allen  E.  Clough,  Esq .275. 

SETTLEMENTS, 

instead  of  adjustments 567. 

SEWING  MACHINES, 

cost  to  reproduce  as  actual  cash  value  of,   815. 

damage  to 397. 

SHALLCROSS,  CECIL,  ESQ., 

as  compiler  of  new  standard  policy ^ 74. 

cooperates  with  committee  of  Insurance  Commissioners 42. 

SHARP  ADJUSTMENTS, 

as  poor  investments,    351. 

SHIP'S    HUSBAND,    193. 

SHOE  AND  LEATHER  INS.  CO.  OF  BOSTON, 

policy  of  1873  of,   14,    15,     16. 

SHORING, 

as  function  of  Fire  Patrol,  689. 

SIGNATURE 

of  agreement  for  appraisal 339. 

of  payee  to  appraisal  agreement, 

advisability  of  obtaining,    361. 

to  proof  of  loss  under  hand  of  assured, 

insurer  entitled  to,   318. 

915 


The  Fire  Insurance  Contract 

SILENCE, 

as  actual  or  constructive  fraud,   118. 

SILVER, 

corrosion   of,    390. 

SINGAPORE, 

mentioned  in  warranty 73. 

SKYLIGHT, 

computation  of  value  of,  in  fireproof  buildings,  370. 

SMITH,  ADAM, 

quoted 276. 

SMOKE, 

damage  from,  as  fire  loss, 

when  resulting  from  friendly  fire, 257. 

when  resulting  from  hostile  fire, 260. 

"SOLD  BUT  NOT  DELIVERED," 

as  words  adding  nothing  to  the  coverage  of  the  policy,  717. 

"SOLD  BUT  NOT  DELIVERED  OR  REMOVED," 

of  no  special  significance  in  present  day  underwriting,  717. 

SOLE  AND  UNCONDITIONAL  OWNERS, 

cannot  be  two  at  the  same  time. 803. 

SOLE  AND  UNCONDITIONAL  OWNERSHIP, 

change  of,  as  increasing  hazard,    ; 119. 

requirement   of,    119, 

SOLVENCY 

of  coinsurers, 

clause  relating  to,  inserted  in  standard  policy,  32. 

SON, 

burning  of  property  of  father  by,  no  defense,   253. 

of  insured, 

examination  of,  under  oath, 325. 

SOOT, 

burning  of,  as  hostile  fire, 257. 

SOUND  VALUE, 

agreement  regarding,  to  be  made  simultaneously  A\ith  thr.t  as  to 

loss, 362. 

ascertainment  of,  as  regards  non-perishable  goods,   416. 

fixed  by  award  of  appraisers,   362. 

must  be  fixed  prior  to  ascertainment  of  loss,  423. 

of  buildings  by  cubic  foot  estimates,  371. 

SOWERS,  FRANK,  ESQ., 

essay    by,    entitled    "Concealment,    Misrepresentation,    Fraud    or 
False  Swearing," 96. 

916 


Topical  Index 
special  agents, 

acting  as  adjusters  for  indlvi-'ual  companies, .5%7. 

SPECIAL  AGREEMENT 

of  assured  to  contribute  to  cost  of  repairs, 361. 

SPECIAL  INVENTORY 709. 

waiver  of,  in  5%  clause,  362. 

SPECIAL  WARRANTY, 

added,  to  policy  of  marine  insurance,  73. 

SPECIFICATIONS, 

furnishing  of,  a  requirement  of  standard  fire  policy, 314,  323. 

SPECIFIC   INSURANCE, 
requirement   of, 

as  to  cotton 488. 

as    to    designs,    dies,    drawings,    lithographic    plates,   models, 
moulds,  patterns  and  photographic  negatives,   806. 

SPECIFIC  KNOWLEDGE, 

us  subordinate  to  general  jucgment, 294. 

SPECIMEN  FORMS 818-826. 

SPONTANEOUS  COMBUSTION, 

caused  by  oily  rags, 367. 

SPRINGS, 

temper  of,  as  affected  by  heat,  391. 

SQUIB  CASE, 

discussed,   262. 

STANDARD   FIRE   POLICY, 

agents   not  such   unless   authorized, 

provision  to  this  effect  inserted  in,  32. 

bill  for, 

amended,   34. 

passed, 25. 

broker  not  necessarily  agent  for  insured, 

provision  to  this  effect  inserted  in, 

cancellation  clause  inserted  in,   29. 

cash  value, 

provision  relating  to,   85. 

clause 

against  waiver 321. 

exempting  from  loss  by  gun-powder,  etc 261. 

relating  to  mortgagee's  interest,    202. 

relative  to  appraisal 334. 

requiring  insured  to  save  and  preserve  property,   ...253. 

concealment,  misrepresentation,   fraud  and  false  swearing,  provi- 
sion regarding,    96. 

917 


The  Fire  Insurance  Contract 

STANDARD  FIRE  FOIACY— Continued 

conditions  to  be  complied  with  after  loss '.*14. 

conditions,  violation  of  which  terminate  insurance, 

comparison  of,  with  those  of  new  standard  policy, 49. 

defect  in  appraisal  provision  of 337. 

explosion   exemption   clause   of,    265. 

five  day  clause  of,  discussed,   248. 

"indemnify"  suggested  as  substitute  for  "insure"  in,  27. 

"insured"  substituted  for  "assured"  in, 30. 

inventory   required   by,    315. 

its  importance 20. 

lines  of  old  policy  compared  with  corresponding  lines  of  new 

policy, 47-65,  555. 

38-44,    744. 

56-59,  202,  205,  208. 

omitted  in  California, 208. 

60-112, 

whether  binding  mortgagee,   210. 

mortagee  under,    210,   212. 

Origin  of, 

essay  entitled,  by  Elijah  R.  Kennedy,  Esq 20. 

place  of  risk  confined  to  place  defined  in  policy, 28. 

provision  of, 

against  hostile  construction  by  courts,  32. 

excluding  liability   on   account  of   increased   cost  in  certain 
cases,   88. 

relating  to  fallen  building, 32. 

relating  to  loss  by  order  of  civil  authority 353. 

reinsurance  provision  of,  33. 

requirements  of,  after  loss, 314. 

should   contain  subrogation   provision  to  eliminate 

all  ambiguity,    633. 

to  be  interpreted  by  ordinary  rules  of  contract  construction, 177. 

topical  headings  omitted  in,  30. 

twelve  months  limitation  of,  330. 

umpire, 

provision  for,  inserted  in,   31. 

uniformity  enjoined  by,   817. 

Tarious  lines  of, 

discussed,   639-682. 

waiver  clause  of,   654. 

warranty  to  include  misrepresentation  in,   105. 

STANDARD  MORTGAGEE  CLAUSE, 61. 

cancellation    of, 
contribution  under, 
discussed, 
mortgagee  under, 

free  of  provisions  for  conduct  after  loss,  212. 

riaether  bound  by  average  or  coinsurance  clause, 209. 

918 


Topical  Index 

STANDARD  MORTGAGEE  CL.AUSE— Continued 

origin   of, 201. 

terms  of 201. 

varieties  of 201. 

with  contribution, 

disuse  of  in  New  York 211. 

unfair  to  mortgagee 205. 

without  contribution, 

discussed,    233. 

with  reference  to  proofs  of  loss 317. 

STANDARD  TIME, 

defined 58. 

STAPLE   PRODUCTS, 

value  of,  how  determined .^ 91. 

STATEMENT 

to  bank  or  mercantile  agency  as  establishing  starting  point 420. 

STATUS 

of  assured  as  affecting  replacement  cost 421. 

STATUTE  14  GEORGE  III, 

adopted  in  England  in  1774 140. 

prohibition  of  wager  policies  thereby, 140 

STEAM, 

heat  from,  as  fire 254,  256. 

STEAM  ENGINES, 

depreciation  of 383. 

STEAM  POWER  PLANTS, 

depreciation  of, 383. 

STEEL, 

corrosion   of,    388. 

prevention  of  further  loss  to,  after  fire,  400. 

temper  of,  390. 

STEEL  CHIPS, 

liability  of,  to  burn,  413. 

STIPULATION 

against  change  in  interest,  title  or  possession  void  unless  properly 

endorsed 803. 

avoiding  policy, 

binding  chairacter  of,  121. 

between   owner   and   carrier  applies   to   any  suit   brought   in   the 

right  of  the  owner,   623. 

expressed  in  policy  as  changing  ruling  of  the  court 623. 

fixing  value  for  which  carrier  shall  be  responsible,   623. 

in  bill  of  lading  that  carrier  shall  have  the  benefit  of  insurance, 

held  valid  by  U.  S.  Supreme  Court 806. 

919 


The  Fire  Insurance  Contract 

STIPU'LATION— Continued 

making  value  of   goods   at  the   time   and  place   of  shipment   the 

measure  of  carrier's  liability G23. 

requiring  claim  to  be  made  against  carrier  within  three  months,  623. 

STOCK, 

effect  of  this  word  in  U.  &  0.  policies 760. 

impossibility  of  identification  of,   417. 

inclusion  of,  in  use  and  occupancy  Insurance 762, 

non-perishable,    416. 

perishable,    416. 

what  included  in  the  term,   415. 

STOCK   DEBRIS, 

estimate  for  removal  of, 378. 

"STOCK  IN  SIGHT," 

amount  of,  shown  by  inventory,   ; 417. 

as  a  deduction  from  value  of  stock  shown  in  books  of  assured,  417. 

STOCK  INVENTORY, 

made  by  assured,   417. 

verified  by  adjuster,   417. 

STOCK    LOSSES,    ADJUSTMENT    OF, 

~  essay  entitled,  by  D.  C.  Brown,  Esq.,   415. 

STOCK  ON  HAND, 

as  ascertained  from  profit  ratio,  418. 

as  represented  by  inventory,  418. 

estimation  of,  by  deduction  of  profit  from  sales, 420. 

STOLEN  GOODS,  . 

whether  covered  by  the  policy 588. 

STONE  WORK,  . 

when  chipped  can  be  repaired, 863. 

STORAGE 

of  dynamite 124,  125. 

of  explosives, 

prohibition  of 119. 

STRICT   COMPLIANCE 

of  five  days'  notice  provision  may  be  waived, 179. 

STOVE, 

fire  in,  as  hostile,  258. 

prevention  of  further  damage  to,  after  fire,   402. 

STRUCTURAL  STRENGTH 

of  building,  weakened,   366. 

SUB-CONTRACTOR, 

estimates  of,  as  to  items 375 

920 


Topical  Index 
subrogation, 

according  to  doctrine  of,  insurer  is  entitled  to  all  rights  and 
remedies  which  mortgagee  had  against  property  under  his 
mortgage,    625, 

according   to   doctrine   of,  insurer   only  takes   rights   of   assured, 

arises  in  favor  of  insurer,  618. 

when    mortgagee   independently    of    owner  takes    out   in- 
surance,    633. 

when  mortgagee   takes  out   insurance   with   loss  payable 
to  himself  as  appointee,    633. 

as  a  doctrine  of  substitution,  617. 

as  affected  by  enlargement  of  mortgagee's  interest,    221. 

as  affecting  mortgagee,    231. 

as  applied  to  insurance,    602. 

as  applied  to  suretyship 602. 

as  mode  which  equity  adopts  to  enforce  payment  of  a  debt, 617. 

clause  relating  to,  in  old  and  new  policies  compared, 69. 

common  law  right  of,  may  be  waived,  637. 

contribution  between  iuF^ire^  and  insured  of  subrogation  funds,  615. 

conventional  subrogation  Joes  not  arise  from  operation  of  law 
but  from  express  or  implied  contract,   618. 

denned 602.  617. 

doctrine  of,  a  pure  unmixed  equity 617. 

doctrine  of,  must  be  considered  in  light  of  peculiar  circumstances 
of  each  case,   ' 638. 

enforcement  of,  depends  upon  circumstances  of  each  particular 
case 620. 

essay  entitled,  by  W.  H.  Van  Benschoten,  Esq.,  617. , 

exists  where  recovery  is  claimed  by  virtue  of  a  statute 619. 

flows  to  insureir  against  municipality,  where  less  arose  from 
action  of  civil  authorities,   625. 

founded  in  principles  of  natural  justice 617. 

includes  tort  and  contract  claims, 604. 

instances  where  the  right  arises,  621,  622. 

insurer  deprived  of  right  of,  811. 

effect  thereof,    811. 

insurer  desirous  of  availing  itself  of  right  must  make  payment 
of  mortgage  debt  in  full 634. 

insurer  entitled  pro  tanto  to  the  mortgage  security  as  against 
mortgagor  under 625. 

is  application  of  equity,  620. 

legal  and  conventional  617. 

may  coexist 620. 

no  general  rule  can  be  laid  down  with  regard  to,  638. 

none  to  gifts 608. 

none  when  distilled  spirits  are  destroyed  without  negligence, 800. 

none  when  vendee  discharged  from  liability  to  vendor  by  occur- 
rence of  fire,   635. 

none  where  vendee  under  executory  contract  of  sale  maintains 
insurance  for  vendor, 635. 

921 


The  Fire  Insurance  Contract 

SUBROGATION— Cowiinwed 

no  right  of,  in  favor  of  insurer  where  mortgagee  is  merely  ap- 
pointee of  insurance  taken  out  by  mortgagor 634. 

no  right  of,  in  Massachusetts,  unless  express  provision  in  policy 

therefor,    634. 

not  permitted  where  against  public  policy,  620. 

passes  all  insured's  rights,  privileges  and  remedies  against  party 

primarily  liable,   621. 

prohibition  against  alienation  of  right  of,  609. 

provision  regarding  should  be  inserted  in  standard  policy 633. 

right   of 76. 

against  defendant   tortfeasor   unquestioned,    619. 

cannot  be  defeated   because  insurer  a  member  of  a  trust  or 

combination  in  violation  of  statute 620. 

cannot  be  defeated  because  policy  might  have  been  contested 

by  insurer 620. 

nor  because  insurer  had  not  complied  with  statutory 

requirements 620. 

cannot  be  defeated  because  risk  negligently   assumed  by   in- 
surer,     620. 

cannot  precede  full  indemnification  of  assured,   621. 

does  not  accrue  until  loss  has  occurred 635. 

nor   until  payment  of  loss 635. 

does  not  depend  upon  contract 633. 

is  not  affected  by  giving  of  conditional  release  to  party  pri- 
marily responsible  by  assured,   635.' 

may   be    defeated    by    express    contract    between    owner    and 

carrier,    623. 

time  of  determination  of 609. 

"The  Doctrine  of  Subrogation  in  its  Practical  Application  to  In- 
surance," 

essay  entitled,  by  George  Richards,  Esq.,   602. 

to   a   lien    where    subrogee    discharges    lien    to    protect    property 

interest 618. 

to  claim  against  common  carriers, 602,  604 

to  contract  rights   (N.  Y.  rule)    609. 

to  executory  contracts  of  sale 605. 

to  leases,   605. 

to  mortgages,  604. 

to  negligence  claims 602. 

to  tenant's  covenant  to  repair 605. 

to  vendor's  rights  against  vendee 605. 

SUBROGEE, 

insurer  as,  has  only  rights  of  insured 621. 

SUBSTANTIAL  COMPLIANCE, 

doctrine  of,    78. 

in  building  contract 79. 

in  case  of  a  lease, 79. 

922 


Topical  Index 

substitution, 

considered  as  a  single  act 195,  196. 

making"*  of  proof  to  both  companies  involved  in 195. 

ratification  of,   195. 

SUBURBAN  DISTRICTS, 

frame  buildings  in 369. 

SUFFERER, 

fraud  or  perjury  of, 6. 

to  make  oath  before  Master  in  Chancery,  6. 

SUGAR, 

form  of  insurance  on, 815. 

SUIT, 

provisions  relating  to  in  old  and  new  policies  compared 68. 

when  maintainable,   328. 

SULPHURIC  ACID, 

used  to  destroy  garments 598. 

SUNDAY, 

Inclusion  or  exclusion  of  Sunday  in  cancellation  notice, 176,  178. 

SUPERINTENDENT  OF  BUILDINGS, 

plans  and  specifications   submitted  to,    369. 

SUPPLIES, 

term  should  be  employed  only  where  intended 807. 

SURRENDER   OF   POLICY, 

by  insured  to  company  as  waiver  if  not  ignorant  of  his  riglits,  . . .  .179. 
whether  necessary  to  cancellation  by  insured 172. 

SURVEYOR  PERIOD, 

passing  of ^ 589. 

SURVEYORS, 

adjustments  made  by, 587. 

SWEARING, 

"Concealment,  Misrepresentation,  Fraud  or  False  Swearing," 

essay  entitled,  by  Frank  Sowers,  Esq.,  96. 

provision  regarding.  In  standard  fire  policy 96. 

SWEATING 

of  brass,  bronze  and  composition  castings,  399. 

SYSTEM  OF  ADJlTSTMENT, 

mathematical  and  scientific  accuracy  of,  415. 

TANNERIES, 

form  of  insurance  of,   815. 

stock  in . .         815. 

923 


The  Fire  Insurance  Contract 
tar  barrel  case 124. 

TAXATION,  n 

principle  of,  as  analogous  to  coinsurance,  698. 

TEMPER 

of  metals,    300. 

of  steel, 

damage  to,    391. 

TEMPORARY 

increase  of  physical  hazard  as  ground  of  forfeiture,  12G. 

repairs, 

allowed  only  if  urgent, ; 359. 

TEMPTATION 

of  insured  to  burn  his  own  property 129. 

TENANT, 

subrogation  to  covenant  to  repair  of,  ." G08. 

TENDER 

of  intervening  liability  unnecessary,  173. 

of  unearned  premium, 

as  regards  mortgagee 230. 

form    of, .174. 

provision  relating  to,  in  new  standard  policy,   57. 

TENEMENT  HOUSE  LAW,   368. 

TENTERDEN,  LORD, 

ruling  of,  in  Tar  Barrel  Case,   124. 

TERMS, 

railroad  and  commercial,  explained,   487. 

TERRA-COTTA, 

as  material  for  floorfilling 368. 

THEFT, 

.  as   causing  fire   loss,    260,    269. 

loss  by,  not  covered,    248. 

THIRD  PARTY, 

burning  of  property  by,  no  defense,   '. .  .253. 

"THIS  ENTIRE  POLICY  VOID" 

construction  of   words,    808. 

THRESHING    MACHINE,    125. 

TILING, 

computation  of  value  of,  in  fireproof  buildings,    370. 


TIME. 


computation  of,  in  determining  when  cancellation  effective 175. 

standard, 

defined,    58 

924 


Topical  Index 

TIN, 

cleaning  of 405. 

TITLE,  (See  Ownership) 

appointment  of  receiver  in  brankruptcy  does  not  elfect  a  change  of,  145, 
appointment  of  trustee  in  bankruptcy  does  effect  a  change  of,  145, 
assignment  by  insured  for  benefit  of  creditors  effects  a  change  of,  145. 

sale  in  foreclosure  does  not  effect  a  change  of,  147. 

sale  upon  execution  of  real   estate   does  not  work   a   change  of, 
before  expiration  of  period  allowed  for  redemption 145. 

"TO  AN  AMOUNT  NOT  EXCEEDING." 

as  defining  cover  of  policies,    555. 

TOOLS, 

prevention  of  further  injury  to,  after  fire,   403. 

restoration    of,    404. 

temper  of,  as  affected  by  heat, 391. 

TOTAL  LOSS, 

appraisal  of 338. 

"TOTAL  LOSS  AND  MISSING," 

as  item  involved  in  most  stock  losses,  417. 

inflation  as  part  of 419. 

reasonable  nature  -of  claim  as  to,   419. 

reference  to  phrase 417. 

TORT  FEASOR, 

who  makes  payment  to  insured,  knowing  insured   has  collected 
in  full,  cannot  defend  against  insurer,  G3G. 

TOUR  DE  FORCE 

legal,  illustration  of,  173. 

TOW, 

liability  of,  to  bum,   413. 

TRADE 

fixtures, 

no  liability  for,  when  installed  by  tenant,   351. 

what  considered  as,    351. 

understandings,    7g 

usage 72. 

TRANSFER, 

if  colorable  to  defeat  claims  of  creditors  will  void  the  policy 147. 

without  consideration,   analogous  to   unexecuted   gift,  and    of   no 
legal   effect 147^ 

TREASURY  DEPARTMENT, 

well  settled  policy  of,  with  reference  to  Section  2984  of  the  Re- 
vised  Statutes 8Q2^ 

TRUE  PURPOSE  OF  THE  LOSS  SETTLEMENT,  THE, 

essay  entitled,  by  Allen  E.  Clough,  Esq., 275. 

925 


i 


The  Fire  Insurance  Contract 

TRUST 

can  only  arise  through  the  Intent  of  person  creating  or  declaring 

it,    718. 

distinguished  from  a  bailment,    719. 

TRUST  CLAUSE, 

insertion    of,   in   an   insurance   policy,    strong   probative   evidence 
that  insured  intended  to  cover  merchandise  of  another,  723. 

TRUSTEE, 

customary  for  trustee  to  insure  trust  property  in  his  own  name,  719. 

in  bankruptcy,  appointment  of,  as  effecting  change  in  title,   145. 

insured  as  trustee  for  insurer  upon  payment  of  loss,  635. 

legal  sense  of  the  word  as  one  who  holds  legal  title  to  propt.rty 

for  another's  use,    718. 

of  an  express  trust,  who  considered,  695. 

of  goods  held  in  trust  may  accept  notice  of  cancellation  as  agent 

for  beneficiaries,    181. 

TRUSTEESHIP, 

two  elements  necessary  to  establish  a,  718. 

TRUST  OR  BAILEE  CLAUSE, 

as  appropriate  description , ....'..  717. 

TWELVE    MONTHS    LIMITATION, 
as  applying  to 

contract  to  rebuild,  331. 

loss  payable  clause,   332. 

mortgagee,    331. 

UBERRIMA   FIDES, 

required  in  insurance 277. 

UMPIRE, 

appointment  of,  by  appraisers, 362. 

authority  of,    362. 

function  of,  to  pass  upon  questions  regarding  which  appraisers 

cannot  agree  not  to  review  what  appraisers  have  agreed  upon,  363. 
provision  for,  in  standard  fire  policy,  31. 

UNAUTHORIZED    ACT   OF  AGENT, 

ratification  of 191. 

UNCOLLECTIBLE, 

large  p^rt  of  loss  sometimes  uncollectible  by  reason  of  co-insurance 
conditiDns, 799. 

UNDERWRITER, 

entitled    to   every   right   of   assured    according   to   Castellain   v. 

Preston 627. 

when  fraudulent  for  underwriter  to  accept  premium,  75. 

926 


Topical  Index 

underwriters, 

early  underwriters  at  mercy  of  applicant 74. 

UNDERWRITING    RECOMMENDATIONS 

of  surveyors  accepted  by  underwriters,  587. 

UNEARNED    BENEFITS, 

return   of,    170,   171. 

UNEARNED  PREMIUM, 

return  of,  a  condition  precedent  to  cancellation,  171. 

tender  of, 

provision  relating  to  in  new  standard  policy 57. 

UNIFORM  BILL  OF  LADING, 

adopted 805. 

provision  of,  relating  to  carrier  having  benefit  of  insurance, 805. 

UNIFORM  RULE 

of  cancellation  required  by  public  convenience,  178. 

UNITED  STATES  GOVERNMENT, 

redemption  of  unused  revenue  stamps  by,  if  destroyed  by  fire,  626. 

UNOCCUPANCY, 

clause  relating  to,  in  old  and  new  policies  compared,  53. 

UNUSUAL 

circumstances, 

concealment   of,    99. 

kind  of  property  justifying  appraisal, 

UNUSUAL  AND  INTERESTING  FIRE  LOSS  CLAIMS, 

essay  entitled,  by  William  R.  Pitcher,  Esq.,   587. 

UNUSED  REVENUE  STAMPS, 

redeemable  by   statute 626. 

USE  AND  OCCUPANCY, 

a  form  of  insurance  analogous  to  rent  or  profit  insurance 813. 

defined,    747. 

discussed,   748. 

essay  entitled,  by  John  A.  Eckert,  Esq.,  733. 

essay  entitled,  by  L.  A.  Moore,  Esq 755. 

usually  involves  the  idea  of  earnings  and  profits 813. 

vagueness  of  the  term,  813. 

USE  AND  OCCUPANCY  INSURANCE, 

adapted  to  manufacturing  risks,  813. 

advantages  of,  to  insurance  company 742. 

against  public  policy  to  become  universal 813. 

bibliography  of, 743^ 

coinsurance  with  relation  to,   737^ 

fixed  charges  In,  as  resulting  in  double  insurance 762. 

fluctuation  of  product  in 736, 

917 


The  Fire  Insurance  Contract 

USE  AND  OCCUPANCY  INSURANCE— CoJifinwcd 

its  origin,   733. 

methods  of  computing  liability  in,  757. 

moral  hazard  in,    737. 

phrases  employed  in 735. 

actual  loss  sustained 757,  758. 

net  annual  profits,   757. 

production,    760. 

shall  be  liable  for  $ per  diem  for  each  working  day,  736. 

shall  be  liable      *  *  *     to  date  when  the  normal  production 
of  product  has  been  resumed   or  could   with    reasonable 

diligence    be    resumed,    736. 

shall  be  wholly  prevented  from  producing  finished  goods, 735. 

shall   be  wholly   prevented   from   producing  their  product  or 

conducting  their  business 735. 

rents,  profits  and  leasehold  interests  with  relation  to, 737,  741. 

selection  of  risks  in 740. 

should  be  granted  only  to  firms  of  highest  standing,  813. 

speculative  element  in, 741. 

stock, 

inclusion  of,  in, 762. 

supposedly  has  a  tendency  to  increase  the  moral  hazard, 813. 

valued   policies    in 737. 

USE  AND  OCCUPANY,  PROFITS  AND  COMMISSIONS, 
RENTS  AND  LEASEHOLD  INSURANCE 

essay  entitled,  by  Leo  Levy,  Esq.,   744. 

UTICA  CANNING  CO.  v.  HOME  INS.  CO., 

discussed 181. 

VACANCY, 

defined,    121. 

VACANCY  CLAUSE, 

as  guarding  against  increase  of  hazard,  119. 

VACANT  AND   UNOCCUPIED, 

no  increase  of  hazard  unless  both  conditions  prevail,  121. 

separate  meaning  of,    121. 

VALID  CANCELLATION, 

cannot  be  effected  without  return  of  unearned  premium,   171. 

VALUATION, 

for  purposes   of   insurance 699. 

for  purposes  of  taxation,    699. 

VALUE, 

Ascertainment  of  Machinery  Values  and  Losses, 

essay  entitled,  by  John  Hankin,  Esq.,   380. 

at  the  moment  of  fire  the  important  question,  415. 

determination  of, 

by  agreement, 416. 

92i< 


Topical  Index 

VALUE — Gontinxied 

l>y  appraisal,    416. 

measure  of, 

under  New  York  standard  fire  policy, 417. 

of  building, 

prerequisites   to   determination   of,    3G8,    370. 

of   insured   property, 

determination    of 417. 

involving   price,    417. 

involving  quantity 417. 

of  property,  as  limitation  of  indemnity  under  new  standard  policy,    43. 

replacement  value  of  machinery 380. 

"Value  and  Profits  from  Books  of  Account," 

essay  entitled,  by  James  A.  McKeuna,  Esq.,   426,  438. 

VALUE  AT  RISK, 

increase  of,  by  presence  of  a  number  of  guests,  799. 

VALUED  POLICIES,    278. 

compuslory 279. 

of  use  and  occupancy  insurance, 737,  750,  771. 

rule  of  Wisconsin  and  Missouri  pertaining  to, 88. 

VALVES, 

depreciation  of,  387. 

VAN   BENSCHOTEN,  W.   H.,  ESQ., 

essay  by,  entitled  "Subrogation,"  617. 

VARNISH, 

blistering  of,  as  Indicating  degree  of  heat,  394. 

VENDEE, 

in  actual  possession  regarded  as  equitable  owner 803. 

question  whether  vendee  must  complete  in  event  of  intermediate 

destruction  by  fire,   802. 

under  English  rule  regarded  as  equitable  owner,  whether  in  actual 

possession  or  not, 802. 

under  executory  contract  of  sale   entitled  to   benefit   of  vendor's 

insurance,  if  he  has  agreed  to  assume  expense  thereof,  635. 

under  executory  contract  of  sale  who  agrees  to  pay  and  does  pay 

expense  of  vendor's  insurance  receives,  benefit  of  insurance,  635. 

VENDOR, 

reta-inlng  legal  title  has  merely  a  lien  for  the  unpaid  balance 803. 

subrogation  to  rights  of,  against  vendee,  605. 

VENDOR'S  LIEN, 

insurance  of 804. 

VERIFICATION 

of  inventory  of  stock  by  adjuster,  417. 

VESSELS, 

description  of,  in  Lloyd's  Register,  74 

929 


The  Fire  Insurance  Contract 
violation 

of  a  condition, 

effect  of,  upon  individual  interests 808. 

effect  of,  upon  joint  interest,   808. 

VISITOR, 

personal  property  of,  covered  by  househould  furniture  form 799. 

VOID, 

policy  rendered, 

by  any  change  in  interest,  title  or  possession,  144. 

WAIVER,  (See  Estoppel)   647. 

as  applied  to 

notice   of   loss,    315. 

other  insurance 661. 

proofs   of   loss 320. 

time  of  filing  proofs  of  loss 318. 

signature  and  oath  to  proofs  of  loss 318. 

twelve  months'  limitation,   331. 

by  collection  of  premium  with  notice, 664. 

demand  for  appraisal,   673. 

demand  for  proofs  of  loss 672. 

denial   of  liability,    675. 

knowledge  of  fraud  or  false  swearing,   656,  661. 

making  of  endorsement  with  notice,  665. 

notice  of  cancellation  with  notice 664. 

notice  to  agent  of  violation  of  condition 664. 

offer  to  rebuild  or  replace,    678. 

promise  to  pay,  677. 

rejection  of  proofs  of  loss,   675. 

clause  relating  to  in  old  and  new  policies,  55. 

defined,    '. 658. 

distinguished  from  estoppel,  313. 

essay  by  W.  J.  Nichols,  Esq.,  entitled  "Waiver  and  Estoppel," 652. 

of  appraisal .* 669. 

defects  in  proofs  of  loss,  674. 

examination  of  books  of  account 669. 

examination  under  oath,   668. 

exclusions,    682. 

exemption  from  abandonment, 687. 

maturity,    680. 

notice  of  cancellation, 179,  196. 

notice  of  loss, 667. 

option  to  replace  by  appraisal,  346. 

proofs  of  loss 321,  674. 

return  of  unearned  premium,  174. 

right  to  take,  repair,  rebuild  or  replace, 678. 

strict  compliance,   179. 

various  policy  conditions 661-663. 

parol 81. 

930 


Topical  Index 
wallace,  judge, 

decision  of,  in  Schwarzschild  &  Sulzberger  v.  Phoenix  Tns.  Co.,  ...  38. 

WALLS, 

fall  of,  as  causing  fire  loss, 260,  268. 

included  in  foundation  walls  under  what  circumstances 377. 

WARRANTIES, 

examination  of 416. 

prepared    by   marine    underwriters    to    counteract    clause   in    the 
uniform  bill  of  lading,   805 

WARRANTY 

against  the  use  of  fireworks  on  premises 80. 

as  to  sole  and  unconditional  ownership, 144,  803. 

breach  of,   78. 

as  avoidance  of  policy 79,  80. 

as  ground  of  forfeiture 76. 

as  presenting  question  for  jury 125. 

construction  of,  for  the  court,   125. 

distinguished  from  misrepresentation,    104. 

doctrine  of,  in  insurance  law, 76,  78. 

of  cost  price,  79. 

of  relationship  in  accident  policy,  79. 

of  seaworthiness 78. 

ship  in  good  safety 73. 

ship  neutral,   73. 

ship,  various  warranties  with  regard  to 73,  78. 

WATER, 

damage  from,  as  fire  loss,  260. 

WEED,    SAMUEL    R.,    ESQ., 

essay  by,  entitled  "Former  and  Present  Day  Methods  of  Adjust- 
ment,"     567. 

WEIGHT, 

as  factor  in  determining  value  of  machine 380. 

WESTERN    MARINE    &    FIRE   INS.    CO., 

policy  of,  18, 

WHAT  IS   A  FIRE   LOSS? 

essay  entitled,  by  W.  N.  Bament,  Esq 250. 

WHISKEY, 

form  of  insurance  on,    gl5. 

value  of,  how  determined,  92. 

WIFE, 

burning  of  property  by,  no  defense 253. 

WILFUL 

withholding  of  information 99. 


931 


/ 


The  Fire  Insurance  Contract 

WILL, 

In  absence  of,  general  rule  of  descent  applies 683. 

WILLIAMS,  L.  C,  ESQ., 

essay  by,  entitled  "Cash  Value,"   84. 

WINDLE,   JOSEPH   J.,   ESQ., 

essay  by,  entitled  "Adjustment  of  Cotton  Losses  and  Cotton  Sal- 
vage Handling,"   444. 

WINDSTORM, 

damage  from,  not  included  under  damage  by  lightning, 356. 

WITHDRAWAL 

from  appraisal  of  appraiser,  umpire  or  party 343. 

"WITHIN  THE  KNOWLEDGE  OR  CONTROL  OF  THE  ASSURED," 

construction  and  enforcement  of  phrase, 122. 

not  applicable  to  temporary  repairs,  126. 

WOOD, 

increase  in  price  of, 371. 

WRECKER, 

criticism  of,  by  adjusters  frowned  upon, 589. 

WRITING, 

not  required  in  nominating  appraisers,  337. 

WROUGHT    IRON, 

prevention  of  further  loss  to,  after  fire,  400. 

temper   of,    390. 

YARD   FIXTURES, 

not  covered  under  building  poK^'y,   353. 


932 


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